One of the sessions I attended really got my attention. Pratik Patel and Peter Eilhauer of Elevate presented on a Practical Data-Driven Roadmap for Spend Management. This was primarily a case study on how one client approached cost control for their outside counsel. Pratik gave an excellent presentation on how the client took a methodical approach to understanding its legal spend by analyzing how and where it had been spending its budget. Then they took a step-by-step approach to tackling the problem.
One component of the analysis was understanding the rates the client was paying on a practice-by-practice basis. Normally I find this type of analysis marginally useful, since rates are only one component of cost control. However, the practice breakdown was interesting, since it separated out different specialities. This meant tax lawyers were not being lumped in with labor lawyers.
With this breakdown the client was able to determine market rates by timekeeper level for each type of service. For their needs, it didn’t matter whether these were market rates on the broader level or not. Then they identified firms with rates above these client-based market rates.
And here’s where it got interesting. Pratik asked the audience how many firms pushed back on the client when they asked the firms about the discrepancy. He prefaced this by saying the client expected that number to be 50%. People gave various guesses, including mine which was “low.”
The number was 5%.
Pratik singled me out – since I was the only law firm person in the room and asked me why firms didn’t push back. I replied it was firms’ superior negotiation tactics in action – which got a good laugh. Then on a more serious note, someone else commented that he viewed it as an admission by the firms that they had been over-charging the client.
- Pratik made a point early on that the client did not want to push too hard on their firms. They want their law firm partners to be financially healthy. In fact the other presentations I saw at the conference echoed that sentiment. Although clients are wary of their firms, they don’t want to be mean about it.
- And when firms react as if they have been charging high rates, they can be sending a bad message. If they act like they have been treating the relationship poorly, then they shouldn’t be surprised when clients view it that way.
- Lastly – law firms need to grow a pair. They employ very talented people. Instead of always bending over, they should have some confidence in defending their prices. Failing to do so means they will undersell the value of their services.
The legal market needs to mature around these ideas. This chaotic, wild west situation is resulting in many unintended consequences. As usual, I continue to recommend that lawyers take a more proactive approach to dealing with all of this change. To shy away from this, only leads to confusion and unhealthy relationships.