Law firm rates have risen in 2024, which is has been difficult for many legal ops professionals who are expected to keep legal department costs down without compromising quality. In an effort to support those goals, Wolters Kluwer ELM Solutions recently hosted a focus group discussion among legal ops professionals to help our community of clients learn from each other’s experience and strategies.
Participants shared their experiences with managing law firm rates, schedules and trends. They also shared strategies controlling outside counsel legal spend while maintaining good relationships with the law firms.
Here are a few of the top themes from the discussion.
Law firms under pressure
Many in-house legal teams have seen law firm rates in 2024 rise between 8% and 15%. Several even highlighted receiving increase proposals from outside counsel of 25% or more. When asked about the reason for such high increase proposals, firms have told clients that they have had to raise rates because of factors they cannot control, such as the necessity to fund timekeeper advancement. Firms also cited a need to increase the salaries of incoming attorneys so that they can attract the best candidates in a more expensive hiring market.
Some firms also told call participants that they balance these factors against the need to provide value for money and indicated that they strive to make the proposed rate increases worthwhile by ensuring that their work is efficient and effective for clients. While many legal ops professionals express an understanding of the pressures on firms, and even some empathy for that, the consensus was that legal departments still need to find ways to limit increases and control costs.
Spend control strategies
Limiting the amount spent on outside counsel remains a priority for many in-house legal ops teams. The right options depend on the specific legal department, their business goals, and how they engage with law firms. Some of the more successful approaches mentioned include:
- Multi-Year Rate Agreements: Several have found success in locking firms into 2- or 3-year agreements with no increases. This provides cost predictability and allows for longer-term budgeting.
- Rate Bands and Position-Level Pricing: Instead of negotiating rates for individual timekeepers, some in-house teams are moving toward rate bands based on years of experience or position level. This approach simplifies administration and addresses the challenge of associate progression and advancement.
- Volume Discounts and AFAs: For matters that require a large number of hours, in-house teams are leveraging that volume to negotiate discounts or other alternative fee arrangements (AFAs) that help them reduce spend and increase predictability.
- Blended Rates: By agreeing on an average, or blended, rate for all work done on a particular matter, law firms have the freedom to assign timekeepers as they see fit but are disincentivized from giving low-value work to high-priced lawyers.
Effective negotiation with law firms
In-house legal ops teams have varying ways of approaching negotiations with their outside counsel firms. Here are a few proven tactics that some in-house teams employ.
- Rate Proposal Windows: Many in-house legal ops teams have established specific windows during which they will accept rate proposal submissions from firms (for example, the month of November for the following year’s rates). Any firms that wish to increase rates outside of this window would need to make a very compelling case as to why there should be an exception.
- Justification and Performance: In-house teams are pushing back on generic justification and are instead focusing on each firm’s performance and the value they provide to the company. In addition, some legal ops teams make sure to have market data on hand (from a reliable source such as the Real Rate Report) during negotiations and share it with firms.
- Existing vs. New Matters: Some in-house teams are distinguishing between existing and new matters when it comes to rate increases. They may allow increases for new matters but require firms to honor the agreed-upon rates for the remainder of their work on matters currently in process.
Managing outside counsel rates is a complex process that requires legal ops teams to stay updated on both firm performance and the industry landscape. However, when in-house legal ops professionals share strategies and insights, they are better positioned to navigate these negotiations and achieve their business goals. By leveraging data, establishing clear guidelines, and focusing on value, in-house teams can succeed in negotiating appropriate rates and build stronger relationships with their outside counsel firms.
