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GCs rate transparency above cost in law firm billing

Survey finds predictability and control high priorities 

6 November 2013

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By Manju Manglani, Editor (@ManjuManglani)

The majority of general counsel would rate transparent and guaranteed pricing for external legal advice over value-based and low-cost pricing.

That's according to a recent survey of over 200 chief legal officers, the majority of which are in organisations with annual revenues of between $1bn and $20bn; 15 per cent have revenues of more than $20bn.

The annual research found that, when offered four possible law firm pricing options, 36 per cent of CLOs said they most wanted transparent billing, which included the opportunity to discuss changes.

A third chose guaranteed pricing as their preferred form of billing, while 20 per cent preferred value-based pricing, which was defined as a variable price based on the results achieved.

Less than ten per cent said they wanted the lowest price available above all else.

The survey found that more than three quarters of CLOs negotiate price reductions from outside counsel to control costs and that almost half receive an average reduction of between six and ten per cent.

A fifth of respondents aid they have negotiated discounts of between 11 and 15 per cent, while 19 per cent said they get average price cuts of between one and five per cent.

"This is very striking," comments Altman Weil principal and survey author Daniel J. DiLucchio. "If a rate discount is the only thing offered, law departments will certainly take it, but chief legal officers are saying what they really want is predictability and control. So far, this is a challenge that most law firms have been slow to address."

Pressure to provide greater value

When asked to select the service improvements and innovations they would most like to see from their outside counsel, three of the top four CLO responses involved costs and pricing.

Their first choice for changes to law firm services was improved budget forecasting, followed by greater cost reduction, more efficient project management and non-hourly based pricing structures.

However, when asked to rate how serious law firms are about changing their legal service delivery models to provide greater value, for the fifth year in a row, the median rating was '3' on a scale of 0 (not at all serious) to 10 (doing everything they can).

Interestingly, general counsel rated the pressure they were placing on law firms to change their value proposition at a medium '5' on the same scale, the same rating given for four of the past five years.

"After five years of similar responses to this pair of questions, it's seems pretty clear that chief legal officers have decided to tackle these problems themselves, rather than rely on outside counsel to partner with them on change," said DiLucchio.

CLO's job 'harder' than MP's

When asked who has the harder job - chief legal officers or law firm managing partners, the majority of respondents said their job was harder.

Two thirds thought CLOs face greater challenges than managing partners, citing the breadth and complexity of their own roles.

However, just over a third said managing partners face a harder road ahead, for reasons that include the current law firm business model.

One CLO commented: "Structural changes impacting law firms are intense. CLOs have more options to traditional law firms today than ever before, and more are becoming available all the time."

The full findings of the 2013 Chief Legal Officer Survey can be found here.

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