31 May 2016

General Counsel: How to get transparent pricing

Insights

Transparent pricing is vital for a marketplace to function fairly and efficiently. Yet it does not exist within the Australian market for commercial law.

Since the 2008 financial crisis, there is a growing awareness among corporate counsel to control costs, justify legal spending and do more with less. In-house legal departments are no longer protected from corporate cost-cutting and are expected to watch the bottom line.

The General Counsels that we have spoken to tell us that they are feeling pressure to reduce their out-sourced legal spend, however, many in-house counsel do not have a lot of experience managing budgets like other business divisions. So it is a steep learning curve.

RFPs & AFAs

RFPs are one of the “tools at hand” to cut outsourced legal spending. Many in-house counsel also seek out alternative fee arrangements as there is a general recognition that the billable hour simply rewards inefficiencies and does not lend itself to managing a legal budget.

However, what we have found from speaking with numerous general counsels and lawyers is that, even after companies agree on a price, instead of getting a cheaper price overall, some law firms cite “out-of-scope” extras and recoup all the discounted fee, plus more. This is not a sustainable situation for law firms as it damages their brand image and client satisfaction, and it is certainly not sustainable for companies as they become increasingly frustrated.

In addition to this, companies that go through extensive procurement processes to appoint legal panels will obtain discounts to standard hourly rates based on volume commitments, however these companies are still unable to get visibility over future legal spend or easily justify the external costs they incur, which is often more important than the discount.

Law firms feel the frustration

It’s not just companies that are losing out. Law firms that lose work in such competitive tenders, despite quoting a lower price than the price ultimately charged to the client, are also frustrated.

What in-house counsel really want

What in-house counsel want is excellent advice and service with fees that are transparent so that they can manage budgets and justify their legal spend.

While relationships are always important, in-house teams have a responsibility to run their departments like a business. Depending on the matter, companies do not necessarily need to be paying top-dollar for external legal advice. There will be times when it is appropriate to say to your law firm that you appreciate your relationship and know they would do a good job on this matter, but we also need to make sure we are getting best pricing and transparency for our work.

Getting transparency over pricing is not a simple solution. On their own, RFPs and AFAs will not deliver to expectations, and a more comprehensive solution is necessary.

The ideal solution

In an ideal world, in-house counsel would use RFPs for each legal matter to ensure that they are getting the best pricing and service based on the specific requirements of the matter. Then, having agreed the price for a legal matter, the law firm would then adhere to this price.

As a manual activity this would be a time-consuming process, however, Lawcadia has streamlined this using technology that provides the structure and rigour needed in the procurement process. Companies can finally get what they really need: transparent pricing on a matter by matter basis that can be easily managed and reported by their in-house counsel.

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