Maximize Resources, Achieve 'Value'

You can’t scan a legal rag nowadays without seeing an article predicting the end of the billable hour, or the revamping of the business of the practice of law, or some other projection of how the practice is going to look at the end of this recession. Some insights are better than others, like the recent Law.com article about in-house departments requesting their outside counsel to reduce rates or present an alternative fee arrangement. Patrick Lamb’s commentary on the matter on his blog also really drew my interest – I think he hits the nail on the head.

Undoubtedly there is some room for firms to reduce rates and I believe, in time, the market will bear that out (I love the anecdote from a lawyer who told Susan Hackett at ACC that $700/hour was a “suicide” rate). But what’s more central – and the article skims over this while Patrick calls attention to it – is that hourly rates are really only a small part of the equation and that efficiency and quality are the key elements. I'd add one more factor to this cost-saving/value formula: maximizing resources.

Based on hundreds of conversations I’ve had with in-house attorneys in recent months, there really isn’t as much pushback on the partners’ high hourly rates. Sure, clients would like them to be lower, but they also understand you have to pay for great legal counsel. The real problem is at the associate level, where it’s much tougher in some instances to defend the value received. In many cases they’ve turned to smaller or regional firms to get the rates they seek across all levels.

But where we’re seeing in-house departments achieve budgetary success is in conducting an audit of the work that needs to be done and overlaying that with the available resources. Here’s a rudimentary example of how the process works for a fictional department that has (only) three operational units: litigation, contracts and labor and employment:

Litigation

Old Way
Call outside counsel to handle; review might be outsourced and marked up, then the documents re-reviewed by first-second year associates; law firm controls the entire process

New Way
Call outside counsel and discovery team for a planning session; discovery team controls costs and productivity in a transparent manner, liaises with technology vendors, and works closely with law firm(s); law firm handles strategy; in-house department controls the process

Savings: 30-75% or more, typically in the millions annually

Contracts

Old Way
All matters that can’t be handled in-house are sent to outside counsel, including simple matters, such as routine leases, costs $300+ per hour, 10-15 hours of work per week


New Way

Most complex matters are still handled by outside counsel; routine matters like leases and overflow work handled by experienced contracts attorneys billing less than $100 an hour, supervised by in-house attorney(s)

Savings: $150,000+ per year

Employment

Old Way
Routine and EEO matters and trainings are handled by law firm associates for $400+ per hour; such work is sporadic, but typically averages 10 hours of work per week; monthly trainings are required in different areas of the country


New Way

EEO matters are handled by attorneys with 10+ years of experience for less than $100/hour; trainings are conducted by the same attorney(s), who know the company’s policies well, for the same hourly rate or an agreed-upon flat rate

Savings: $150,000 per year on EEO matters; $35,000-$50,000+ on trainings


So while this is far from a detailed example -- and many in-house teams have more than three operational units -- it provides a glimpse of how many of our clients are approaching their legal work now. There is always going to be a significant amount of work that needs to go to outside counsel; there is always work that will need to be done in-house; and there's a growing recognition of this middle ground of work where costs need to be cut, and that's where a lot of value is being discovered.

It also shows that it doesn’t take wholesale changes or eliminating outside counsel to achieve significant cost savings – just maximizing resources and reaping the resulting value.