You are sitting at your desk when you see an e-mail from one of your law firms requesting a rate increase, no explanation, just a rate increase. This is the third request from one of your law firms this month. That all too familiar scene from Jerry Maguire where Jerry screams, “Show me the money!” starts going through your mind. Trying to deal with rate increases is just another headache when you are juggling multiple cases, budgets, and firms on a daily basis. Rate requests are almost impossible to track and what about the firms that send you invoices with higher hourly rates without an approval request? Is there any good way to control rate creep with law firms?
Some organizations have decided to do away with standard hourly billing and rate increases completely, and focus on alternative fee arrangements. Unfortunately, alternative fee arrangements don’t work well in every situation and hourly billing is still very prevalent in the industry. Many general counsels feel more comfortable with the billable hour that outlines who is billing for their work, what work is being performed, and how much the work will cost. Many outsourced matters don’t have the complexity or severity required to necessitate a large law firm with exorbitant rates. So, when working with a multitude of firms and cases, how do you control who is raising rates, when are they raising rates, and by how much?
One of the best ways to keep rates under control is to have a good internal process surrounding rate increases. Make certain you clearly spell out in your billing guidelines under what circumstances you will allow rate increases. For example, some companies allow for rate increases once a year at the beginning of the new year. By restricting rate increases to once a year and at certain times of the year, both you and your law firms will be able to budget without fear of fluctuating rates.
Another useful method is to have one person within your organization manage and control rate increases, especially if you work with several law firms. If you have a legal spend management application in place, it may include a rate request function. Usually, with these types of applications, law firms are able to request a rate increase along with an explanation of the increase. Clients have the ability to accept or reject the rate increases online as well as track and archive requests.
Multiple Rate Sets/Restrict Staffing
Some organizations have multiple rate sets (different rate sets for different categories of work). This tends to work well with firms and clients because higher rates are pre-determined for more complex types of matters. Clients have also gone so far as to restrict staffing and rates on matters. For example, a matter will be restricted to 1 partner and 2 associates with assigned rates. If someone other than the identified biller with an agreed upon rate sends in time, the invoice will be rejected. Another possibility is to move work to different geographical locations in order to keep rates low or automatically discount an invoice by 10% if the bill is paid within 30 days.
Benchmarking and Metrics
Firms should provide some type of justification for rate increases. As a client, it is important to know that an increase in hourly fees comes along with a commensurate value add. Make certain to do your homework. Review market data for average rates for firm location and size. Historical data is important as well. Viewing historical rate information for various firms can illustrate staffing and time issues as well as disproportionate rate increases. If you are working with a legal spend management vendor, they should be able to provide you with the necessary historical rate information.
The skills of an attorney are far from a commodity and they should be properly compensated for their work. Clients must look not only at the rate itself but the efficiency of the firm in completing projects. However, firms should offer clients a justification for increases and clients should do their research and have procedures in place for accepting the increases in order to keep rates under control.