In-house legal departments are coming to the conclusion that many traditional law firms aren’t getting the job done, especially when it comes to pricing. It’s something we’ve noticed for years – and recent research bears it out.
As a result, companies are taking a hard look at traditional legal spend and whether they are getting the best value from the law firms that have served them for decades.
But many law firms, remarkably, still haven’t made the necessary adjustments. Just 39% of respondents to the recently released Altman Weil’s annual survey of law firms, said they had significantly changed their strategic approaches to pricing. Another 17% said they were considering such a move.
But just 30% of respondents said they were routinely linking discounted, capped and alternative fees to changes in how work is staffed and delivered. As the survey’s authors noted: “This is a hugely significant and extremely troubling result.”
We agree. In recent years, we’ve seen more clients demand that individuals from the business side of their operations collaborate with their law firm business-side peers – not only the attorneys within our firm. And we’ve also learned that if you’re not marrying pricing and matter management, you’re missing the boat.
A Call for Greater Efficiency
We also started noticing an interesting trend among some – though certainly not all – clients. More frequently, questions in RFPs for legal services wanted to know how we could produce legal work more efficiently. Obviously, fees and legal spend has always been top-of-mind for clients and potential clients; but this efficiency and project management theme was evolving, and we knew we had to be prepared. It was likely that what sophisticated clients were asking for would have a “trickle-down effect” in the coming years.
Companies are taking a hard look at traditional legal spend and whether they are getting the best value from the law firms that have served them for decades.
In 2014, we appointed a pricing manager who later became our director of pricing – the type of move that the Altman Weil survey found to be one of the more effective ways to improve firm performance. The director of pricing has worked closely with the firm’s director of client service initiatives to find ways to holistically address the delivery of legal services. Together, we created a suite of pricing, process and technology solutions called BT ValueWorks. The technology we selected from a trusted software provider delivers budgeting solutions and enables improved matter management for the firm’s attorneys. This helps provide fee predictability and measurable budget control to clients – and they are pleased.
Process in Practice
Over the past few years, we’ve had plenty of chances to see the system work with clients, and it has been extremely satisfying. For example, we helped a world-leading technology company faced with a significant litigation. The client wanted a law firm that could offer an alternative to regular hourly pricing. We structured the work with a fixed-fee using component pricing with distinct litigation phases, and provided success components, including a bonus structure based around certain achievements in the case. In this example, the law firm bears the burden of inefficiency.
It’s worth noting that in these situations, if tasks that go beyond what we originally mapped out must be added, we’ll sit down with the client in advance to adjust pricing. This is a good example of how we’ve continued to build a practical approach to serve clients who seek greater flexibility – it wasn’t that long ago that many firms approached the issue more philosophically than pragmatically.
Even though clients are asking for this transparency, it’s also important to do a few things well to get internal buy-in – including convincing the partnership by measuring return-on-investment (ROI) and results and broadcasting such successes across the firm. At Barnes & Thornburg, that’s been made possible through the successful use of our BT ValueWorks suite of offerings. We implemented that system two years ago and we now have worked on more than 500 client budgets – or about 10% to 15% of our firm’s revenue. We expect that to easily double over the next year.
The changes now sweeping through legal services have shown up in other industries for years, and alternative pricing has been common for European law firms for some time. And while not every U.S. client is demanding change – some still prefer the hourly system they’re used to – enough companies are calling for increased predictability and accountability that it’s clear the same old way of doing business just isn’t enough anymore.
The rest of the legal industry – mired in intense competition that would have been unthinkable a decade ago – needs to read the writing on the wall. Put another way, if you’re a law firm in 2017 and you think you’re making progress in pricing without looking at how matters are managed, you’re kidding yourselves.
This article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.