Has your External Legal Spend Recently Increased?

Author - Arlen Pettitt

Date published:

Coote O’Grady is a North East-based legal spend management consultancy. In this blog, they look at some common issues which could be increasing your legal fees.

Reducing external legal spend is a common challenge for in-house legal teams. Rationalising the number of law firms you use is often seen as a way to drive some economy-of-scale savings, but in reality, we often see the reverse – clients beholden to a few firms who now know them to too well – they lose any leverage to walk away if service dips / price increases. 

We see this problem time and again and set out here are some examples of issues we’ve encountered as a result of concentrating spend in too few firms. 

Daily Rates

In this example, the client had agreed day rates (along with standard hourly rates) with firms as part of a formal tender. The firms were scored and selected based on their tender submissions but when it came to utilising the day rate pricing, the firms could not administer the change (within their billing teams) and the client had no leverage to force this. They therefore had to accept the more expensive hourly price, despite the tender pricing. 

Staffing

Clients are frequently negotiating free trainees as part of their pricing. This does not, however, mean no trainee work. We’ve seen multiple examples of firms offering free trainees and then using paralegals to do that work. As part of our invoice review process we pick this up and ensure firms change their staffing models, but clients are not able to rely on the law firms doing this themselves.

Invoice Review Challenges

For a few clients, their firms are so entrenched in the fabric of their organisation that even where they want to challenge an invoice, they are faced with an uphill struggle – there is often a less commercial approach to long-time / large value clients, as the law firms know themselves the client will eventually pay and return for more work no matter what. 

Payment Terms

We have seen examples of clients paying law firms upfront, in a retainer style fashion, without any discount for early payment and without any recognition for the ability to challenge invoices retrospectively. Again, this is more illustrative of how the firm views that client and the commercial balance between the two. 

While its admirable to pay all firms up-front, an organisation must think long and hard before tying themselves so intrinsically to any particular law firm. At the end of the day, who is ultimately paying the bills? 

According to Coote O’Grady’s Head of Legal Operations, Lynsey Wood, in her experience, reducing the number of law firms a client works with frequently sounds like the best and simplest approach but doesn’t always achieve the desired results. Hefty price increases, less flexibility on cost reduction, reluctance to follow billing guidelines, speed of response, and deviations in quality are all common complaints from organisations that work with a smaller selection of law firms. ‘In our experience, without competitive tension, over time prices will increase, as the law firms know they will get a large portion of the work. We commonly see double-digit price increases from law firms where they are in a dominant client position”, said Lynsey on the topic. 

Using our legal spend management analysis capability we can identify trends in external counsel spend, make recommendations on where savings can be made all while improving relationships with your external counsel to help you better manage your legal budget. 

If you are looking for ways to better manage your external legal spend, let us do the analysis for you and identify real and sustainable cost savings  – contact us [email protected]

This article originally appeared on the Coote O’Grady website.

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