Insight

The push and pull of legal pricing

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At the recent Legal Procurement Forum Asia-Pacific 2017, pricing was a hot topic.

The upshot? Law firms love it, clients (mostly) hate it.

But far from being the same old story, vigorous debate revealed a willingness on both sides to discuss change and find a middle ground that benefits everyone.

More importantly, what also became clear was that the problem may not be pricing in and of itself.

Whether firms stay wedded to hourly rates isn’t the biggest problem that needs to be solved.

Rather, it seems a breakdown in communications and the absence of a clear value proposition may be to blame. And for that, both sides need to take responsibility.

 

The harsh truth

By and large, law firms are reactive, not proactive.

And when it comes to pricing, waiting for BigLaw to institute change is like waiting for a bus that will never come. In fact, every Altman Weil survey for the past 5 years acknowledges the fact, with 66% or more of firms only offering alternative fee arrangements (AFAs) ‘in response to client demand’ rather than being driven by a desire to create a competitive advantage.

This is despite 95% of law firm leaders in the US seeing price competition as a permanent trend moving forwards. There’s also evidence that firms taking a proactive approach to AFAs enjoy a ‘seven year trend of compelling success’.[1]

George Beaton puts the lack of change down to firms’ lack of ‘cost consciousness’, or an inability to be continually mindful of fees incurred throughout a matter.

But as always, there are two sides to the story and clients may not be helping the process. It’s clear they want things to change and wish firms would explore innovative pricing options, rather than relying on the same old, same old. But when it comes to structuring AFAs, they’re struggling to articulate what they really want.

 

And herein lies the problem.

 

Both sides can see things need to change. But how that should happen isn’t quite as clear.

So how can clients articulate their needs in a way that helps firms deliver what they need? And how can firms step towards proactivity, as opposed to reactivity?

 

Clear the lines of communication

Before any pricing arrangements are established, both firms and clients need to develop clear lines of communication. This means key people speaking with key people, with a funnel filtering down to those on the metaphorical coal face. Honestly is also important. If clients don’t articulate what they need and firms don’t articulate whether they can deliver, things will never change.

 

Open up the discussion

Traditionally, discussion about pricing has been confined to the GC or other in-house counsel and their law firm counterparts. But with the growth of procurement and the establishment of new legal operations and pricing based roles, it’s time to take the discussion to a wider forum. By including pricing, procurement and budgets in the conversation, both firms and clients can get a better handle on what constitutes value, how it can be delivered, assessed and used for future benchmarking.

 

Create clarity

Reaction versus pro-action aside, clients need to first establish what constitutes value and how they’d like that to be delivered. This should be clearly articulated to their law firms, with processes established to ensure service delivery is continuously measured and monitored. Like the establishment of scope, creating clarity around value allows both sides to objectively assess what’s being delivered and whether it accords with expectations.

 

Embrace the prospect of change

If anything is to change long-term, law firms need to start initiating change. Offering innovative services and pricing solutions – and being willing to fail, iterate and potentially fail again – is all part of the process. Clients on the whole will be more willing to work with firms focused on driving change at their own behest than those that change only when directed to do so. Clients must also remember that change can be a challenging and confronting prospect for many firms and patience is essential for a (relatively) painless transition.

 

Collaborate

Change is a two-sided process and without collaboration, is potentially doomed to failure. Both sides need to acknowledge – and actively pursue – negotiation and the need for outcomes that are beneficial to both sides. Change cannot be sustained over the long term if one group is continually dragged, kicking and screaming, to the party. Both sides need to be willing to invest time and effort in exploring alternative pricing options, rather than clients waiting for firms to deliver a magic bullet (and firms waiting to be told what to do).

 

[1] Altman Weil 2016 Law Firms in Transition Survey