June 30, 2006
Law Departments Move Alternative Pricing to Short List
Rees Morrison reported that the InsideCounsel/DataCert Annual Report of Corporate Law Departments listed the top steps taken to reduce corporate legal cost. The list was derived from a survey of 180 law departments.
The top five cost reduction steps included:
1. Bring work in-house
2. Use of interns, paralegals or temporary staff
3. Moving to alternative fee arrangements
4. Preferred provider programs to reduce the number of outside law firms
5. Cutting staff
I was surprised by the third item on the list. Close to one-third of the surveyed firms reported using alternative fee arrangements to lower cost. Of course, we don’t know how extensively each of those firms is using alternative pricing, but it is worth noting that it has moved up in the consciousness of the General Counsel.
While the hourly bill is still king, we continue to encourage law firms to propose alternative arrangements wherever possible.
You want your alternative pricing approach to provide the firm with the opportunity to increase margins through efficiency while reducing the client’s cost and increasing their cost certainty. In my book, that means a fixed fee per transaction, project phase, or for a portfolio of business. In more common general business terms, it means packaging (defining scope) and adopting product-like pricing.
Clients want lower cost and certainty of cost, not just cheaper services. The law firm and the client can both win through increased law firm efficiency:
- Better scheduling
- Use of competent but lower-cost talent where appropriate
- Improved reuse of knowledge
- Better project management
- Taking increased advantage of technology to automate processes
- Equipping the client to carry part of the load
In most cases, law firms are viewed by the clients as too good, too expensive, and too complex. Alternative pricing is one way to shift law firm thinking toward “a solution that is good and simple enough for the situation at a reasonable price."
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Filed under Alternative Billing by Tom Collins