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Turbulent Times: What's Everyone Else Doing?

When it comes to pricing, no-one has a better global perspective than Validatum®, having worked as we have with over 300 law firms in 25 countries.

We thought you would find this international snapshot of what we are currently seeing ‘out there’, interesting and hopefully instructive.

Aggressive rate increases

We have not since 1980 seen rate increases as aggressive as we are currently seeing – typically in the region of 9% to 14%. And firms that undertook rate increases earlier in the year at around 5% are now in a major quandary. Suck up the difference in cost increases or ‘go again’ within the same financial year, which for most would be unprecedented and which may have a worse PR impact than a single large increase of the same aggregate amount. Read more...

Pricing

Pricing - a technology solution

Research by Validatum® suggests that the UK top 200 law firms wrote off over £4 billion last year in recorded billable time. Client expectations around value for money, cost savings, cost predictability/certainty and price transparency continue to apply unrelenting pressure.

At the same time, partners loathe pricing and this whole aspect of the client relationship. Few partners have ever had formal pricing training, pricing is viewed as an administrative/regulatory ‘pain in the neck’, and fee-earners usually can’t record the time spent pricing towards their personal targets. Often, partners have no idea whether the job that they are pricing is profitable or not.

The traditional approach

Many partners still approach pricing in an unsophisticated way, which leads to the huge and costly write-offs. Read more...

Consumption-Based Pricing Is Here to Stay, So Long as Billable Hours Are

Even as legal tech vendors with cloud software roll out subscription-based pricing models, experts note that tech prices will ultimately align with lawyer fees, creating a stronghold for per-seat user fees and consumption pricing.

As the tech industry at large has evolved its pricing models over the years, legal tech vendors have followed suit, trying to accommodate the market trends and the needs of their changing consumer base.

Still, legal tech is uniquely positioned within the vertical, because its markups cannot exist without reflecting on the pricing structures within the legal industry. And attorney fees are still far from transparent. Read more...

Big New Spark in Using AFAs — 5 Reasons Why

After crashing in the last 6 months of 2021 — AFAs are coiling up for a comeback.

December 2021 showed 48% of clients using AFAs, down from 70% just 6 months earlier. Fast forward to today — BTI’s brand-new research with top legal decision makers reveals 55% of clients are now using AFAs. This reverses a trend and signals what’s ahead.

The BTI research shows clients overwhelmingly prefer 2 types of AFAs: Read more...

Many Legal Departments Lack 'Gumption' When Negotiating Outside Counsel Rates

"While many in-house counsel are skilled negotiators by training, negotiation takes on a different tenor when you’re sitting across from an external partner whose collaboration you rely on for critical support," legal department consultant Jason Winmill said.

A new report from Wolters Kluwer found that many legal departments do a pitiful job negotiating outside counsel rates - with companies in the financial and banking industries being the big exception. Read more...

Lawyers Should Raise Their Rates

At least that's what the numbers say.

The Clio Legal Trends Report provides a wealth of insights every year. Built by combining attorney survey results with real, fully anonymized usage data from Clio users, the report manages to provide a more complete picture of the legal profession than surveys alone.

Data doesn’t lie.

Well, data can and does lie all the time, but usage data doesn’t lie and that’s the point here. Read more...

Inflation May Be Beating Billing Rates Increases

The new findings point to even more troubling signs for 2022 law firm profits.

Law firm billing rates have increased across all law positions in 2022, but not necessarily enough to keep pace with inflation.

That’s according to new reports released this week that point to some more challenges for law firm profits.

The average going rate for partners in the United States this year is about $749 per hour, an increase from about $738 in 2021 (+1.5%), according to a report from Wolters Kluwer ELM Solutions. Last year, the average going rate for partners rose from about $705 in 2020 (+4.7%). Read more...

US Lawyers Spending Only One-Third of Their Workday on Billable Hours

With realization up, a new Clio report finds that every hour of work has become more valuable to firms.

US lawyers have been spending a little more of their workday on billable hours this year, compared with the last three years, but continue to devote two-thirds of their time to non-billable matters.

According to a 2022 Legal Trends Report made public this week by Clio, a Canadian company that provides cloud-based practice management for firms, U.S. lawyers are putting 33% of an eight-hour day, or 2.6 hours, on billable hours—a statistic known as the utilization rate. The rate was 31% for the last three years. Read more...

‘Divorcing’ Billable Hours and Other ‘Creative’ Economics: Morgan Lewis Charts Path to Sustained Profitability Following Chair’s Extension

While less than 5% of the firm’s annual revenue comes from arrangements in which the client agrees to a set price for 12 months of legal services, that figure is growing, according to managing partner Steve Wall.

After eight consecutive years of rising profits at Morgan, Lewis & Bockius due to the global firm's experimentation with fixed and subscription-based pricing, leaders are looking to incrementally divorce the firm's business from such longtime industry standards as revenue based on the billable hour. Read more...

Ethical Considerations for Flat Fee Billing

Lawyer flat fee billing can be tricky. Transitioning to flat fees means passing the reasonableness test and following local ethics guide rails.

QUESTION: I’m a solo practitioner with a general practice handling everything from real estate transactions to family law. While most of my billing comes from traditional hourly rates for matters, I have always used flat fees for certain client demands such as residential real estate transactions and basic estate planning. I’d like to expand my flat-fee offerings into other practice areas, but I want to make sure it’s a sound financial move and an ethically permissible one. Read more...

Corporate law departments want expertise from ALSPs — even more than tech and low costs

Many corporate law departments are leveraging ALSPs for their expertise, rather than just their tech prowess and lower cost, according to recent research

As the market for alternative legal service providers (ALSPs) continues to grow, many providers have looked to differentiate themselves from traditional law firms by either touting their technological expertise or their lower overall costs. Yet, when corporate law departments are evaluating which ALSPs they view most favorably, the calculus remains similar to how they evaluate their outside law firms: Expertise is paramount. Read more...

Costs

Firms must deduct 50% from damages to survive fixed costs extension

A market expert has warned that firms may have to charge at least 50% of clients’ damages once proposals for fixed costs are introduced.

Nick McDonnell, director of costs practice Kain Knight, warned that curtailing recoverable costs will force more firms to make up any shortfall from their clients.

That could lead to further disputes and arguments of the kind that have repeatedly appeared in the courts in recent months, where clients try to claim back deductions on the basis they did not consent to such a large amount being taken by their advisers. Read more...

Court refuses assessment costs cap despite 'odd' initial bill

A costs judge has allowed claimants to recover more than £12,000 in assessment costs – defeating the defendants’ arguments that they should be capped at £1,500.

The defendants in UK Sovereign Investments Ltd v Hussain had said the initial overall costs bill of £83,000 had been ‘grossly exaggerated’ through ‘unreasonable conduct’.

Deputy Costs Judge Campbell acknowledged that the amount claimed was ‘odd’ but said he was not in a position to make a finding that the figure advanced in the bill was unreasonable. Read more...

Cash flow management for law firms

Cash flow management is always a key topic for law firms and has certainly been one of the main points of focus for firms during the pandemic. As we learn to live with Covid, it remains as relevant as ever. The ability of a law firm to access cash will secure its financial health and allow it to survive and grow.

Below are the ten main issues that law firms should consider when managing their cash flow.

1. Forecasting

Cash flow forecasts and projections can be prepared by law firms for specific reasons, for example: Read more...

Outsourcing by law firms

Which operations suit outsourcing?

You can outsource any role and almost any activity in a law firm.

Firms have always outsourced activities such as cleaning, document shredding/storage, and catering for events.

Then firms started outsourcing technology support of all kinds. Why try and become an expert in optimising your Practice Management System (PMS) when you can buy the time of a proper expert who has helped dozens of firms like yours? Read more...

Belsner-type claims ‘ridiculous’ and driven by costs chasers, court hears

Costs recovery lawyers are making 12 times the amount their clients recover as they chase firms for damages deductions, the Court of Appeal heard today.

Opening the long-awaited appeal hearing in Belsner v CAM Legal Services, Benjamin Williams KC said it was a ‘ridiculous sight’ to see challenges for less than £300 in damages taken through the High Court.

The three-day hearing seeks to determine whether Norfolk personal injury firm CAM Legal Services was entitled to claim back unrecovered costs from client Darya Belsner’s damages after advising her on a claim. Read more...

Master of rolls questions 'impenetrable' client documents

The ability of lay clients to understand the Law Society’s model conditional fee agreement was questioned by three of the most senior judges in England and Wales yesterday in a much-awaited Court of Appeal hearing.

In Belsner v Cam Legal Services master of the rolls Sir Geoffrey Vos, the chancellor of the High Court Sir Julian Flaux and Lord Justice Nugee are hearing an appeal to decide whether the client in a low-value RTA claim gave informed consent to a deduction of unrecovered costs from her compensation from a motorcycle accident. Her case is one of those taken up by costs challenge specialist checkmylegalfees.com; Norfolk firm CAM Legal Services is contesting the claim for £385.50. Read more...

Solicitors took ‘unfair advantage’ of client by deducting costs, court hears

Solicitors making deductions from their client’s damages without spelling out that this would happen took ‘unfair advantage’ of her, the Court of Appeal heard today.

Responding to the appeal in Belsner v CAM Legal Services today, PJ Kirby KC said the law firm did not have its client’s informed consent to take around £321.50 that was not recovered from the defendant in a PI claim.

Kirby said the courts had recognised for many years that lawyers held influence and experience over their clients and there was an ‘inequality within that relationship’. Read more...

Legal sector review 2022 Q3

Part 1: Andy Harris covers:

• The various mini-Budget changes...
• ...including the U-turn on the additional rate of income tax
• But deferring dividends may still make financial sense

Part 2: Andy Poole covers:

• Declining confidence and slightly declining activity levels among law firms
• Law Society's new practice note on closing down a law firm

Part 3: Alex Holt covers:

• The continuing high activity levels among Cashroom's client firms
• The trends and issues around the return-to-the-office
• Recruitment and retention, which remains a key challenge Read more...

Claim worth £3,000 moved after costs rose towards £50,000

A High Court judge has made a veiled warning to solicitors not to over-plead on data protection cases and incur massive costs on unnecessary litigation.

In Cleary v Marston (Holdings) Ltd, Mr Justice Nicklin directed that the claim worth £3,000 should be transferred out of the High Court and allocated to the small claims track, to be heard in the county court.

Solicitors for the claimant estimated that the costs of bringing the case to trial would be almost £47,000, although they indicated they would not oppose any decision to transfer the claim to the county court. Read more...

Court of Appeal hears second fee claw-back challenge

A second costs recovery case has been heard in the Court of Appeal in a week as former clients seek to claw back deductions made from their damages by law firms.

The appeal in Karatyz v SGI Legal was heard on Friday as an adjunct to Belsner, which was heard over three days last week before the same panel of judges.

In both Karatyz and Belsner, the claimants are represented by checkmylegalfees, although unlike in Belsner in Friday's hearing it was the former client and not the law firm challenging a High Court decision. Read more...