One of the most interesting blog posts we’ve seen this year about the way in which pricing legal services seems set to change over the next few years.. The current financial crisis, we feel, will accelerate these changes
Jordan Furlong posted the following article on Law21.ca yesterday and we suggest it is well worth a read and then a re-read in about a week’s time
Decoupling price from cost in legal services
Virtually all the talk these days in client circles is about the cost of legal services. It’s well established that institutional purchasers of these services are under great pressure to reduce costs by, for example, “taking bids, asking for discounts, shopping around for lower-cost options.” Patrick J. Lamb points out that many in-house lawyers don’t care what rates are charged, so long as they can bring back to corporate HQ the trophy of a 10% discount. One of the most popular discussions at Legal OnRamp right now is under the heading “Top Ten Ways for Clients to Save $” — and the list has grown well beyond ten.
What’s interesting is that most conversations about “reducing costs” are one-dimensional. They focus on the client getting the same kinds of services from the same kinds of law firms at a lower price; or, more concisely, the same-old same-old for less. They don’t envision rethinking the source of the services, or more importantly, the ways in which those services are produced. Ron Friedmann points out that when looking at ways to control costs, in-house counsel tend to focus on pricing elements — rate freezes, flat fees, discounts, alternative fees, and so forth — while ignoring the potential savings of reforming the process by which legal services are provided:
Where, for example, are efforts to require matter budgets, application of best practices, automation, risk analysis with decision trees, document assembly, and proper use of KM systems?… Real costs savings mean changing the process, focusing on how lawyers practice. The profession needs to overcome its “I am an artiste” attitude and develop better ways of working.
Both lawyers and clients have succumbed to the long-standing lawyer assumption that the price of legal services is directly connected to its cost. Lawyers produce work today pretty much the same way they produced it 60 years ago: through the individual-focused, time-insensitive application of principles and formulas to fact situations. Some time back, they figured out how much it costs them to do that, built in a percentage for profit, and arrived at a selling price for clients. And every year or so, to reflect both inflation and inflated earning expectations, they raised those prices. It’s an insulated, self-sustaining system in which price = cost + profit margin.
Here’s the really important thing that’s happening right now: the price of legal services is finally becoming uncoupled from the costs lawyers incur to produce it. Partly through efforts to identify the underlying value of a service to the client (something unrelated to lawyers’ cost), and partly through the relentless advances of technology and globalization, legal services price has been liberated from lawyers’ costs and is starting to establish its own gravity and orbit. Consider these examples just from the past week or so:
To read on link to http://www.law21.ca/2008/11/26/decoupling-price-from-cost-in-legal-services/
