What the 2022 Data Tell Us about Spiraling Law Firm Fees: A Disconcerting, But Direct, Inference (Part II of II)

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The Point

When should your business pay the exorbitant prices of a major law firm?

When you need the full attention of the best attorney available for the task presented.

But something else is happening.

The data say that in 2022 corporate clients were paying proportionately more for the total hours of junior lawyers, and getting less attention from their most proficient, experienced colleagues.

How did that happen? The data indicate that law firms “mitigated individual attorney rate increases by adjusting staff mix.” What does that even mean? Apparently it means the appearance of cost control on law firm charges by making less use of higher capability (higher priced) partners, while making more use of lower capability (lower priced) associates.

This Matters to Your Business

The LexisNexis CounselLink┬« 2023 Trends Report: In-depth Perspective on Rising Outside Counsel Billing Rates on such “individual attorney rate increases”:

“The average partner rate increased 4.5% (compared to 3.4% in 2021 and 3.5% in 2020). Average rate increases were up compared to 2021 in all law firm tiers and practice areas.”

To reduce sticker shock of such price increases, the 2023 Trends Report proposes this gambit, and it appears that in-house counsel and their law firm clients implemented it in 2022:

“Corporate counsel can mitigate individual attorney rate increases by adjusting staffing mix. For example, even though the median M&A partner rate increased by 6.4% in 2022, the median M&A blended average rate was flat compared to the prior year.”

Translation: “the blended average rate” is the total amount billed on a matter divided by the total number of hours worked by all lawyers the law firm assigned to it. When partners’ rates rise (as they did for M&A partners in 2022), the firm can keep the total amount billed on a particular matter flat, or close to it, by reducing the proportion of partner hours relative to the proportion of associate hours (as they did for M&A matters in 2022).

Because …

That “median M&A blended average rate” renders opaque the actual connection between a dollar of legal spending and the capabilities of individual attorneys assigned to a task — once the law firm has “adjusted” their “staffing mix”.

The appearance of budget discipline comes at the cost of eroding the experience and proficiency strengths that are the whole point of hiring a major law firm in the first place.

 

The shell game behind these 2023 Trends Report numbers is an attempt to mask a likely sacrifice of quality in return for the illusion of savings. It’s up to CEOs, CFOs, and other P&L-experienced executives to reject such manipulation, and insist on tangible cost efficiencies instead.

 

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