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With Validatum Pricing Espresso® we aim to bring you your regular pricing 'shot' - the best, most interesting, thought provoking and informative material we can find globally which will be of interest, relevance and help to you in your legal services pricing challenges. [Note: we don't always agree with the content of others that we post but the philosophy of Validatum Pricing Espresso® is shared perspectives, not a personal 'soap-box']

Espresso.2

FEATURED

The Tender Age

Procurement Management

Bidding: How to maximise your chances of success

Tendering is tough. It’s expensive. It’s time consuming. Everyone involved has an (often different) view on what great service looks like and how much that’s worth. Let’s face it, it’s a downright painful process. And that’s just the client’s perspective.

Large law firms will, of course, be used to the rigours of tendering. Large corporates have had sophisticated (in varying degrees) procurement functions managing their legal expenditure for many years, and the legal firms which advise them tend to have well resourced, equally sophisticated bid and business development teams to work with them. Read more...

Pricing: Play Off the Front Foot or Perish

Change

There are three core messages in this blog;

1) Alternative fee arrangements that are not solely dependent on the clock running can be more profitable than traditional hourly billing.

2) Offering AFAs proactively is invariably more profitable in contrast to arrangements offered reactively in response to client demand.

3) The whole concept of alternative fee arrangements needs to be reimagined and re-engineered. We have some observations about a trend we have been advocating and which is gaining momentum. Read more...

PRICING STRATEGY

“We're more expensive because we're better than them…”

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Although there are clearly exceptions, it is well understood by most law firm marketing and BD specialists, if not so much by partners, that for the most part, technical ability is not a differentiator in the eyes of clients. And even if it is a differentiator in a specific situation, claims of superiority tend to be viewed by clients as little more than hyperbole and lacking any kind of proof.

In his book ‘Think Again - Innovative Approaches to the Business of Law’(much of the content of which is as relevant today as when it was first published by the American Bar Association in 2007) Jeffery Nischwitz observes;

“… most lawyers and law firms attempt (unsuccessfully) to differentiate themselves based on the quality of their skills and services. We are talking about attempts to differentiate based on quality of legal services, not the quality of the "service"… Read more...


Value, Pricing, Costs

Value-v-Price

Economists accept that value is the arbiter of price and, in the context of legal services, price is the fee lawyers charge. A party to a transaction (buyer or seller) sees the price as reflecting value when they perceive they are receiving more than they are giving up. Value is not assessed by reference to the amount of labour required to produce the service (ie, the cost). Value is assessed at the time the price is agreed but also after the service is delivered or the product is used.

Section 172 of the Legal Profession Uniform Law (LPUL) provides a definition of “value” of legal services, mandating that a law practice must charge costs: Read more...

The perfect pricing storm; artificial intelligence and hourly billing

Ln Report

Law firms today face increased pressure to do 'more for less' resulting in rapidly growing interest in compelling technology-augmented hybrid offerings: focused on process-oriented work, applied at scale, leveraging technology to produce effective solutions that address the GCs evolving role as manager of legal spend and supply chain risk.

For many law firms, this means fewer billable hours. If AI will allow document review for example, in a fraction of the time it used to take, that's someone's billable hours target out the window. The use of AI in legal service delivery is exciting and represents a great opportunity, particularly for early adopters, but it has a vicious sting in the tail. Something will have to change with traditional pricing models. Read more...

PROCUREMENT

Corporate Procurement Departments Increasingly Leveraging Data and Technology in Selecting Outside Counsel, Survey Reveals

Procurement Management

A new survey released today from Bloomberg Law and The Buying Legal Council reveals that the top priority of corporate procurement professionals charged with managing legal spending is reducing the number of law firms utilized by their organizations. The findings confirm the accelerating shift away from relationship buying and selling in the legal industry to decision making driven by data and technology.

The 2017 Legal Procurement Survey also suggests that procurement professionals are having substantial success in reducing their employers' legal spending, with respondents claiming responsibility for an 11 percent reduction in legal spending on average, a number that increased to 23 percent for those who self-identified as being highly successful. The full report can be accessed at http://www.buyinglegal.com/survey.

"The 2017 Legal Procurement Survey underscores the increasing acceptance and effectiveness of procurement professionals in managing legal purchasing," said Dr. Silvia Hodges Silverstein, Executive Director of The Buying Legal Council. "It is a revolution based on discipline, process controls, and analytics advocacy." Read more...

Buying Legal Services - Billing Guidelines and Service Level Agreements: Does anyone effectively monitor them?

Guidelines

Having a set of guidelines governing billing arrangements and an SLA to govern service delivery is not a new idea. However, there are still numerous organisations who do not have these in place, and more still who do, but do nothing to check or enforce compliance of them. Using these to proactively drive performance management and selection of law firms is rare. While some would argue these documents are not important when it comes to assessing the level of legal advice you are receiving, and therefore performance of a law firm, I do believe there is a place for a KPI-style measurement of service delivery in legal services.

Having been involved in drafting these guidelines for several organisations, I have a number of concerns with why and how they are rolled-out: Read more...

The Missing Piece in Proposals

Procurement

Few tasks in law firm marketing hold as much promise—and aggravation—as responding to requests for proposals (RFPs). The promise, of course, lies in the possibility of winning a great new client or expanding the work you’re doing for an existing one. The aggravation—well, that could be the subject of an entire series of articles.

But I don’t want to talk about the RFP you got at 4 p.m. on Friday, that’s due Monday morning. Or the one that’s due the day after Christmas, or the one you had to work on through Thanksgiving weekend, capped by a Sunday all-nighter to meet a deadline in Estonia. Nor am I talking about the RFP with a 15-page, single-spaced list of questions, requiring a maximum response of 10 pages, in 12-point Times New Roman font, with 1-inch margins on all sides, that must be delivered by email, and on a CD, and five print copies in three-ring binders, in separate sealed envelopes.

And let’s not discuss the ones that demand a detailed work plan and staffing proposal for complex litigation—in 500 characters or less. I’m not even talking about the RFPs for work your firm doesn’t actually do, or the one your partner received weeks ago, but only sent you today, well after the deadline to ask questions has passed. (Yes, these are all real-life examples). Read more...

HOURLY BILLING

Don't Abandon The Hourly Rate Just Yet

Billable Hour Escape

How often are we told that the billable hour has had its day? That it’s archaic, that it’s inefficient, that it makes our clients angry and holds our practices back?

Well guess what? I disagree. In fact, I think the billable hour is wonderful - so wonderful that, for many professionals it should be a default in their business development toolkit. Read more...

Top 50 US law firms partner charge 40 per cent more than next tier

Judge Gavel Handcuffs And Money 1461289507 Euk

Partners in the largest 50 firms now command hourly partner rates 40 per cent higher than partners in the second largest tier with M&A partners commanding the largest fees.

The average partner billing rate at a ‘Largest 50’ firm is $627 per hour, versus $447 per hour at a firm in the next largest tier, according the latest LexisNexis CounselLink Electronic Legal Management Trends (ELM) Report. The ‘largest 50’ US law firms are defined as those with 750 or more lawyers and firms in the second largest category defined as firms with 501 up to 750 lawyers.When looking at partner rates by practice area, mergers and acquisitions work commanded the highest billing rates at $634 per hour. Corporate work came in a close second at $575 per hour, followed by regulatory and compliance at $543 per hour and IP trademark work at $501 per hour. Read more...

A Closer Look into the PMI: Reliable Rates

Georgetown

Despite the oft volatile nature of the legal industry over the past decade or so, there remain a few constant factors. One of the unvarying aspects in recent years has been the assurance that rates will grow

According to the 2017 Report on the State of the Legal Market, produced by The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute, average standard rates have grown by 30% over the past decade, leading to growth in average collected rates of around 18%. The ability for law firms to consistently push rate escalations onto their customers has been truly instrumental in maintaining a certain level of firm profitability. Read more...

Why Capping Hourly Fees is Usually a Bad Idea

Price In A Clamp

As flat fees become more popular, one of the ways lawyers often “try out” flat fees is by offering to cap their hourly fees. For example, a lawyer might offer to bill $200 per hour for a small lawsuit, but no more than $10,000, total. This is a rookie mistake. If the lawyer bills 50 or fewer hours, he will merely be paid for his work the same as if there were no cap on fees. But if he bills more than 50 hours, he gets the short end of the stick.

Contrast this with a true flat fee where the lawyer charges $10,000 whether she spends 10, 50 or 100 hours on the representation. If she spends only 10 hours, she has come out ahead. If she bills 50, she has come out even. And if she bills 100, she has gotten the short end of the stick. Read more...

With Hourly Rates Rising, Report Shows Spotty Record for GC's Cost-Constraint Tactics

Hour Money Clock

Hourly rates are rebounding strongly from the post-recession doldrums and Big Law is leading the way in capturing more money for their time. Nonetheless, overall demand for lawyers’ time continues to fall, according to an analysis released Monday of actual legal invoices from nearly 100 companies.

In the U.S., hourly rates jumped 5.4 percent between 2014 to 2015, powered by an average 7.5 percent rate increase obtained by those at firms with more than 1,000 lawyers, states a 2016 Real Rate Report issued by consultancy CEB Inc. and Wolters Kluwer NV’s ELM Solutions, which helps in-house legal departments manage their budgets. That was the highest year-over-year increase since 2008.

As has been a common theme since the Real Rate Report was first released in 2010, the size of a law firm has the largest impact on a lawyer’s billing rates—even more than the city in which they practice. Read more...

GENERAL COUNSEL

Clients to axe multiple law firms

Fired

Bad news is on the way for law firms as clients are seeking to reduce their legal spend by cutting the number of law firms they use and instead employ technology to supplement services. And moves to cut layers will be swift as priority for clients over the next 12 months is consolidation of their list of preferred legal services suppliers.

A new survey said that in a market that was dealing with disruptive factors ranging from new technology to increased global consolidation among service providers, both in-house legal departments and outside law firms were looking for ways to become more efficient and effective including putting in place systems that delivered superior business intelligence and created efficiencies in their everyday work. Read more...

Notes on a Law Firm Pitch From an In-House Attorney (Perspective)

Tender

I recently attended a legal industry conference and had the privilege to serve as a judge alongside other in-house lawyers from various leading companies to evaluate fifteen-minute PowerPoint-based “pitches” made by several law firms regarding their firm’s capabilities in providing legal services to potential clients. It was a great learning opportunity for me to watch many excellent lawyers make their case as to why their law firm should be chosen as outside counsel.

Here’s my observations from this experience – some of which are also relevant to in-house counsel trying to “sell” themselves to their business clients and senior legal department leaders. Read more...

PRICING ECONOMICS

Three Firms Admit to Overbilling, Agree to Pay $2M for Probe of Bills

Fail

Three law firms­—Labaton Sucharow; Lieff Cabraser Heimann & Bernstein; and Thornton Law Firm—have admitted they double counted hours in a securities class action suit against State Street Bank that netted them $75 million, and have agreed to pay up to $2 million to cover the cost of an investigation into whether they overcharged for their work

At a hearing in Boston federal court on Tuesday, U.S. District Judge Mark Wolf reportedly appointed Gerald Rosen, a recently retired federal judge, to conduct a probe of the plaintiffs firms' fee request in connection with a $300 million settlement of securities claims against State Street.

Wolf's appointment of Rosen as special master was reported earlier by the Boston Globe, which has published a series of articles raising questions about political donations made by lawyers at Thornton, as well as whether plaintiffs lawyers in the State Street case inflated their billing rate estimates while asking for legal fees. Read more...

Bank of England's legal spend triples

Bank Of England

The Bank of England's (BoE) average annual legal spend has more than tripled during the past three years.

Figures obtained by a freedom of information request have revealed that from 2011 to 2013, the BoE’s annual legal spend was two million pounds per year but for the three subsequent years the average figure skyrocketed to close seven million. And the trend to spend for the Bank is on the up with it spending £4.7 million on external counsel in 2014, £8.7 million in 2015 and £7.4 million in 2016.

There have been a number of major contributors to the rising legal bill. For example, the 2014 the inquiry into the extent of its involvement in the foreign exchange market scandal eventually exonerated bank officials from claims they were involved in or were aware of rate rigging cost nearly £3 million alone. Travers Smith was paid £2.2 million for its role in the case while a QC leading the investigation more than £400,000. The overhaul of the UK’s financial regulation in 2013 and the expansion of the bank’s regulatory oversight has also been cited as a reason for the legal cost hike. The spend is not only on external legal advice - it includes recruitment with the bank’s in-house team growing from 46 lawyers in 2014 to 68 in 2016. Read more...

Post mortem: why KWM collapsed

Closed

The collapse of the European arm of King & Wood Mallesons or KWM was one of those dramatic moments which gripped the entire legal world.Legal Week mused that at one point pretty much all its top stories were on KWM. The interest was more than gossip. There was, and is, genuine interest in why such a huge law brand came tumbling down.

Legal analyst Mark A. Cohen wrote in Forbesthat the Swiss verein structure was partly to blame. KWM’s Chinese and Australian units operated as independent legal entities under the system. It is the reason why KWM’s other entities continue to thrive today, despite the loss of KWM Europe and Middle East.

Mr Cohen described vereins as “legal networks masquerading as unified firms”. He criticised the lack of shared interest, reward or ethos: “This is not your mom or dad’s version of a partnership or a law firm.” Read more...

Red-flag billing practices chronicled; report finds 'upbilling' by 21 percent of law firms

Warning

Twenty-one percent of lawyers “upbilled” for their time in 2015, rounding up their hours worked to the next hour or half hour, according to an analysis of legal invoices from about 100 companies.

Upbilling could raise the annual legal bill by about $29,000 for a partner billing 2,000 hours a year, according to the 2016 Real Rate Report. The Am Law Daily (sub. req.) has a story.

The report chronicles upbilling and other red-flag billing practices, along with law-firm rates. It was released on Monday by CEB Inc. and Wolters Kluwer NV’s ELM Solutions, companies that help legal departments manage their budgets. Report summaries are here (PDF) and here. Read more...

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