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The Point

Demand for large law firm services, after recovery from 2020’s Covid-induced setbacks to the economy, led to eye-popping rate rises in 2021, and record revenues for the firms.

Whatever market forces caused those rate increases and record revenues, they look like they may well be on the wane in Q42022. Large law firms’ recent, verifiable behavior reflects this.

Client companies should not hesitate to negotiate robustly with their law firms on rates. Beyond that, they should negotiate alternative fee arrangements based on mutually agreed value determined in advance of the work performed — not based on attorneys’ hours. Continue reading

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The Point

The conventional law firm — to maximize revenue — bills client companies hundreds per hour for the work of recent law graduates who are not yet capable of doing legal work unsupervised. (See here, here, and here.)

Accordingly, conventional business law firms — despite showcasing “innovation” specialists — actually resist cost-efficient, fast, and accurate process solutions and their enabling technologies to do routine, recurring, and lower-skill legal work. (See here and here.)

In commenting last week on EY’s incipient split (subscription) into distinct audit and consulting arms, Denton’s chair Joe Andrew offered three revealing observations (subscription) about deficiencies endemic to conventional law firms:

(1) Law firms as a category lag significantly in process-based solutions for client companies’ routine, recurring, and lower-skill legal tasks,

(2) This deficiency causes law firms to assign such routine, recurring, and lower-skill tasks to “young lawyers” as labor-intensive, “soul-crushing” work, and

(3) Law firms will not adopt needed process solutions on their own; only competitive pressure from outside the legal profession will bring this about (Mr. Andrew believes that it will come from the Big Four). Continue reading

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The Point

On September 19 Ron Friedmann, a highly regarded authority on law practice management processes and technology at Gartner, posed the following question to other legal experts on Twitter:

“If you could magically make stick one change in each of #BigLaw [large law firms] and corporate legal departments to improve them, what would it be and why?”

Alex Hamilton replied:

“Corporate legal department: only buy on fixed fees.

“Big law: the above will fix it“. Continue reading

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The Point

1. With the launch of its new “Precision Research” platform, Westlaw  promises to cut in half the time lawyers take to do their legal research, and offers more precise results.

2. Law firms bill hundreds per hour for legal research by junior / trainee associates who are only one, two, or three years past graduation. And most bills of better qualified law firm attorneys are on an hourly basis as well.

3. Cutting the time for that legal research time in half would cut the hourly bill for that legal research in half.

4. Cutting that bill in half would be good for client companies, especially in a recession. But, in the dysfunctional world of the billable hour business model, it would be deemed bad for law firms — and possibly a dubious move during a recession. Continue reading

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The Point

1. Responding to skyrocketing legal demands on business, the Legal function has two options:

(1) assign one or more lawyers, in-house or in a firm, to deliver legal expertise in one-off tasks (draft deal documents, court representation, counseling business people on how their actions are likely to be treated by courts or regulators), and

(2) use disciplined processes for systems that scale Legal’s capabilities in routine and recurring tasks (see further explanation here and here).

2. Law firms are organized to deliver only the first of the above two capabilities (though almost all law firms have long maintained technology-enabled processes for signing up new clients and matters, keeping track of time to be billed, and collecting their fees — i.e., to run their own businesses).

3. These days “CMS” is a hot topic: Many business enterprises are rethinking their “contract management systems” to improve creation, execution, analysis, and ongoing accessibility of their contracts.

4. Contract management systems can have a big impact on a company’s health — not least on accelerating the order-to-cash cycle. Continue reading

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The Point

ALSPs — alternative legal services providers — use sophisticated business processes and technology to perform routine, recurring legal tasks at lower cost, with greater speed, and more accurately than law firms and in-house departments can do with attorneys.

To Question 1:

Yes. Conventional wisdom says that a potential economic downturn is likely to prompt more use of ALSPs to save on Legal costs.

History supports this expectation. (“Producer prices in the legal services industry after the Great Recession”, Bureau of Labor Statistics, 2019).

To Question 2:

It’s more of a jump ball, longer term.

Because of ALSPs’ cost efficiencies, anyone who urges their adoption runs headlong into the law firms’ resistance: Those firms bill clients for services of recent J.D. graduates who are one, two, and three years out of law school . These juniors / trainees are not yet capable of doing sophisticated work on their own, but they can be deployed on routine, recurring law tasks — while their law firm / employers bill clients for such work at hundreds per hour.

That’s why the current usage rate for ALSPs is so low (see here and here).

On the other hand, paying juniors / trainees to do manually what ALSPs can do with their automated systems is a huge waste. Last week The American Lawyer (subscription required) observed:

“The combination of legal departments’ tighter budgets, an openness to explore alternative legal services born out of the pandemic and an increased maturity in [ALSP] services … has created a favorable environment for ALSPs’ market to grow.” Continue reading

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The Point

After an historic high number of law firm hours billed industry-wide in 2021, Q2 of 2022 has seen an historic year-over-year drop in those hours. This drop will likely cause major, near-term, upward price pressure on law firm rates.

Traditionally, general counsels, the practicing attorneys who run corporate law functions, mostly accept such rate increases (albeit with ineffectual grumbling).

Therefore, with inflation at the highest it’s been in decades, it’s going to be up to you as a business leader to step in and make sure that your company makes robust use of its purchasing power with those law firms. Continue reading

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 The Point

  1. Operational risk — the possibility that a business’ efforts might fail in their actual execution — poses the greatest peril to success of a company’s contracts.
  2. Operations take place outside of the corporate law function, so evaluation of the risks they pose should consist of practical judgments by businesspeople — not legal analysis.
  3. Therefore contract creation and management should be a cross-functional — not solely a Legal — responsibility.

Continue reading

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The Point

Under basic management disciplines:

  1. The customer learns the price they will pay in advance of the work being done.
  2. No one is assigned to do the work unless and until that person has been formally vetted as fully qualified to do the work.
  3. A one-person task is assigned to just one person.

The U.S. legal profession’s prevailing practices:

  1. Price is based on hours worked, so the customer can’t know what the price is until after the work has been done.
  2. Juniors / trainees are assigned to tasks and billed for hundreds per hour alongside attorneys who are fully qualified.
  3. Multiple lawyers are assigned to tasks, mixing fully qualified ones alongside juniors / trainees. This is an accepted revenue-enhancement strategy known as “associate leverage”.

The U.S. legal profession invokes what it calls “lawyer exceptionalism” to justify these departures from basic management disciplines, because, it contends, “Legal is different” from the other corporate functions and business units. Continue reading

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The Point

It’s considered a best practice among lawyers in-house to “manage” work relationships with their law firms by writing rules for them to follow. “Outside counsel guidelines” they’re called.

And they don’t work all that well as a substitute for more conventional management relationships. It’s common (subscription required) for in-house attorneys to review their law firms’ time entries in detail, and then complain to those law firms about departures from the outside counsel guidelines. With those law firms then having to respond accordingly. A chronic waste of everyone’s time.

Setting a fixed price upfront for a matter would eliminate the “need” for the business client to tell its law firms exactly how they must do their work on that client’s behalf, and avoid the related “need” for in-house counsel to audit their compliance. Continue reading

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