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Law firms failing to provide fee certainty and value in Australia

Corporate counsel to prioritise legal cost and risk management, survey finds

10 September 2012

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By Manju Manglani, Editor (@ManjuManglani)

Australian corporate counsel are experiencing high levels of frustration and dissatisfaction with law firms’ current billing models, a market survey has found.

Many are looking for greater price certainty and value as they face increasing internal pressure to provide greater cost and risk management.

However, corporate counsel appear reluctant to use legal process outsourcing (LPO) and legal project management (LPM) to manage their costs and risks.

The findings are based on survey responses from 350 Australia-based corporate counsel, representing more than 220 organisations across a broad range of industry sectors.

Greater focus on legal risks and costs

Over the coming year, Australian corporate counsel will be prioritising legal risk and cost management, the King & Wood Mallesons survey has found.

Nearly two-thirds of respondents expect to focus more on increasing efficiencies within their internal legal teams, faced with continued internal pressures to do more under the same time and cost constraints.

Fifty-nine per cent of respondents expect to be more involved in business strategy in the next year, with many assuming managerial responsibility in areas such as legal risk management, compliance and cross-border transactions.

Frustration with billing models

Time-based billing remains the most common method of charging for legal services, but close to 60 per cent of corporate counsel said they are only ‘accepting of’ or are ‘unhappy’ with their current law firms’ fee arrangements.

However, over the past year, only 21 per cent of respondents reduced the proportion of their legal spend that is billed on an hourly rate. Forty-one per cent (down from 50 per cent in 2011) used time-based billing for at least 90 per cent of their external legal spend, according to the report.

Respondents noted that their slow adoption of alternative billing models is due to the time required to set up and monitor them, a lack of authority to agree to them, and the perceived risk and uncertainty associated with such models (including among senior management within their organisations).

Consequently, many said they found it safer to stick with what they know and to search for added value by other means.

However, corporate counsel also noted a strong desire for billing models that are simple to use, have a clear link between cost and value (particularly for work undertaken by junior lawyers), and provide greater certainty to reduce the potential for surprise charges.

The survey found that the most effective way to manage external legal costs is fee estimates with regular work-in-progress reports. This is true for both transactional (37 per cent) and non-transactional (43 per cent) matters and for every type of organisation.

Capped fee arrangements (particularly for transactional matters and for Australian subsidiaries of foreign corporations) and fixed-fee arrangements (particularly for work that is regularly repeated and predictable) were viewed as the next most effective models for managing external legal expenditure, the report notes.

Slow adoption of LPO and LPM

Despite their frustration with their current law firms’ billing models, Australian corporate counsel have been slow to adopt LPO and LPM as cost management tools.

Only 14.2 per cent of respondents said they have used LPO over the past 12 months. Discovery (43 per cent) and the preparation of standard-form documents (36 per cent) were the most popular tasks among those that have used LPO, followed by due diligence (11 per cent).

Respondents who had used LPO indicated a clear preference for law firms to manage LPO providers.

Interestingly, although LPM provides reliable estimates and regular reporting, only 38 per cent of respondents said that LPM capabilities in law firms are important or very important to them.

The full findings of the survey are published in Compass 2012.

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