September 7, 2005
Group Forms to Get Better Rates from Law Firms
The National Law Journal’s August 15, 2005, edition reported that eight “big companies” have formed a group to get better rates on fees. The group includes Cisco Systems Inc., E. I. DuPont de Nemours & Co., FMC Technologies Inc., General Motors Corp and Microsoft Corp. The remaining three participants have not been identified.
I could not get a clear picture of the group’s objectives from reading the article. Most of the members interviewed seem to have a constructive goal in mind—one that would benefit both law firm and corporate client. For example, Thomas Sager from DuPont when describing the purpose said it is to “get law firms to think about providing services more efficiently." Microsoft and Cisco’s representatives echoed that purpose by talking about improving the efficiency of the law firms they work with.
On the other hand, FMC’s Jeffrey Carr seems to have his own private agenda—one that sounds angry and threatening. Carr’s pet project is to rate law firms and make those ratings available to group members. He admits that some of the group’s efforts will be “very threatening to law firms." But he asks, “Why do we pay law firms that pay associates $140,000 a year to do…..commodity-type work?” He goes on to say, “The whole industry is based on inefficiencies and is grounded in inefficiencies.” Carr is given credit in the article for introducing an “Alternative Billing Arrangement” that holds back 20% of the bills and at the end of the case or matter he doles out the balance according to “stated success and efficiency targets."
One can surmise that the problem that this group of eight is wrestling with is the “Billable Hour”. It is the billable hour structure that provided no incentive for law firms to focus on efficiency. However, the big eight are not innocent when it comes to fostering the very environment that they express concern over. The fact is we all have a love-hate relationship with the billable hour. These very firms mandate its use. Promulgate the rules law firms must follow when billing them on an as-worked basis. They audit law firm’s bills against those rules. They unilaterally adjust bills and/or reject bills for not following their rules. The truth is these corporate clients, like others, have gotten comfortable with the billable hour. They talk alternative billing but they don’t live it. Carr’s 20% hold back is not an alternative. It appears to be more of a power trip, a reminder that he is the boss.
There is good reason why these eight major consumers of legal fees should be concerned about law firm efficiency. They are the customer and it is their money. But the truth is they are part of the problem. They have been no more willing than law firms to move away from the “the billable hour”. They can hate it all they want but they are used to it and it is a lot easier to just complain.
There are only two alternatives to the billable hour. Everything else is just a variation on hourly billing. Fixed price and contingency arrangements are it. It is the fixed price arrangement that fits most corporate work. It takes much more time and effort on the part of the law firm and the corporate client to pursue and agree on a fixed priced arrangement. To date, with a few exceptions, no one is willing to put forth the effort. It is easier to continue the dance—you bill; I’ll adjust. We will both complain.
P.S. The dance continues. According to Rees Morrison's BLOG post of September 5th, http://lawdepartmentmanagement.typepad.com/, Corporate Legal Times reported in its September issue that GE just auctioned off purchase of legal services for seven practice areas. 142 law firms competed online. Who were the winners? 94 law firms who offered the "lowest rates." Is this smart business or absurd business? Rees' comments are worth reading.
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Filed under Alternative Billing by Tom Collins