How will in-house legal advisers cope with current fee pressures?

How will in-house legal advisers cope with current fee pressures?

September 14, 2009 – 4:13 pm by Lance Michalson

In-house legal advisers are under financial pressure to manage legal budgets more efficiently, by reducing the size of their in-house legal team or by outsourcing less work and spending less on external law firms.

How then will in-house advisors cope in the future? From our observations in-house legal advisers appear to be responding in the following ways by calling on law firms:

to reduce their fees, to undertake work on a fixed fee, rather than an hourly billing basis where the real value of the external lawyers intellect and experience is applied to the substantive work at hand as opposed to, in pure value terms, being watered down by time spent and billed on purely administrative tasks which can never yield the same value add when measured against fee rates;
to be far more transparent in their dealings with their client’s (most clients know that many attorneys work off precedents when drafting contracts and have been known to charge them the same rate that they charged the first client to develop the contract. While it is important not to negate the vlaue that resides in experience and skill, a “base-fee” should be agreed for the precedent for the intellectual property which resides within that document as well as a fee to customise that precedent to suit the client’s particular needs);
to start making the same information available to them that they make available to other clients (for example the legal guidance service offered by Michalsons Online where the same issues researched for one client are made available to other clients on a subscription fee basis is far less than paying the attorney an hourly based fee to “produce” a piece of work that was previously done for another client) - in essence to “sweat” their intellectual assets better;
to do away with hourly billing and gearing obtained through the deployment of hard-working young lawyers;
to make technology based solutions available to them where possible and appropriate (e.g. the ability to generate contracts online via a document assembly service);
to move away from the delivery of legal advice on a bespoke basis - the danger facing many lawyers is that they continue to assume that their client’s work always requires expert treatment whereas in many instances a non-bespoke (and far cheaper) response is appropriate;
to understand the operational imperatives driving companies which often requires a more robust and less time consuming (and often less costly) approach to managing legal risks;
to look for attorneys whose legal skills and knowledge are required not to deliver a bespoke service, but, enhanced by modern techniques, to offer standardized, systematized and packaged legal services.

Another interesting way of responding is to “offshore” some of the legal work. In a ground-breaking move, Rio Tinto announced in June 2009 that it is outsourcing its legal work to India to CPA Global, a leading outsourcing provider of legal services. Rio Tinto expects savings on its legal costs of up to 20 per cent. Click here to view Richard Susskind’s talk to Rio Tinto managing attorney Leah Cooper about the tie-up with CPA Global.

Why is the arrangement with CPA so significant? According to Richard Susskind, writing in the Times Online it is “primarily because it is evidence of a profound change in the legal world. In-house lawyers are under great pressure to reduce their head count and to spend less on external law firms, but, at the same time, their workload is increasing. Clients, in short, need their advisers to provide more-for-less. One way to meet this challenge is for external lawyers to charge less. Most firms are indeed cutting their hourly rates and offering fixed fee arrangements.”

Others like Michalsons Attorneys are starting to offer online Legal Guidance Services through an association with Online Legal.

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