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LegalMarch 22, 2021

To turn crisis into opportunity, request best practices instead of lower rates

COVID-19 has triggered many corporate law departments (CLDs) to ask firms for rate concessions. Many did so because, when pushed into cutting their departmental budgets, rate concessions were seemingly the best way to do that. However, others may have been motivated by what they perceived as an opportunity to set the tone of rate negotiations for years to come, pressing their advantage during the crisis even though they could afford not to.

Business is business, right?

I certainly don’t blame CLDs who can’t afford current rates for asking for lower ones. However, I think CLDs that can afford current rates sometimes miss the big picture when they do the same. First, they fail to consider the relationship: Partners who feel like their clients took advantage of them at a time of perceived weakness are sure to remember that and find a way to return the favor. Second, as all seasoned legal operations folks know, due to the wondrous workings of the billable hour (not to mention what I consider to be the even more harmful effect of minimum annual billing requirements), low rates don’t always equal lower overall costs. Third, getting lower rates now doesn’t necessarily generate any long-term savings. Sure, it might save you some money today, but eventually, rates may go back up, and your savings are lost.

What if, instead of fixating on rates, corporate law departments used their negotiating power to secure agreements to best practices, like the following:

“Real” matter budgets

Law firms complain that it is impossible to know how much a legal matter is going to cost, but under an arrangement where budgets aren’t modified and are enforced, it is possible. A matter is going to cost the agreed-upon amount or less, period. If the firm loses money, that isn’t a problem with the concept of budgeting but a signal that one or both parties need to make further investment in scoping capabilities. Make these investments, and you will see better outcomes. (BTW, there are firms that budget each and every legal matter, regardless of whether the client asks them to, so it can be done).

Partner with ALSPs on every project or document why you didn’t

Many CLDs wisely updated their billing guidelines long ago to say they won’t pay for summer associates or first years since that would mean taking on the cost of training someone without valuable experience, which law firms should bear. However, the reality is that a lot of second years don’t have any valuable experience, either, because the firm assigned them only to boiler-room document review projects and other repetitive tasks. One former managing partner of a Big Law firm recently described this work to me as something he “could have done in high school.”

The truth is that somebody needs to do those tasks and somebody is going to expect a paycheck, but it doesn’t need to be a law firm-sized one. Ask firms to partner with ALSPs on these tasks, or explain, in writing, how it is in the client’s best interest that they don’t. Often, there won’t be any credible explanation, meaning you save money.

No more garbage in, garbage out

Attorneys don’t typically record time contemporaneously with doing the work. This can result in looking back at the end of the week and trying to recapture that detail, impairing invoice accuracy. This leads to thousands of dollars worth of block billing, vague line item descriptions, bills for work done six months ago, etc., all of which raises the possibility of over-billing. This behavior violates the agreed-upon billing guidelines of nearly all CLDs. Now is a good time to let your firms know you aren’t going to pay for that anymore, and they can expect problematic invoices to be cut (third-party bill review, like ELM Solutions’ AI-powered LegalVIEW® BillAnalyzer services, can help).

CLDs have other problems with dirty or non-existent data that firms can help resolve. In particular, some innovative firms have started offering to enhance client data as a free value-add at the conclusion of each legal matter. The firm can go into your system and tag matters with information like settlement amount, court, jurisdiction, judge, opposing counsel, etc. The enhanced data could take your case analytics to a whole new level by, for instance, allowing you to do a “regression analysis”—a statistical analysis that gives you insights into what kinds of variables are associated with elevated case costs, cycle times, and settlement amounts. You can then plow that analysis back into your litigation strategy and focus on reducing exposure to variables that are most associated with higher costs.

These are just a few ideas for best practices CLDs could request—practices that will pay dividends year over year rather than the short-lived or potentially non-existent savings represented by lower rates. Importantly, both parties need to acknowledge—in writing—that these best practices apply at the business-to-business level, not the attorney-to-client level. In practical terms, this means that without a GC-level exemption, outside counsel is going to follow these best practices in each and every case. That way, folks can’t circumvent the rules by arbitrarily (and clandestinely) substituting their own view of how legal work should be done for the views of the clients who cut their checks.

Nathan Cemenska
Director of Legal Operations and Industry Insights

Nathan Cemenska, JD/MBA, is the Director of Legal Operations and Industry Insights at Wolters Kluwer's ELM Solutions.

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