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LegalJune 24, 2024

Legal Leaders Exchange: Tight rate control can go hand-in-hand with positive law firm relationships

The 2024 CLOC Global Institute drew thousands of legal ops professionals seeking to optimize the ways in which their corporate legal departments get their work done. ELM Solutions recorded our most recent podcast at the event so that we could extend that valuable experience to our listeners who weren’t able to attend or who simply want to continue learning now that the event has ended.

Jennifer McIver, our Director of Legal Operations and Industry Insights, was joined by Tiffani Hamilton-Huynh and Catrine Frazier of the DHL legal operations team to discuss some of the most important aspects of successful legal operations: rate management and outside counsel relationships. Here are a few of the insights Tiffani and Catrine shared.

Hourly outside counsel rates are rising

According to Wolters Kluwer’s Real Rate Report, between 2022 and 2023, the hourly rates charged by outside counsel went up 5.1% on average. That amount represents the actual charges billed by law firms, after any applicable discounts. Meanwhile, initial analysis of 2024 invoices indicates that rates may increase slightly more sharply this year.

Catrine and Tiffani report that the increases they are seeing now depend largely on factors such as geography and practice area. So far in 2024, Catrine has seen rates go up by about 6% in the United States. However, in Ontario, Canada, where there has been a particularly dramatic rise in inflation, outside counsel rates are going up even more. Tiffani has found that certain practice areas consistently generate higher increases than others. She points out, though, that DHL employs negotiation tactics to limit rate hikes and control overall legal spend.

Data is a valuable negotiation tool

By compiling data on the rates they pay and comparing to industry benchmarks, DHL’s legal ops team is able to educate their law firm relationship managers about whether or not requested increases from firms are fair and reflective of the industry as a whole. They also share this information with firms so that there is transparency on both sides of the negotiation.

Effective rate negotiations require a balance between cost control and maintaining strong relationships with outside counsel. Being transparent about budget constraints and expectations can foster a collaborative approach, especially when a firm has previously simply announced a rate increase without the expectation of negotiations. When a firm is not accustomed to the negotiation process, the data is helpful in demonstrating that DHL’s goal is to arrive at a rate that is fair to both the company and the law firm. Catrine has even been thanked by firm colleagues who found the benchmark data helpful.

Companies should establish regular performance reviews

Tiffani described her team’s approach of conducting yearly reviews for all of their panel firms, as well as other firms with whom their spend is over a defined threshold. Those reviews play an important part in rate negotiations by informing the target rates that DHL seeks. If a firm’s review shows that they have been underperforming, then DHL is unlikely to approve a substantial increase and may agree only to a more modest rate adjustment.

To gather the performance data they need, Tiffani’s team gathers metrics from their database and compiles the results of surveys where in-house attorneys rate firms based on several criteria. When combined, this qualitative and quantitative data provides a data-driven basis for DHL’s decisions about the firm. Among other information, performance reviews include details of:

  • The quality of the firm’s communication
  • Whether the firm is effective and proactive
  • Performance against budgets
  • Alignment with DHL’s business values

The DHL team shares this performance data with the firms, giving them the opportunity to understand the areas where they meet the company’s expectations and those where they need to improve.

DHL has optimized its legal department operations through effective management of outside counsel, strategic rate negotiations, and data-driven decision-making, achieving cost-efficiency and strong performance. Adoption of these best practices can help other legal departments ensure they are well-equipped to navigate the complexities of today's increasingly costly legal landscape.

For the full discussion, listen to the Legal Leaders Exchange episode How DHL is using data, annual reviews, and billing guidelines to tackle rate negotiations.

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