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LEGAL DEPARTMENTS
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Reducing Total Legal SpendThe costs of legal services increase every year because the demand for service increases, the nature of the work becomes more complex, and unit prices keep climbing in every market. Legal departments call on a broad range of measures to address the economic challenges that accompany legal services. Our experience is significant with
For further information on reducing total legal spend, contact Richard Stock at rstock@catalystlegal.com or (416) 367-4447. Articles on Reducing Total Legal Spend "Comparing Counsel Cost" Aspects of Global Law Department Benchmarks, a survey of more than 800 legal departments from around the world, are presented. US departments appear to make twice as much use of external counsel as Canadian departments. The US cost per hour of $188.89 for the department is higher than Canada's law departments at $159.56. The variations disappear when adjusting for the hours actually worked rather than using an across-the-board average. Factoring in paralegal hours will redue the effective rate. In most instances, the law department rate is about 45% of the external counsel rate. "The Quest for Cost-Effective Counsel" Not much has changed in 10 years with the average for non-hourly pricing stuck at 10%. Forty percent (40%) of legal departments achieve few or no reductions in external legal spend in the last two years. Another 18% achieved only 6% - 105 inh cost reductions. One survey found that only 17.2% of legal departments almost always require detailed matter budgeting for complex matters. Five suggestions are made on how to improve terms of engagement with law firms. Eight action tips are offered on how legal departments can reduce external legal spend "Four Smart Questions" The article answers four questions posed by the AGC of a national bank. What strategies work when aiming to reduce legal spend on M&A and litigation matters? Do alternative fee arrangements (AFAs) impact quality or timelines of service? How does one disconnect the law firm perception of value from billable hours where it is billing against an AFA. Apart from saving money, what are the indirect benefits of AFAs? "Retainer Fees for Regional Firms" A US-based multi-national elected to “regionalize” its commercial, general liability and employment-related litigation. Only 8 firms were picked and given the authority to retain local counsel when needed. Three years of historical data and information about pending files and projections had been shared. A single 3-year fee was negotiated for each region. Firms prepared hourly shadow bills every month. They are used to make adjustments to a shared risk and reward fee structure. "Team-based Pricing" Team-based pricing is hourly at its core – a blend of rates in proportion to the planned use of partners, associates and paralegals or clerks over a period of time. The reasons cited for not embracing a “blended rate” or team-based pricing include missing associates at certain levels of experience, disagreement on the relative complexity of the work to be priced, and law firm compensation systems that do not promote delegation and team work. When combined with legal project management/matter budgeting, team-based pricing can result in measurable savings. "The Hybrid Fee Arrangement" A US energy company requested its law firms propose fee arrangements which reflected innovation in pricing, cost-savings for the client, predictability and stability of legal costs and teams, profitability for the firm and measurable value in service delivery and outcomes. The alternative fee arrangement is a hybrid of a blended rate for a block of work over time, combined with a productivity incentive and service delivery incentives. "Highlights of the 2010 ACLA-CLANZ Legal Department Benchmarking Report" One hundred and sixty Australian and New Zealand legal departments participated in this extensive study. A dozen sections deal with aspects of performance management - everything ranging from reporting relationships, deploymetn, resources, workloads and the relative use of time recording systems and charge-backs. "Pressure and Predictability"
The article reports on the findings of the 2010 ACLA - CLANZ Legal Department Benchmarking Report. The most pressing issue for legal departments, by a factor of 2, is workloads/time pressures. There is little evidence of demand forecasting, of usage protocols for the legal department, and of the practice management skills needed to generate capacity in the department On a different note, the article shares research findings regarding low success rates in achieving reductions in external legal spend and in the use of non-hourly fee arrangements.
"Changing the Business Model for Legal Services" The cost of legal services rarely figures prominently in the selection of a law firm or individual lawyer for an important matter. Many law departments do not believe that the pain will be worth the gain to manage legal services. General counsel default to traditional arrangements with their primary firms. The article poses six questions essential to a review of relationships with external counsel Five components for a sustainable relationship with law firms are also put forward. "Three Ways to Reduce Legal Costs" Nearly 60% of legal departments surveyed reported that in-sourcing corporate and commercial work reduces external legal spend by over 50%. Most in-sourcing from the last 2 years has been absorbed without adding lawyers to the legal department. The second way to reduce costs is to provide better specifications to law firms. Only 56% of legal departments said they specified the scope of resources to be assigned and only 44% specified desired outcomes. While most legal departments try fixed, flat and capped fees regularly, more than 90% of legal work is still hourly-based. Cisco, Intel, Dupont and Microsoft are targetting up to 90% of their legal fees as non-hourly within 3-5 years. "Alternative Fees are on Their Way" Less than 10% of legal fees are generated on other than an hourly basis. Even though many corporate counsel experiment with alternatives, they remain too risk-averse to adopt non-traditional methods in the face of the global financial crisis. Law firms are seldom taken up on their offers to innovate in pricing when legal departments can leverage multi-year partnering agreements and project management techniques to reduce external legal spend by at least 15% - and still retain hourly billing. "In-House Needs a Reality Check on Value" A 7-point "reality check" on legal department efforts to mitigate the costs of external legal counsel is presented. Barriers to change, such as procurement processes and project management practices, and discussions about rates appear to be antithetical to relationship-based, collegial service delivery. In other instances, legal departments do not make the time to become familiar with the tools and processes essential to innovation in working cost-effectively with law firms. "Who Is Responsible for the Cost of Legal Services?" The Canadian Lawyer / Catalyst Consulting September 2008 survey of law departments found that the number one way (43.5 % of responses) a law firm can improve its working relationship with the company is “to be more concerned with costs”. An Australian / New Zealand survey had 62 % of respondents citing cost management as the number one way. Surveys show little movement in the management practices of legal departments: only 32 % run formal procurement processes, most prepare no multi-year forecasts for services, few refer to standards for staffing complex legal work, 40 % pay full hourly rates, only 30 % use detailed matter budgeting, and fully 90 % of work is still billed on a variation of the hourly rate. "Billing Practice Alternatives" The focus of additional measures to reduce external legal spend is on matter budgeting to recalibrate teamwork and delegation of tasks to competent, less expensive lawyers in law firms. Alternative pricing arrangements designed to reward law firms for concluding matters satisfactorily but with fewer hours are presented. Quarterly monitoring and flexibility in pricing due to significant variances in actual volumes and file complexity are essential. Law departments will need to conduct and act on quarterly or semi-annual analyses of practice patterns and fees from law firms as they apply to individual matters. "Risk Aversion in Retaining Outside Counsel" Corporations are turning to procurement professionals for help with innovative programs to manage their legal costs, especially those related to external counsel. Flexible, independent, cost-effective operating practices of legal departments are less tenable than they were several years ago. Corporations must now make longer term commitments to fewer law firms in exchange for stable costs and the guaranteed availability of legal teams in the future. Experience with case and matter budgeting and familiarity with other workflow management practices must be built up over time within the law firm. legal departments must learn to gauge law firms' ability to innovate in legal services pricing and delivery. But they must do so less experientially and more objectively. "Achieve Success with Partnering" legal departments underestimate the time and effort it takes to manage innovative arrangements such as task-based budgets or risk/ reward based pricing for legal services. Leadership in decentralized legal departments and companies is required to ensure partnering with law firms goes beyond managing a list of preferred suppliers.
"The Legal Department as Informed Purchaser"
Corporate counsel surveys reveal that the second greatest challenge cited is controlling legal spend. The article describes the application of the "informed purchaser" concept to legal services. The competencies of a select number of individuals in the legal department must include strengths in legal procurement, risk management, quality control and general procurement processes. In particular, demand forecasting, the inter-dependency of law firm profitability variables, non-hourly pricing and matter budgeting protocols require experience and skill to master
"New Ways to Keep Client Costs Down"
There is a measurable difference in the world view of law firms and of legal departments when it comes to pin-pointing the sources of friction between them. Corporate and institutional legal departments must identify the best configuration of increased volumes, targeted leverage, and expense reduction as a way to reconcile cost reduction in legal fees with increased profitability for law firms. Three case studies suggest that adjustments to law firm business models and to legal department buying habits do contribute to mitigating much of the friction in the economic portion of the relationship between law firms and their clients.
"Negotiating Long-Term Fees"
Two corporate legal departments are profiled as they try to secure stable, medium-term economic arrangements with their preferred law firms across the country. Leading law firms were able to adjust their staffing/delegation practices in over a dozen specializations thereby contributing to savings that approach 20% when combined with other measures. The article concludes with three suggestions to guide fee negotiations.
"Saving Money: Location and Buffers"
Some law firms are proposing legal teams for national and international clients by tapping lawyers from their offices which carry lower billing rates. The corollary is that corporate and institutional clients will ask their preferred firms to use lawyers from their less costly venues. Buffers of non-chargeable time form part of an incentive to law firms to develop case plans and budgets. This is a first step to streamlining work flow, billings and payment process.
"The Cost of Choice"
This case study describes how TD Bank Financial Group improved the quality of legal services to the bank and balanced the cost-effectiveness of its work flow practices with the business relationships it wanted to protect. The number of law firms was reduced from 850 to a little over 100. Stable legal teams and 3-year price structures were negotiated with every firm. The bank is projected to save more than 20% on its legal costs across a 3-year period.
"Best Practices for Partnering Between Corporate Counsel and Law Firms"
Law firms seldom take the initiative to migrate beyond pricing initiatives and service programs. However, some have formalized long-term partnering programs with key clients. This requires a willing client, a lot of unbillable time, and steadily improving data.
"Keeping the Lid on Legal Costs"
Corporate counsel all reported a concern with rising legal costs. Case planning / budgeting and preferred staffing profiles are explored as techniques to keep legal costs in line. Service levels are not compromised and the quality of legal work remains intact.
"Three Reasons Why RFPs Fail"
There are several instances where legal departments prepare requests for proposals ( RFPs ) for legal services from outside counsel. In the face of these imperatives, many RFPs fail for three main reasons — poor data, unclear expectations, and insufficient preparation time.
"Make Your Selection of Outside Counsel More Than a Beauty Contest"
Practical guidance and a sequence of issues counsel should address when customizing long-term relationships for services with outside counsel. Included topics: performance, best practices, scope of legal services, cost of legal services, finding support within the organization, managing the process, selection methods, selection criteria, third parties, fees, performance and evaluation.
This case study describes how TD Bank Financial Group improved the quality of legal services to the bank and balanced the cost-effectiveness of its work flow practices with the business relationships it wanted to protect. The number of law firms was reduced from 850 to a little over 100. Stable legal teams and 3-year price structures were negotiated with every firm. The bank is projected to save more than 20% on its legal costs across a 3-year period.
"Best Practices for Partnering Between Corporate Counsel and Law Firms"
Law firms seldom take the initiative to migrate beyond pricing initiatives and service programs. However, some have formalized long-term partnering programs with key clients. This requires a willing client, a lot of unbillable time, and steadily improving data.
"Keeping the Lid on Legal Costs"
Corporate counsel all reported a concern with rising legal costs. Case planning / budgeting and preferred staffing profiles are explored as techniques to keep legal costs in line. Service levels are not compromised and the quality of legal work remains intact.
"Three Reasons Why RFPs Fail"
There are several instances where legal departments prepare requests for proposals ( RFPs ) for legal services from outside counsel. In the face of these imperatives, many RFPs fail for three main reasons — poor data, unclear expectations, and insufficient preparation time.
"Make Your Selection of Outside Counsel More Than a Beauty Contest"
Practical guidance and a sequence of issues counsel should address when customizing long-term relationships for services with outside counsel. Included topics: performance, best practices, scope of legal services, cost of legal services, finding support within the organization, managing the process, selection methods, selection criteria, third parties, fees, performance and evaluation.
Two corporate legal departments are profiled as they try to secure stable, medium-term economic arrangements with their preferred law firms across the country. Leading law firms were able to adjust their staffing/delegation practices in over a dozen specializations thereby contributing to savings that approach 20% when combined with other measures. The article concludes with three suggestions to guide fee negotiations.
"Saving Money: Location and Buffers"
Some law firms are proposing legal teams for national and international clients by tapping lawyers from their offices which carry lower billing rates. The corollary is that corporate and institutional clients will ask their preferred firms to use lawyers from their less costly venues. Buffers of non-chargeable time form part of an incentive to law firms to develop case plans and budgets. This is a first step to streamlining work flow, billings and payment process.
"The Cost of Choice"
This case study describes how TD Bank Financial Group improved the quality of legal services to the bank and balanced the cost-effectiveness of its work flow practices with the business relationships it wanted to protect. The number of law firms was reduced from 850 to a little over 100. Stable legal teams and 3-year price structures were negotiated with every firm. The bank is projected to save more than 20% on its legal costs across a 3-year period.
"Best Practices for Partnering Between Corporate Counsel and Law Firms"
Law firms seldom take the initiative to migrate beyond pricing initiatives and service programs. However, some have formalized long-term partnering programs with key clients. This requires a willing client, a lot of unbillable time, and steadily improving data.
"Keeping the Lid on Legal Costs"
Corporate counsel all reported a concern with rising legal costs. Case planning / budgeting and preferred staffing profiles are explored as techniques to keep legal costs in line. Service levels are not compromised and the quality of legal work remains intact.
"Three Reasons Why RFPs Fail"
There are several instances where legal departments prepare requests for proposals ( RFPs ) for legal services from outside counsel. In the face of these imperatives, many RFPs fail for three main reasons — poor data, unclear expectations, and insufficient preparation time.
"Make Your Selection of Outside Counsel More Than a Beauty Contest"
Practical guidance and a sequence of issues counsel should address when customizing long-term relationships for services with outside counsel. Included topics: performance, best practices, scope of legal services, cost of legal services, finding support within the organization, managing the process, selection methods, selection criteria, third parties, fees, performance and evaluation.
This case study describes how TD Bank Financial Group improved the quality of legal services to the bank and balanced the cost-effectiveness of its work flow practices with the business relationships it wanted to protect. The number of law firms was reduced from 850 to a little over 100. Stable legal teams and 3-year price structures were negotiated with every firm. The bank is projected to save more than 20% on its legal costs across a 3-year period.
"Best Practices for Partnering Between Corporate Counsel and Law Firms"
Law firms seldom take the initiative to migrate beyond pricing initiatives and service programs. However, some have formalized long-term partnering programs with key clients. This requires a willing client, a lot of unbillable time, and steadily improving data.
"Keeping the Lid on Legal Costs"
Corporate counsel all reported a concern with rising legal costs. Case planning / budgeting and preferred staffing profiles are explored as techniques to keep legal costs in line. Service levels are not compromised and the quality of legal work remains intact.
"Three Reasons Why RFPs Fail"
There are several instances where legal departments prepare requests for proposals ( RFPs ) for legal services from outside counsel. In the face of these imperatives, many RFPs fail for three main reasons — poor data, unclear expectations, and insufficient preparation time.
"Make Your Selection of Outside Counsel More Than a Beauty Contest"
Practical guidance and a sequence of issues counsel should address when customizing long-term relationships for services with outside counsel. Included topics: performance, best practices, scope of legal services, cost of legal services, finding support within the organization, managing the process, selection methods, selection criteria, third parties, fees, performance and evaluation.
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