Testing alternative billing models

In this issue you will read about the ongoing debate about the billable hour in our annual report on the Canadian Lawyer Corporate Counsel Survey. The discussion has become more heated in the last year as some in-house counsel defend their preference for using the billable hour while others rail on it as failing to help them meet budget demands.

Price pressures mean in-house counsel want to reduce legal spend without compromising value. In some cases, firms say the client has become their direct competitor essentially building their own internal law firms and pushing them on pricing.

In response some firms have proactively been tackling this issue to address the demands from their in-house counsel clients and provide solutions that involve a mix of service providers.

Matthew Peters, national leader for markets with McCarthy Tétrault LLP’s Vancouver office, recently told me discounts, fixed prices, and other “alternative fee arrangements” don’t really address the problem. It means the law firm has less margin and the client saves but does it really get to the core of finding a permanent solution? Some firms will tell you in-house are never content with a discount — they will continuously push for deeper discounts year over year. But what if the firms rethink how the work gets done more inexpensively with the same oversight?

Over the last two years, McCarthy’s has been working to come up with options. That means striking strategic relationships with external parties such as outsourcing service providers.  If they move it offshore or even onshore it could be more cost effective. Paralegals are also one of the “untapped resources” in the puzzle, says Peters.  

Not every file justifies the approach but multiple leasing transactions or M&A matters are  examples that can drive savings for clients. So when the work comes in for an M&A deal, the firm may suggest the client move the due diligence offshore or have a staff lawyer do the work. By doing a significant portion of the due diligence themselves a client was able to save 25 per cent.

There’s also an effort from the firm to be more transparent on pricing. “When you break the pieces apart and you can have an open conversation with clients it becomes much more trustworthy. They say, ‘OK, you’re going to ship this offshore but you’re still going to review it?’”

But are general counsel buying this new approach? Peters says many are still skeptical. The firm has been approaching clients proactively asking: “What if we could reduce the cost of what you’re doing with us right now?” Some are open to it but others are happy with their current system.

The reality is the market is driving firms to take this approach. A year ago, Peters says RFPs didn’t ask about legal process outsourcing relationships but in the last 12 months that has changed and many are asking about what the firm is doing to reduce costs.

So while clients are still “dipping their toe” into this alternative delivery model and they like what they see the majority are saying: “Maybe next time.”

Part of this may be about the work required on the part of in-house — many may be too busy to tackle the issue of billing when they’re just trying to get their day-to-day work done. Clients need to be involved in the process, says Peters. “You can’t do it well if the client isn’t prepared to rethink how they are buying the services.”

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