Law firm billing rates are always in flux. For every headline you see reporting a billing slowdown, you can find another forecasting imminent rate hikes.
So if rising prices haven’t impacted your legal department budget in recent memory, it’s probably best to operate under the assumption that change is just around the corner. And while I won’t discourage you from praying for continued generosity from law firm CFOs, I will encourage you to round out your preparations with a few concrete tactics just in case.
The six tactics you’ll find listed below can keep you safe through any billing climate and ensure you won’t pay more for outside counsel services than you absolutely must.
Tip #1: (Responsibly) Reduce Outside Counsel Engagement
If you don’t send work to law firms, then you don’t have to worry about what hourly rates they charge. The cost of a service that’s neither requested nor performed is always free.
This logic obviously has its limits. The volume of work weighing on most teams could never be completed strictly within the walls of the corporate legal department. Plus, in-house efforts still carry costs of their own. But it is a useful reminder to periodically revisit your rules of engagement and make sure you’re not inadvertently overutilizing outside counsel.
One helpful framework for this exercise is a simple four-box grid that categorizes work by risk and volume.
High Risk, Low-Volume Work
Work types that you’d classify as High-Risk, Low-Volume are typically the best match for outside counsel engagement. In this quadrant, in-house subject matter expertise tends to be lower (as is the value of developing it) and the cost of miscues is higher. For example, pinching pennies on complex, bet-the-company litigation is never a savvy strategy.
High Risk, High-Volume Work
High-Risk, High-Volume work, by contrast, should make up the bulk of in-house attorney assignments. In this quadrant, developing (or hiring) internal subject matter expertise is typically the most cost-effective play considering how frequently that specialized knowledge will be applied. The heightened sensitivity of the work also merits direct oversight from within the business. In the case of media brands, for example, a strong roster of in-house intellectual property experts is often a smart investment.
Low-Risk Work of Any Volume
It’s the remaining two quadrant where you’re likely to find the majority of creative cost-saving opportunities. Since Low-Risk work is inherently less risky, regardless of volume, you can safely consider assigning it to someone who is neither in-house attorney nor law firm staffer.
This might mean partnering with an alternative legal service provider (ALSP) that can cost-efficiently absorb much of the contract review work currently completed in-house. Or it might mean deputizing a product team colleague who, if given a brief training and approved template, could resolve routine data privacy requirements without requesting legal department assistance.
Main Takeaways
In each case, creatively resourcing Low-Risk work saves in-house attorneys time they can then spend insourcing more of the High-Risk work formerly led by law firms.
In the end, you may only identify a few realistic ways to recalibrate your work assignments. And the resulting cost savings may only be modest. But even if this vetting exercise doesn’t prompt changes to your resourcing plans, you’ll at least move through the following stages knowing that you’re retaining outside counsel under the correct circumstances.
Tip #2: Tap Into Multiple Law Firm Tiers
Now that you’re feeling more confident about your balance of in-house and external resources, you can focus on finding the right law firms to fit the roles you’ve outlined. Just be careful not to narrow your gaze too closely as you do; the AmLaw 100 list is far from the only place where suitable solutions lie.
To be clear, this is not an invitation to settle for subpar partnerships. It’s just a polite reminder that premium services should be purchased sparingly — and only for the right reasons. So before you reflexively reach out to a Tier 1 firm, be honest about your needs and their attributes.
Does the matter in question demand highly specialized expertise? Is the comparatively high price justified by a record of unquestionably valuable results? If so, then you very well may be recruiting from the right tier.
But not all matters present equally complex or unique challenges. And some Tier 1 prices are surely more a factor of the firm’s historical pedigree than its current performance.
So challenge yourself to cast a wider net. Valuable advice and satisfying results can be sourced from multiple levels of the law firm ranking pyramid.
Tip #3: Negotiate Beyond the Hourly Rate
Let’s imagine that you now have the rate list of your chosen law firm up on your monitor. And let’s assume, just for the time being, that the figures you see on the screen are set in stone. Even in this scenario, there is still more financial control to explore than you might imagine.
Modifying Timekeeper Roles
One underutilized tactic involves modifying timekeepers’ roles rather than their rates. Maybe you’re convinced that a certain law firm partner is undoubtedly worth their hourly rate, for example, but you suspect the matter at hand only requires an associate’s level of expertise. Advocating for a restyled staffing strategy in this scenario could not only prove cost-effective for you, it may also be a welcome suggestion to a firm eager to test the mettle of its associates and preserve the bandwidth of its partners.
So be sure to collaboratively map out the staffing plan at the start of each outside counsel engagement — and don’t hesitate to underscore potential cost-optimization opportunities you see.
Alternative Fee Arrangements
The more commonly discussed (albeit similarly underutilized) tactic to explore at this stage is alternative fee arrangement (AFA) negotiation. By definition, these conversations sidestep the notion of hourly rates altogether and tie work to a different pricing model.
The relatively infrequent adoption of AFAs industry-wide speaks to the challenge of matching work types to fee structures. However, there are more than a few scenarios where the financial incentives are suitably attractive to both sides. Plus, even if your total cost savings are negligible, cost predictability can be a victory in its own right.
Tip #4: Reinforce Your Cost Control Systems
Partnership agreements always look good on paper. But once matters are in motion, deviations from the original plan are an unfortunately common occurrence.
Outside Counsel Guidelines
Clearly documented and consistently enforced law firm billing guidelines are often the best antidote to anarchy. They anticipate potential sources of confusion or conflict and provide standardized guidance both invoice submitters and reviewers can follow. This ensures the overwhelming majority of billed services conform to client expectations and are paid without drama or delay.
Ensuring Consistency
In addition to systematically verifying the validity of each service, you’ll also want to install at least two other control mechanisms. The first should govern any timekeeper rate adjustments while the second should alert all parties to impending budget overruns.
Specialized software can be a dramatic advantage in each of these three domains, maximizing the consistency of rule applications and minimizing the effort required of your team. But any method that can at least assure consistency is a step in the right direction.
Tip #5: Build Out Your Benchmarks
Benchmarks are one of those assets that only yield value if given time to mature. There really are no shortcuts. But over the long term, they represent your best source of leverage across a range of outside counsel conversations.
For example, remember when I said to temporarily ignore hourly rate negotiations a few sections ago? It was because you’ll need reliable benchmarks to forge meaningful progress. Law firms are motivated more by evidence than kindness, after all. So they’ll often need to see an objective indicator of how they compare to their peers before budging on price.
More importantly, benchmarking helps underscore which firms you should even be negotiating with in the first place. Knowing the norms of various practice areas and business regions helps you quickly dismiss outliers and focus exclusively on firms that are a reasonable financial fit.
You can kickstart your early benchmarking efforts with a blend of publicly available data and peer recommendations. But the most relevant and valuable insights ultimately come from continuous, systematic tracking of the law firms you personally work with.
Tip #6: Narrow Your List of Preferred Providers
Sequencing isn’t much of a factor in the previous five moves. At times you’ll likely be pursuing several angles simultaneously. But this sixth tactic is best applied only after you’ve engaged with all the rest.
As previously noted, the value of benchmarks takes time to accrue. The more practical data you can gather before evaluating a law firm’s merits the better. But the mission is about more than just gathering financial figures.
The less tangible, and often more important, traits of your business partners may take months or years to reveal themselves. You’ll want time to observe, for example, how a law firm operates under pressure and responds to setbacks before elevating the stakes of your relationship.
Leveraging Your Relationship for Savings
Once a few of your law firms begin to distinguish themselves, however, it’ll be time to employ one final financial maneuver. Your promise of recurring work for these providers can and should be redeemed for a meaningful discount.
Whether the savings are structured according to work volume or as a percentage reduction off all hourly work, your panel of preferred providers won’t flinch at your request. They know exclusivity has a price and most will already have similar agreements in place with other clients.
The Common Thread
Together we’ve explored a range of cost-saving countermoves when it comes to law firm billing rates, including:
- Alternatively resourcing Low-Risk work
- Strategically insourcing High-Risk work
- Selectively engaging “lower-tier” law firms
- Expansively negotiating financial variables
- Consistently enforcing guidelines, rates, and budgets
- Gradually developing proprietary law firm benchmarks
- Ultimately consolidating your list of law firm relationships
But these disparate habits all have one thing in common: The effectiveness of your execution grows in direct proportion to the depth of data you have working in your favor.
The good news is you already have ample amounts of valuable data flowing through your everyday operations. The real question is whether you have the systems to capture and apply it.
See Your Data in Brightflag
Contact our team today and we’ll coordinate a personalized tour of our leading legal spend management platform, which can provide you with all the data you need to effectively understand and negotiate law firm billing rates.
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