Law firms’ fees: time for alternative action

When law firms hiked their rates, clients had little option but to grin and bear it. Not anymore. Buyers of legal services are pursuing a range of strategies – including alternative fee arrangements, working with other service providers and bringing work in-house – to keep costs in check.

But to buy the right services for the right tasks, buyers need an intelligent, data-driven approach. There’s a huge amount of information available about fee rates and arrangements, as well as alternative service providers. Gaining the most valuable insights from this wealth of data requires a platform that can bring it all together with the analytical tools and talent to guide intelligent decision-making.

Recent reports highlight market changes

Two recent reports – Citigroup Inc / Hildebrandt Consulting LLC “Client Advisory Report” and Thomson Reuters Corporation “Report on the State of the Legal Market” – show that the top US law firms enjoyed a strong 2018. In the past, clients used these firms mainly for transactional work. Now, there’s more balance between transactions and litigation. This could be because of the growing trend for bringing transactional work in-house.

Adoption of alternative fee arrangements (AFAs) continues to increase. That means we’re seeing greater use of fixed fees, fee caps and/or fee collars. But law firms aren’t having it all their own way. The market for alternative legal service providers is growing: 47 percent of law departments have outsourced work that was previously handled by law firms to alternative legal service providers. The trend is even more pronounced for large law departments (with more than 50 lawyers), where 77 percent now use outsourcing as a labor alternative.

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Reviewing lawyers’ bills

Despite falling demand for all but the top firms, rates are increasing by between 3.1 and 4.3 percent. That’s more than double the latest professional services consumer price index of 1.2 percent.

Clients can’t continue to accept these annual increases without taking action. So what should they do? Several strategies can help:

• Align all future law-firm rate increases to mutually agreed, local inflationary indices
• Seek greater price certainty by negotiating rates that are locked in for multiple years
• Develop a role-based rate card with law firms that differentiates between associate years of experience, as well as equity versus non-equity partners
• Put in place a data-driven, well-documented rate increase evaluation process
• Regularly test the legal market through RFPs, which would help to understand current offerings and pricing for legal services that meet their specific needs, and
• Where possible, establish smart collaboration with alternative legal service providers and leverage their innovation potential.

Law firms are expected to, of course, periodically request rate increases. But questioning how often and by how much should be subject to rigorous evaluation.

Accenture clients have realized significant savings by identifying the areas of work that can be placed with alternative legal service providers vs law firms. For example, Accenture has helped many clients to move their patent renewal work from law firms to intellectual property management companies. Engaging alternative legal service providers makes sense in other areas too.

Please get in touch to discuss the topics raised in this blog and/or to learn more about how Accenture Procurement BPS can help your organization to adopt these strategies.

This article was originally published in our Spend Trends application. Spend Trends captures the latest insights and perspectives from our global team of category specialists from the market-moving news to what we think it means for our clients, to in-depth supply market overviews.

Sources and References:

1. “2019 Client Advisory.” Citi Private Bank and Hildebrant Consulting. Accessed March 12, 2019. https://www.privatebank.citibank.com/ivc/docs/2019CitiHildebrandtClientAdvisory.pdf.
2. “2019 Report on the State of the Legal Market.” Thomson Reuters. Accessed March 12, 2019. http://ask.legalsolutions.thomsonreuters.info/LEI_2019-State_of_Legal_Mkt.
3. “2018 Chief Legal Officer Survey.” Altman Weil, Inc. Accessed March 12, 2019. http://www.altmanweil.com/dir_docs/resource/154F22DC-E519-4CE2-991D-492A0448C74F_document.pdf.
4. “Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U.S. City Average, by Detailed Expenditure Category.” U.S. Bureau of Labor Statistics. Accessed March 12, 2019. https://www.bls.gov/news.release/cpi.t02.htm.