A strong rate review process increases efficiency and provides cost savings
It’s possible law firm billing practices have never been more visible to the general public, thanks to the situation you’ve no doubt seen in the news between BigLaw firm Wachtell and X (previously Twitter). In the final days (and hours) of the sale of what was then Twitter to Elon Musk, the firm billed $90 million in legal fees to the company, triggering a new lawsuit questioning the sum.
While this is a particularly unique story that taps into one of the biggest ongoing stories of the past year, law firm fees and rates are a common concern for legal departments. Earlier this year, a report from Wolters Kluwer ELM Solutions showed that year-over-year law firm rate increases were in some cases shocking, and in other cases maybe even less than expected. While the mean rate increase in June 2022 was about 5.6%—not a particularly large increase—some increases at AmLaw 100 firms were “shocking,” reaching as high as 20% or more.
For legal departments at companies of all sizes (and particularly those at large companies employing the services of dozens if not hundreds of firms), navigating the data regarding the cost of legal services can be daunting. How do you systematically analyze all of the different law firms, fee structures, and matters you’re dealing with in a given year? To tackle this problem, many legal departments implement a rate review process.
What Are Rate Reviews?
Rate reviews are a method or framework for looking at the billing rates outside counsel charge your company, placing value (objective and subjective) on the services those firms provide to your business and, finally, determining whether the rates fall in line with that value. The goal of a rate review program isn’t necessarily to cut a legal department’s spend down to the lowest possible point, but rather to form symbiotic relationships between in-house counsel and legal operations and the outside counsel they work with and to create a standardized process across firm relationships.
What Are the Elements of a Rate Review Program?
The details of a rate review program differ from company to company and industry to industry, depending for example on the geographic and practice area breadth and depth of your legal needs. That being said, there are aspects of rate review programs that apply generally and should be considered by your legal department when thinking about those value judgments. Some of these include:
Examining Your Existing Processes: Most likely you already have existing processes in place regarding billing guidelines, invoice approval, rate increases, preferred vendors and other factors that affect rate reviews. As much as possible, gather information about what your legal operations and in-house counsel teams are doing and document those processes. Then, analyze those processes for their effectiveness (how closely they are adhered to and the hurdles that are blocking adherence) and the value they provide for the business.
Creating a Preferred Vendor Database: Once you’ve collected the information about your company’s law firm relationships, having it easily accessible enables your legal team to make informed decisions for a successful rate review program. Whether you use a legal technology solution or even an in-house (and not necessarily legal-specific) tool, the most important action is organizing the information for benchmarking and increased efficiency going forward.
Educating Your Legal Team: Ensuring your legal operations team and in-house counsel both understand the goals of your rate reviews program and its requirements is key to its success for obvious reasons. If your team doesn’t know what to do, they can’t do it. And if they don’t understand why, they may not be compelled to help. Breaking guidelines down into checklists and providing messaging for rate negotiations, for example, keeps everyone on the same page.