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Litigation Budgets: The Problem with Pricing

Seema Tendolkar - Jul 31, 2018 11:16:58 AM

It is probably not a surprise that the top five areas of service improvements that corporate legal counsel seek from outside counsel all relate to legal spend reduction, control, and innovation, according to the 2017 Altman Weil Chief Legal Officer Survey, which collected information from 280 in-house legal departments. 46.2 percent of respondents listed “improved budget forecasting” as one of the top service improvements they would like to see from law firms.  Meanwhile, in the parallel Altman Weil 2018 Law Firms in Transition survey, which polled nearly 400 law firms that had 50 or more attorneys, 59.4 percent of law firms said that they were working to develop data on the costs of their services.

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It is well-known (and corroborated by this research) that corporate legal clients and their outside counsel have long been considering and collaborating on alternative fee arrangements and agreements, which, in broad terms, encompasses anything outside of the traditional pure billable hour agreement. But research shows that the rise in fee alternatives has not resulted in the improved transparency and predictability that corporate counsel desire.

As in-house counsel, your pricing objectives can be aligned with those of your outside counsel, so long as accurate and predictive pricing data is available. Just as you would not engage a contractor to build a home without having a firm pricing expectation, there is no reason to engage a law firm to handle your legal matter without a similar pricing expectation – with the knowledge that in both situations, unexpected events could occur which cause variances.

Litigators often say that the nature of their work is so inherently unpredictable that pricing cannot be nailed down. But this is not correct. Litigation matters cycle through predictable patterns based on federal and state rules of civil procedure. A case can be divided into phases, parts, and elements, and once broken down, data can be used to estimate the likely cost of each.  At the start of a case, it is of course not possible to know whether or not that case will go to trial. But it is possible to estimate how much the preparation of a pre-trial brief would cost, if the case does advance. Similarly, the cost of many other litigation elements – i.e., mediation preparation and attendance; preparing a motion for summary judgment; defending five depositions; drafting a 12(b)(6) motion – should not vary all that much across cases that are similar.

Law firms are sitting on a treasure trove of information that should be analyzed. Surely a firm which has defended 10 class action employment law suits or 10 products liability suits can provide a solid estimate of how much it would cost to get through fact discovery, expert discovery, summary judgment and/or trial in those types of cases, while not having to predict how far the case will go prior to termination.

Your pricing objectives may vary from matter to matter – and may include minimizing total cost, having cost certainty or sharing risks/rewards. These and other goals are possible to achieve when data is used to determine likely costs and outcomes. Law firm expertise is likely the most important factor when selecting outside counsel. But firms that leverage their data to provide accurate, predictable pricing structures will be able to differentiate themselves in the marketplace.

Learn how Vector Legal Method can provide the pricing transparency and predicability your legal team expects from your law firm. 

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Topics: Insider- legal tech- legal ops- litigation management- corporate legal data- legal team value

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