How In-House Counsel Can Better Control Law Firm Timekeeper Rates
Outside counsel tend to send their clients rate increase requests as consistently as holiday cards (and often only weeks apart). But as inevitable as this tradition seems, in-house counsel actually have more options than it may appear for managing law firm timekeeper rates.
Because even though the number can’t always be negotiated down, you can always take steps to ensure an efficient process and validate a fair price.
What is a Law Firm Timekeeper?
“Timekeeper” is the term applied to any law firm employee who contributes to and bills for client work. Each law firm timekeeper has a corresponding role (ex. 2nd Year Associate) and compensation rate (ex. $550/hr).
How Are Law Firm Timekeeper Rates Determined?
The most common factors influencing timekeeper rates include:
- Practice area
- Experience level
- Domain expertise
- Matter complexity
- Business jurisdiction
- Macroeconomic trends
- Law firm size & location
- Law firm prestige & reputation
Law firms and their corporate clients agree upon timekeeper rates at the start of an outside counsel engagement, but these figures are also routinely renegotiated.
Law firms will typically request client approval for a broad rate increase (ex. 2.5% for all timekeepers) once per year. However, in-house legal teams may also review timekeeper rates on an ad hoc basis following law firm staffing additions or promotions.
How to Evaluate Law Firm Timekeeper Rates
How will you know if a proposed timekeeper rate is fair value? You won’t—until you put the price in context.
The first layer of context to assemble is purely subjective. At this stage, you’re only trying to determine whether the rate sounds reasonable given industry norms. You can draw on a combination of your personal experience, peer network, and colleagues’ opinions to make an initial judgment.
This exercise has its biases and limitations, of course, so you’ll need to reinforce it with objective context as well.
Primary data from your company’s historical and active matters can be a great point of reference. And today’s legal spend management tools can help you surface law firm benchmarking insights in a matter of seconds.
But you’ll also inevitably encounter matters for which no company precedent exists. In these scenarios, you can consider supplementing your perspective with secondary data sources such as market research reports. Brightflag’s recently released report on Am Law 100 rate increases in 2023, for example, can be an invaluable resource.
Whether primary or secondary, though, it’s always best to analyze the data through at least two lenses.
Comparative analyses evaluate timekeepers against their industry peers, helping you answer questions like:
- How does the rate compare to other associates within the same firm?
- How does the rate compare to associates across our law firm panel?
- How does the rate compare to associates across all Tier 2 firms?
Longitudinal analyses evaluate timekeepers against their past selves, helping you answer questions like:
- When did you last approve a rate change for this timekeeper?
- How has the rate evolved over the last 24 months?
- What was the quality of service during that time?
Unfortunately, there’s no neat and tidy formula I can share that calculates fair pricing. Law firm assessment will always be as much art as it is science. But by gathering a range of complementary context, you’ll pave the way to more productive conversations and confident decisions.
How to Optimize Law Firm Timekeeper Rates
Your success in shaping law firm timekeeper rates will be a function of two factors: Gathering valid data and applying relevant insights. It sounds simple, and it can be — if you adopt a few new habits first.
Narrow the review window
Timekeeper rate evaluation is an exercise best conducted at high intensity and low frequency.
The intensity of research and analysis must surpass a certain threshold before you can draw any meaningful conclusions. A few minutes gathering feedback from a single colleague, for example, won’t provide sufficient context.
But the frequency of this intense exercise also needs to be low enough to feel sustainable. Most in-house legal pros are already operating from an overcrowded calendar.
Given these two realities, I recommend the following approach:
- Set a monthly deadline for adding timekeepers and modifying individual rates
- Set an annual window for negotiating collective (ex. role-based) rate adjustments
In addition to preserving your focus, synchronizing the timing of rate reviews will also ensure all cross-firm comparisons are made under similar market conditions.
Standardize timekeeping workflows
Valid outputs require valid inputs. So after settling on a schedule for timekeeper rate reviews, you need to consider your methods for collecting timekeeper data.
Law firms need clear and consistent guidance on:
- Who should submit timekeeper data
- What data fields and formats are required
- Where (and how) to submit the required data
In-house legal teams need a reliable way to detect and reject any submissions that violate these rules.
Dedicated e-billing platforms can dramatically increase efficiency here, serving the needs of both sides automatically. But for those currently operating without the benefit of specialized technology, this standardization step must still be addressed before moving forward.
Lead with data
Grounding outside counsel conversations in data is always good practice. And that’s especially true when discussing a topic as sensitive as compensation.
So take advantage of the time you’ve created by narrowing your rate review window and aim to evaluate each proposal alongside the full range of objective context I described in the previous section.
(Sidenote: I mention a few of my favorite reports at the end.)
Negotiate beyond the rate
Negotiating a lower rate will not be practical or possible in every scenario. Sometimes market realities will force your hand, other times the quality of your relationships will be more important than the efficiency of your finances.
But remember that a direct rate reduction is just one of many available paths to increasing the value of outside counsel spend.
Conceding a rate increase next month, for example, could be savvy long-term legal spend management if you couple it with a rate freeze that lasts two years.
Resourcing is often another productive avenue to explore. Creative adjustments to the staffing mix on a given matter could enable timekeepers to maintain their preferred rates while reducing the overall cost to the client.
Finally, even if there’s no flexibility left in the numbers, there may be some value-adds you can still negotiate into the services. You could request direct access to a member of the firm’s executive team, for example, or restrict resourcing only to associates who have already been instructed on your matters.
3 Recommended Brightflag Reports
One of the attributes customers appreciate most about Brightflag is the ability to efficiently analyze their historical data and quickly find the telling insights. But with so many reporting possibilities available, I always like to offer a few reliable starting points just in case.
This report reveals the contributions of each timekeeper in a given phase or matter. It instantly confirms individual rates while offering a broader perspective on how responsibilities were distributed across the team.
Matter comparison by firm
This report compares and contrasts how multiple firms have approached similar matters. It’s a great way to identify outside counsel with the most cost-efficient habits in a certain practice area.
Blended hourly rate
This report calculates the average hourly fee across all timekeepers who contributed to a matter. This eye-opening metric often causes customers to reevaluate their initial rating of law firm affordability.
Eager to bring more efficiency (and sanity) to your timekeeper management process? Get in touch today and see what’s made Brightflag customers so successful.