By CATHERINE A. CASEY (CEDS) – VICE PRESIDENT
The US legal market weighs in at a hefty $101+ billion according to the BTI Consulting Group, with approximately $40 billion and growing being spent in-house. What can you do to maximize your piece of the pie?
Copyright to: Jeff Kubina
According to a recent study by BTI Consulting, US legal spend surpassed $101 billion in total in 2014. BTI says there’s a roughly 60/40 split, meaning about $60 billion is spent on outside law firms and the other $40 billion in-house. However, the amount of that money that goes to hiring outside counsel is expected to sag even further, after it dropped nearly 22% in 2013. This, coupled with an increase in corporate legal department internal spend by about $6 billion over the last two years, sets the stage for an increasingly competitive outside counsel market.
Copyright to: BTI Group Report
According to this report, there are no more “incremental dollars” coming into the market and to grow, law firms are going to need to “steal market share from someone else.” BTI has given this economic cycle a name – ‘Predator’s Paradise’. How can law firms survive and thrive in this predatory environment? Innovate.
The business practices of the 20th century, especially in the law firm space, simply are not sufficient to succeed and thrive in the increasingly competitive landscape of the new predatory legal services space. The increasing global market instability has only served to add fuel to the fire and increase the downward cost-pressure on end clients and in turn on their legal service providers.
According to research from BTI Consulting, this year 58% of larger companies will keep more of their legal work inside, compared with 50% aiming to do so in 2013. The change in direction is a lingering result of the 2008 financial collapse, which has since challenged companies in nearly every industry to do more with less. The current economic instability further entrenches this trend.
Divorcing the hourly rate: alternative fee arrangement
With increased client scrutiny and a decreasing pool of legal spend, it is increasingly paramount for law firms to differentiate themselves with true business partnership, innovative cost-saving ideas and alternative pricing models.
In order to maintain and capture a greater percentage of the shrinking pool of outside counsel spend, law firms are increasingly adopting a more business-minded approach. The overall percentage of work being done under non-hourly fee deals remained steady last year at 9%, but an analysis of firm invoices found 76% of in-house departments engaging in some form of alternative fee arrangement (AFA) with their outside counsel in 2014, according to the Enterprise Legal Management Trends Report. That’s up from 67% in 2013 and 64% in 2012.
In a survey conducted by Altman Weils, 93.8% of law firm leaders anticipate that price competition is a permanent legal market trend. In the same survey, 34.4% of law firm leaders said that corporate law department operations would be the most likely change agent in the legal market over the next decade; technology was the runner up at 31.6%.
Copyright to: CounselLink customers engaging in some sort of alternative fee arrangement between 2011 and 2014.
According to the Corporate Counsel update to the Legal Industry Scorecard, AFA adoption has remained stable at 9% of matters and 7% of billings. However, “data reveals that the number of legal departments engaging in alternative fee arrangements with their law firms is increasing. Three-quarters (3/4) of companies used alternative fee arrangements in 2014”.
Innovation
The saying goes “you can’t get blood from a stone” and in the case of legal services this is very true. There is only so much that can be cut from hourly rates and overall matter costs before a decrease in quality becomes problematic. So what is the hungry practitioner looking to grow their book of business to do? Innovate.
Corporate clients are no longer simply agreeing to an hourly rate and signing a check; they are looking for an informed and engaged business partner.
At Exigent Group, we are working with AM Law 100 firms to transform legal spend from a cost line item on the budget to a revenue stream, using data aggregation and analytics on a company’s most valuable source of business information, contracts. Today, major corporations have legal resources dedicated to supporting the negotiation, drafting and execution of contracts, often engaging outside counsel for the more complicated and higher risk profile ones. Drafting and negotiating contracts – hundreds or even thousands in a cycle – place a significant strain on any legal department’s resources and already account for a huge share of legal spend. Active contract management can further stretch these limited resources and can lead to delay, missed opportunities and lost revenue. Managing large volumes of contracts (probably scattered across the enterprise) can be daunting.
After drafting and execution, contracts are stored in a less than centralized conglomeration of hard drives, file shares, desk drawers, banker’s boxes and filing cabinets. Think of the last time a mission critical contract had to be located, identified and analysed – how long did it take to even locate the darn thing? If a business doesn’t know where its contracts are or what they say, how can anyone be sure that valuable contract rights, such as volume discounts, periodic/milestone payments, late fees, penalties, rebates and rate reductions are being enforced?
To address this risk and revenue leakage with our large corporate clients, we work jointly with AM Law 100 firms to deploy the people, process and ingenious technology to deliver a complete end-to-end solution to manage the entire contract life cycle for you – all at lower cost and with better results than your already stretched resources can deliver alone. This frees your legal team to focus on higher-risk, more complex, strategic work. We have been able to transform legal departments from cost centers to revenue-generating groups. Automating the negotiation, execution and management of contracts ensures greater visibility into client’s contract portfolio and can increase revenue, reduce risk and create a whole new source of business.
Conclusion
In this time of great economic uncertainty and increasing client sophistication, the ‘same old, same old’ doesn’t cut it. Legal practitioners must be savvy, business minded and flexible to meet the changing demands of their comported clients. Adapt or fail.
Exigent Chameleon helps you survive and thrive
Share Your Thoughts:
