Planning for 2024? 3 cost-saving considerations for your legal department

Considering a rate freeze? Consider a multi-year rate card instead.

Rate freezes can help for a short period of time, offering GCs some predictability that rates aren’t going to increase in the very short-term. Multi-year rate cards offer clients market predictability (i.e., clarity with firms about how long the rates will apply to avoid haggling every December about rate increases). At a minimum, you’re hedging against next year’s market, while also resolving what to do about new timekeepers that might be added to the matter. To avoid overpaying, take into account the timekeeper’s location, practice area, and years of experience.

Move away from the hourly rate.

Despite plenty of detractors, the hourly rate has yet to die. This doesn’t mean that it should be the default for every piece of work. Here are several steps you can take to get more of your work on an alternative fee:

1. Segment large portfolios of work. If you have a firm handling a large portfolio of your work for multiple years (think public company work, labor support, stock plans), you have a great benchmark for what this should cost you on an annual basis. Suggest to the firm that you put in place a fixed yearly fee for this model; the first year you’ll pay the same as this year (offering the firm predictable revenue) and suggest that the price remains flat for two or three years, as long as the amount of work stays roughly the same. If it significantly decreases or increases (i.e., more than 20%), you can have a new pricing discussion at the end of the year.
2. Find repeatable work. Some work, like immigration and IP, lends itself to repeatable tasks that are ripe for menu-based pricing (one fee per activity, such as preparation and filing of a US-based trademark or H1B visa). Your current firm should be able to tell you exactly how many of these activities were performed in the past year (if not, you should look for a new firm!). Once you have that data, you can ask the firm to provide a menu-based pricing model and request the same information from 2-3 other firms to ensure you’re getting the best in market pricing.
3. Pressure test cost by including multiple firms. Whether you’re identifying the best fit for a yearly retainer or a menu of services, include 2-3 firms to pressure test costs against the market. You may be certain that you’re getting the best price–and you may be right–but it’s impossible to be sure without a market perspective. This is especially critical now that firms are using AI and other advanced technology for a variety of legal work. Including multiple firms–particularly cost-effective, innovative firms–will ensure that you get top notch service at the best price possible. It may take a little bit of time, but AI will help us on that front (more work done by LLM’s makes both associates and partners more productive; see below chart from a survey of heads of law firm innovation) and will likely reduce total cost of work for clients, while allowing for more work to be priced using AFAs.

Make sure you have the right firms doing the right kind of work.

The biggest cost savings for any company come from ensuring that non-AmLaw 20 firms are used appropriately. Surveys of GCs consistently tell us that midmarket firms outperform elite firms (see below graph), but there are many barriers to making this change. AdvanceLaw is well-positioned to help; we will introduce you to the most innovative, high-quality counsel for a variety of needs.