Hi there,
I wonder what reasons firms are giving their clients for this latest round of rate hikes?
We asked participants in our webinar on rate negotiations earlier this week what they’ve been hearing from their firms.
Let’s just say the chat conversation was….robust. 😳
My favourite response — by far — was:
“Reasons? They just submit.”
This was supported by an Amlaw 100+ law firm that told me confidentially they did exactly that.
They submitted their hiked rates into their clients’ e-billing systems knowing that in most cases, the rates and rate hikes of the Amlaw 50 firms would act as the perfect decoy.
In other words, clients will be so focused on dealing with the $1000+ an hour firms that the rate hikes of the $400-$700 an hour firms will hopefully slip through.
Nice work if you can get it…
The other unsurprising reasons firms are proffering include:
- Inflation 😴
- Rate freezes and discounts imposed during COVID have left firms still trying to catch up 🏃♀️
- Demand for services has actually gone up 🤔???
- And last, but certainly not least, firms are citing talent wars due to increased costs of living and demand for new associates.
This last reason makes my eyes roll.
One top-tier firm increases associate salaries to “attract the best talent.” The other top firms follow (like lemmings) to compete for the same talent, which then drags the entire legal industry along. Even though the “top talent” (whatever that actually means) has been well and truly exhausted.
So how can in-house teams push back on relentless rate increases without damaging their firm relationships?
During the webinar, Cintia LeLann, Sanofi’s Global Purchasing Head of Legal + Ethics & Business Integrity and Compliance, highlighted the strategies that have been working for her team.
I’ve summarized some of the key ones here.
1. Keep the focus on the partnership with your panel firms.
As Cintia explained, encouraging strategic partnerships with your firms leads to better outcomes in the long term.
If the partnership is genuine, firms will have more flexibility in negotiations to ensure the right outcomes and that the partnership continues.
Cintia’s team also keeps the bulk of negotiation efforts on the firms with whom they have the biggest spend and closest relationships, rather than negotiating the same with every single firm.
2. Align internal stakeholder objectives
Lawyers and legal ops teams often think that procurement is solely focused on cost, rather than ensuring the right outcomes and preserving long-standing relationships with firms. Conflicting cross-communications are a natural outgrowth of this mistrust.
Giving stakeholders visibility and consideration in the process helps build trust and credibility and ultimately ensures a unified voice during negotiations.
3. Be prepared with the right benchmarking
Are your firm’s proposed rates reasonable? How do you know?
Preparing the right internal and external benchmarking in advance brings credibility to the negotiation process and helps keep the dialogue constructive.
Surprisingly, 40% of our webinar participants reported using no external benchmarking in the process. And 9 out of 10 are still navigating the process manually with spreadsheets and emails. 😲
It’s no easy task. Could there be a better solution? 😉
4. Consider rate negotiations a starting point rather than an endpoint
Rates are just the starting point for understanding firms’ competitiveness on different aspects.
Cintia’s team considers their negotiated rates as a max, while in some cases still negotiating rates lower at a matter level or utilizing alternative fee arrangements and other fixed fee pricing where it makes sense.
5. Use rate cards rather than negotiating by individual timekeeper
In-house teams are increasingly moving to negotiating rates by role and title, rather than individual timekeeper (our Legal Advisory team recently penned an excellent deep dive on why here).
Cintia’s team also looks at the evolution of spend and rate levels. Firms’ competitiveness and the overall level of rate increases influences where they spend their time at the timekeeper level.
If your team is currently in the midst of rate negotiations 🤯, or even further along in the process 🤕, this is a replay that you won’t want to miss. You can find it here.
In the meantime, I’d love to hear what strategies your team using to push back on never-ending rate increases?
Hit reply and tell me.
Cheers,
Jim
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