Food giant Kraft Foods has rewarded one of its law firms for its common sense approach to reducing and controlling legal costs. This in and of itself isn’t so surprising, inasmuch as companies like DuPont, United Technologies and others have taken similar actions. The big difference is that Kraft has lauded Morgan Lewis for controlling legal costs using the billable hour, as opposed to alternative fee arrangements.
Given the rush to alternative fee arrangements since the recession began, might we be seeing a new equilibrium emerging, where alternative fees drive new thresholds of billable hour efficiency?
Kraft Lauds Morgan Lewis’ Service
Robert Half Legal’s recent survey lends further support to clients seeking greater value for their dollar.
Corporate counsel seeking more value from outsourced law services
The following article discusses how some lawyers at higher-priced firms are jumping to smaller firms with lower rates, in response to client demands. This is yet another way the market is dealing with the repricing of legal services.
Lawyers Jump to Smaller Firms with Lower Rates
Certain firms are increasing their rates for more experienced associates. In a climate in which alternative (fixed) fees are becoming more and more popular, I view this uptick in rates as a hedge against potential cost overruns in fixed fee arrangements.
While we’ve seen a shift in economic power from attorney to client, I’ve encountered more general counsel who are less concerned with merely negotiating lower rates than they are with a more holistic approach to cost control – an approach that not only reduces costs, but also manages expectations and improves performance.
Our clients want to reduce fees and expenses, but if the tradeoff is a decrease in quality or an increase in administrative oversight (of less experienced associates), any short-term economic benefit will be far outweighed by more fee volatility and a contentious relationship. Some, therefore, are willing to pay for more experienced attorneys as long as there are corresponding increases in predictability and efficiency.
It’s January, the start of a new year, and a time to say good-bye to 2009. But if you’re like most law department managers looking at 2010, perhaps ”happy” is a stretch goal. “Sane” would be nice, and really goes without saying, so I apologize for even bringing it up. How about “predictable” - predictability in the nature, timing and level of legal fees and expenses? (Read More)
A colleague recently asked me what middle market companies can do to streamline their internal legal function. By ”middle market”, I mean $1 - $5 billion companies, which typically spend about .5% of their sales on total legal costs. Generally, companies in this range have anywhere from 5 to 30 attorneys and assistants. Of course, these relationships will vary by industry and, for that matter, for each specific company. For those of you in this position, you’re in the driver’s seat. (Read More)
Companies are taking a variety of approaches to structuring alternative fee arrangements. Some are instituting flat fees for work performed by their most active law firms, whereas others are negotiating lower rates for relatively more predictable matters (e.g. patent filings, etc.) across all firms. Regardless of the approach, sound and capable processes must exist for the rapid retrieval of timely, accurate and clear information. Otherwise, process volatility in the form of manual rework and adjustments will reduce the value promised by such arrangements.
For example, assume your company is to receive rate discounts on all work performed on relatively routine matters. Can the law firm’s billing system adjust rates at the point of time entry based on the client and matter type, or must attorneys and staff adjust rates manually at month-end? Can your staff quickly quantify the savings derived from this arrangement when bills are imported and processed, or must they transfer the information to spreadsheets for analysis and summarization?
Carefully consider questions such as these. After all, instituting predictable fees for predictable matters makes sense. Just make sure your processes do, too.
Citigroup’s legal chief, Michael Helfer, said that about 30% of the bank’s legal spend now falls under alternative fee arrangements, primarily in the form of fixed fees and contingency fees.
Read the Legal Week article
Already popular in Australia, third-party litigation funds are raising money in the U.K. as a play on commercial lawsuits. Under such arrangements, litigation funds pay the legal fees associated with commercial disputes, and in return receive a percentage (15% - 45%) of the award or settlement. A portion of these returns are then passed on to shareholders in the form of dividends. Such arrangements can benefit companies who understand the risk-reward structure of contingency fees, but some question whether the search costs for promising cases and the companies willing to enter into such arrangements can create and sustain a viable market long-term.
Third-Party Litigation Funders Offer Alternative to Hedge Funds
Count UBS among the growing number of banks completing legal panel reviews to help identify top-performing firms and reduce legal expenses.
UBS pushes down on rates after completion of global panel review
