September 1, 2011
Aptly named the “New Normal,” this new era in the legal industry has allowed certain cost-controlling techniques that were once considered ground-breaking or innovative to move more mainstream. In my last blog post, I discussed some traditional requirements a law firm could expect from their engagement with corporate clients: discounted rates, use of project budgets or early case assessments and travel expense rules to name a few.
However, according to a recent ACC/Serengeti Managing Outside Counsel Survey, more counsel are taking a more “activist” approach to manage outside counsel. In an attempt to reduce spending and get more value from their law firms, they are willing to employ less traditional, and often more restrictive, requirements on their law firms. And although many of these techniques are used by a minority of corporate counsel, the survey data suggests that all of the activities described below are at or near record levels, indicating their move into the mainstream. For corporate counsel, the growing confidence experienced by corporate counsel to employ these innovative, but effective, practices is the silver lining to the very gray cloud ushered in the recent financial crisis.
Minimum Associate Requirements. According to the survey, the percentage of in-house counsel requiring a minimum level of experience was at a record high—63% of in-house counsel surveyed impose this requirement; in prior years, the practice was used by only one-quarter of corporate counsel. More remarkable, the minimum level of experience they require was five years experience. An unwillingness to “pay to train” inexperienced and inefficient new associates drove adoption of this practice among corporate counsel.
Discounts for Early Payment. Almost one-quarter of in-house counsel (24.2%) received a discount on their bills for early payment to their firms. The average discount was 7% for payments within 26.5 days. Accordingly, those corporate legal departments who rely on e-billing technology to audit bills and efficiently route those invoices to approvers are in a better position to take advantage of this practice.
Use of Competitive Bidding and Reverse Auctions. According to the survey, the number of companies that issued RFPS jumped from 20% to 25%. Legal departments are lowering their costs by issuing competitive bids or request for proposals. A recent article in the Wall Street Journal documented the use of the “reverse auction” in attempt to drive down legal costs. In a reverse auction, law firms vying for business participate in an online chat room where they can anonymously submit their lowest bid for work requested by a corporate client. During the auction, firms may respond by submitting lower bids or drop out of the running for the work.
Although many of these techniques are used by only a minority of in-house counsel, tables have turned; law firms find themselves in fierce competition, struggling to retain and attract corporate clients, who are demanding greater value from their outside counsel.