A leading accountancy firm recently reported that from 2013 to 2017 the average charge out rates for law firms fell (across the board). However, law firm fee income apparently went up over the same period. That does tend to suggest that corporate purchasers of legal services are still not getting value for money, even if they are managing to negotiate lower rates. Below experts Edward Strickland & Richard Fisher, Directors at ClearCosts list seven ways to improve on your acquirement of legal services.
For years, lawyers have been inclined to be unspecific with their cost estimates and have on the whole benefitted from the lack of transparency by law firms when quoting for work. However, General Counsels have been wising up to this for some time now, becoming ever more creative with alternative solutions which represent better value for money for the corporate buyer.
We believe there are 7 key ways to ensure greater transparency and better value for money with the purchase of legal costs.
Enhance the relationship between GC and Lawyer
Good communication is vital for any successful relationship – and the GC/lawyer relationship is no different. But what constitutes good communication? Discussing clearly defined objectives, staging posts and goals, in terms of both performance and cost. The relationship should work like any other, in other words with boundaries set, freedom to operate within them, and regular feedback on instructions and costs. One example would be the delegation of work – in other words, does a GC mind if work is delegated to more senior fee-earners than may have been anticipated as long as the firm remains within their cost boundaries?
The communication should work both ways, with feedback from GCs regarding performance, and further objectives to help improve and refine the relationship.
Provide clear, informative, current and historic Management Information
Management Information is also critical. How do you measure value if you do not have effective MI at your fingertips? A measure of spend and win/loss in itself is too crude to be able to make critical management decisions. Effective MI enables GCs to effectively monitor their current exposure to costs and damages alongside the number of cases and their expected outcomes. You should be able to monitor the past performance of your spend as well as control your future spend against a number of variables and agreed goals.
Define a “win”
What does a “win” mean to you and how do you measure your lawyer against that? A win can mean loss mitigation, early exit, a recovery of damages, repairing a damaged relationship, securing future business, or even setting a precedent. How many cases are ‘won’, but at a cost which does not justify the outcome? Regardless of whether you are defending or pursuing a case, defining a “win” is vital.
Incentivise your Lawyer
Lawyers must work hard and give the best advice they can. But clients have obligations too. Lawyers, just like anyone, need targets and motivation, and they need to feel rewarded for achievements. Your lawyer is unlikely to feel motivated if the client’s instructions are too onerous and make a case unprofitable or unrewarding. Having established clearly defined goals and what it means to “win” a case, it ought also to be possible to define a reward for achieving or exceeding that objective.
Effective methods of Procurement
Your procurement process should be efficient and enable you to make commercial and dispassionate decisions about which firm to instruct. Software can be deployed to streamline that process and to enable you to measure whether your decision was justified based on subsequent performance. In other words, the procurement and performance process should be more transparent so it creates healthy competition, and ultimately a meritocracy.
Smart contracts can be deployed and block-chain integration should also be considered. Ultimately, for the corporate buyer to achieve greater savings, the process needs to be quick and seamless.
Breaking current funding models
Do any of the current models truly work in this day and age? The hourly rate charging method, by definition, rewards inefficiency. Conversely, a fixed fee risks leaving the lawyer out of pocket. Whatever charging mechanism is agreed, it is important to ensure that fees are always proportionate to the overall commercial value of the work, and that the service provider is incentivised to do the work promptly, and efficiently. GCs would therefore do well to consider fee models which align the needs of all those involved, including the lawyer.
Technology can be used in any number of different ways to improve and enhance the relationship between corporate buyer and lawyer, not only in the ways described above (i.e. procurement and fee models) but also in the transfer of important documents or in the deployment of smart contracts.
The marketplace for legal services is constantly changing, and changing rapidly, and our mission at ClearCosts is to ensure that we assist corporate buyers to embrace this new landscape and use it to their benefit by utilising through software all of the concepts described above.