Rate pressure and securing ‘competitive’ quotes
General counsel across the board are seeing either downward pressure on rates from external providers or an increase in their fees. Either way, law department leaders will increasingly be concerned with how to minimise external legal spend.
Amid the storm of inflationary and other economic pressures in recent times, corporate lawyers remain ever-committed to the evergreen importance of doing more with less.
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Law firms are also beset by challenges, with – as has been reported by Lawyers Weekly – salary rises having slowed down and some having to explore and implement redundancies to their back offices.
In the face of this, and as one BigLaw managing partner recently told Lawyers Weekly, “there was already” downward pressure on rates in the back end of last year, and he suspects that more pressure is yet to come.
Such pressures are also being seen by those in-house, as one GC, speaking to Lawyers Weekly on an anonymous basis, explained.
“I have observed the downward pressure in the form of reduced rates and low fee caps on pieces of work,” GC #1 noted.
“This may assist a firm to win work and get through economically trying times, but one unfortunate by-product is a drop in quality as teams reduce the amount of time senior, more expensive fee-earners spend on matters to avoid write-offs, leaving junior fee-earners to operate too independently.”
This is a “balancing act”, GC #1 mused, “as juniors without proper supervision can damage the reputation of not only their firms but [also] that of their clients”.
Other external providers may be looking instead to increase rates where possible, in response to market factors.
Another GC, also speaking anonymously, is aware of fee increases coming from external providers at the moment.
Generally, GC #2 outlined on reflection of fees, “we ask for cost estimates before we provide instructions to proceed. We find the law firms generally stick to this, and if they spend more time than anticipated, they will write off the extra time, or we negotiate the final amount (which always involves some discount)”.
“We find this a better way to manage costs. If the advice I receive is efficient and pragmatic, then I’m happy to pay the full hourly amount,” GC #1 said.
“If I feel like they didn’t deliver on what they promised or were inefficient, I will generally raise this and negotiate a price that I feel is more reflective of the value they delivered.”
Irrespective of which way rate pressure is headed for various sectors, GCs and other law department leaders will have to find new ways to minimise their external legal spend, Australian Financial Crimes Exchange GC and company secretary Simone Tierney posited.
She is seeing, she detailed, in-house teams reconsidering what work they require, “and what are the ‘nice to haves’, and are putting on hold those matters that don’t deliver savings to their business or against their key strategic objectives”.
They are having, she said, to “control their legal spend by actively managing their legal panels and tendering out or obtaining competitive quotes for certain work”.
The result is, she hypothesised, that incumbent firms are “being pressured to hold their rates or only increase them by a modest amount”.
Corporate legal will also, Ms Tierney went on, must determine how best to utilise external legal spend differently and more efficiently to lessen the burdens being placed on internal costs.
They are looking to do this, she listed, by “recognising that there’s no longer a need for ‘BigLaw’ for everything and, as such, are reconsidering service lines that are able to be delivered more efficiently and economically by smaller firms that don’t have the overheads and structure that necessitate exorbitant hourly rates”.
Furthermore, she said, they are asking to negotiate on payment terms rather than hourly rates and are using metrics to measure the value add of the legal team, such as tracking legal spend in order to quantify the benefits and to develop learnings for the business.