The State of Legal Pricing 2013 – by Toby Brown
- 3 -lawsuits or deals they would have and therefore could not provide an estimate of legal fees. After all, without this base-line budget, how could they possibly reduce it? Consequently, outside firmswere long spared the indignity of managing costs, and the cognitive strain of lowering rates.During the economic downturn of 2008, when leadership broached the subject, they nolonger accepted the standard answer. One CEO commented that “the legal department was thelast bastion of cost savings” for the company. The issue was not the amount of legal work, butinstead the cost of it. Now the General Counsel (GC) has to toe the same line as every other department head; minimize the costs and increase the productivity.
The first and most obvious line of attack for in-house legal departments to reduce legalspend was to request discounts. In recent years, many have significantly increased pressure ontheir outside firms for larger and larger discounts. As one lawyer commented in 2010, “15 is thenew 10” as in a 15% discount off of standard rates. (I have heard that some GCs even attendconferences and write the level of discount they are getting on their name tags for all to see; aspontaneous market level reaction to the lack of clear pricing across the sector.) Another type of discount is the rate freeze. As firms make their annual move to raise rates, many GCs are askingfor, or in some cases demanding, they stay the same. Discounts and freezes are an easy andquantifiable way for GCs to demonstrate the appearance of savings to corporate management.
Another market level reaction (in addition to the
Conference Name Tag Exchange
) is ageneral and growing distrust of outside firms’ billing practices. As budgetary pressures mounted,clients began focusing on very specific aspects of legal pricing that they deemed “abusive.” Oneeasy target was billings from first-year associates. A number of clients viewed this as
;something for which they believed they should not have to pay.. In many cases, the backlashagainst paying for first-year hours may stem from the public awareness of young lawyers’salaries thanks to the lock-step increases across the industry. At $160,000, first-year associatesoften make higher salaries straight out of school than many senior in-house attorneys, plus theyget additional bonuses for billing lots and lots of hours, which only adds insult to injury.Unsurprisingly, first-year associates have become a lightning rod for client anger and distrust.
AFAs and RFPs, PDQ
Some clients have continued experimenting with Alternative Fee Arrangements (AFAs)and have expanded their use of Requests for Proposals (RFPs) in securing legal work. Here theyoften ask for fixed fee proposals in order to compare pricing between competing firms. Thiseffort has led to market drops at the fee level for certain types of legal work, such as patentlitigation, where fixed fees, or fixed fees per phase - and in some cases fee caps (hourly billingwith a ‘not to exceed’ amount) - have been more widely adopted. However, since in-house legaldepartments have never before faced the challenge of defining the scope of a matter, many RFPslack a useful scope. Consequently, too many RFPs are vaguely worded or provide outdatedmetrics with an eye towards getting competitive bids from various firms. Many firms struggle togive coherent responses to these RFP questions and too often this results in completely