If you missed it, the recently published ‘The Legal Spend Landscape for 2022‘ by Apperio sets out the ‘Top 5 Measures Of Value‘ in the eyes of the survey respondents – aka, your clients!
In order, these included:
Outcome of legal matters – 66%
Hourly cost per lawyer – 60%
Spend forecast vs Actual spend – 46%
Risk exposure – 43%
Overall spend by law firm, matter type or business unit – 40%
Interestingly, in the same Report, the Top 3 answers to what the ‘Most Effective Techniques For Controlling Legal Costs‘ were:
Structuring more legal work under AFAs – 74%
Utilising specialist software for monitoring and maintaining cost – 63%
Centralising all legal spend through the legal department – 49%
And I very much suspect that the last of these – “Centralising all legal spend through the legal department” – is going to be a post in the near future, either here or on my other blog.
As usual, comments are my own and I welcome feedback.
First off, for those who don’t know differently: in the world of professional services firms an ‘Engagement Letter’ isn’t an expression of love to another. Indeed, for us an ‘Engagement Letter’ might better be phrased as a ‘Pre-nup agreement’!
What is an Engagement Letter and why are they so important? In the world of professional services firms, an ‘Engagement Letter‘ can generally defined as being:
“A document that sets out the business relationship between a client and their law firm. This letter serves as an agreement between the parties on the terms of their engagement. This includes details on the services being offered, client responsibilities, deadlines and compensation.”
Engagement Letters can include more, but in short they set out:
Exactly what the Scope of Services being provided are
Who is assigned to do what, and
How much the law firm will be paid by the client for doing said Scope of Services.
They are important for two main reasons: (1) on the part of the law firm they set out what the client’s expectations are – thus limiting the potential professional indemnity risk on the part of the firm; and (2) on the part of the client they set out the service standards, the expectations – they hold the law firm to account.
So, for both parties: a properly agreed to Engagement Letter sets out the expectations and assigns the risk – “win/win” as they say.
Two recent case studies So let’s take a look at two recent cases that evidence just how important Engagement Letters are.
In the first case (a US-based medical case), a [medical] patient was billed US$230K for surgery having previously been advised – in their Engagement Letter – that the cost of the said surgery was estimated at US$1,300.
The Supreme Court in that case held that the estimate was protected by contract law, as no formal extension of scope letter had been issued and so the patient was only required to pay the US$1,300 original estimate.
Lesson Learnt: Send your out of scope (or extension of scope or variation of scope) letter out as soon as you are asked to do something that is not in your Engagement Letter.
In the second case (UK-based legal matter), a properly executed retainer agreement allowed a law firm to keep its agreed £300K fee, even though the bond issue that it related to was aborted.
Interestingly, the judge in the second case, His Honour Judge Paul Matthews, previously (as in a week earlier) made a comment – in reducing costs sought by a receiving party because all of the work was handled by a solicitor claiming grade A rates, that:
“it was not for the paying party to identify which work could have been delegated.”
Lesson Learnt: Engagement Letters need to be properly drafted; but, importantly – get yourself a Project Manager to manage the case so that they can constantly review the work and ensure that any Out of Scope work is immediately communicated.
My 5 hints on how to manage Engagement Letters If you follow these 5 hints, I think you’ll find you have far fewer issues with getting your fees paid:
The most important thing to remember is to have an Engagement Letter with your client!
Once you have the Engagement Letter, remember that it is not a ‘set and forget’ document. Don’t sign it, then put it in the file and forget it. Keep a copy close to hand and review it daily.
If, at any time, you see Scope Creep happening, send an immediate notification to your client that you are being asked to do tasks outside of the originally agreed Scope of Works.
And by ‘client’ here, I don’t mean the person asking you to do the work, but the person who will be paying the bill (accepting they may be the same).
Finally, if your project is big enough, put a Project Manager in charge of reviewing and managing all of this.
As usual, comments are my own and I welcome feedback.
There’s a saying that overnight successes take 20 years to happen. I generally agree with that; it is rare indeed to come across a true overnight success. With the incredible ascent of the Legal Operations role within the legal ecosystem over the past five years, I am, however, willing to make an exception to this saying.
Background
CLOC – the Corporate Legal Operations Consortium – was co-founded by Mary O’Carroll and Betsi Roach in 2016. From my background reading I understand Mary and Betsi started CLOC as quasi book club membership group for quirky people with a legal operations title or elements of legal operation within their role.
Within a very short period of time, CLOC had set parameters around what they called the ‘Core 12’ skill-sets/roles of a Legal Operations professional. These include:
Business Intelligence
Financial Management
Firm & Vendor Management
Information Governance
Knowledge Management
Organization Optimization & Health
Practice Operations
Project/Program Management
Service Delivery Models
Strategic Planning
Technology
Training & Development
So far, so good. Nothing too exciting about this.
Legal Operations: Where are we today?
‘Fast’ forward (if you can) six years and CLOC and the role of Legal Operations has a massive global footprint, as evidenced by the release of two reports in that past month that clearly highlight the rapid ascent of this role within in-house legal teams.
This Report contains the following telling graph – the massive increase in the percentage of [legal] departments with at least one legal operations professional.
Take that graph in for a second.
Now let’s give it some context.
In 2020, just before COVID, when discussing CLOC and its role in ‘Episode 27: Legal Operation is it the new legal business game changer‘ of The Legalpreneurs Sandbox, the panel of presenters at the Centre for Legal Innovation (lead by the wonderful Terri Mottershead), took the best past of an hour explaining who CLOC where and what the Legal Operations role was.
This is in no way a negative comment on the Centre – far from it. They are a leading edge think-tank of highly knowledgeable people talking an audience that know what is going on at the forefront of legal innovation.
Frankly, they’re a clever bunch.
And yet, even for them, the ascent of this ‘Legal Operations’ role was – not to put too fine a point on it – mind-blowing.
The Gartner Graph
So we come to the second graph, which comes from a Gartner report that I read earlier today.
Again, this graph blows my mind. But, in this case, so far as I am concerned, the mind-blowing detail isn’t in the astronomical rise of Legal Operations role (which I think relies heavily on the ACC graph above), as it is in the number of so-called ‘non-lawyers’ who are doing this role.
If the growth in that yellow box doesn’t have you shaking your head, go back and take another look at the skill in CLOC’s Core 12 above. Then tell yourself that a ‘non-lawyer’ is in charge of those skills.
So what does this mean for law firms going forward?
The honest answer is, I don’t know.
I have yet to to decide exactly where the role of Legal Operations fits. Clearly this is an important role that will have a significant role to play in the day-to-day running of a legal team. But how do the tasks of Firm Vendor Management, Service Delivery Models and Strategic Planning fit with the role Procurement plays?
Truth is, I don’t yet know.
What these charts do show me though is that the role of Legal Operations here is to stay. We best get used to. And we best get used to working with them. So make sure it a discussion topic within your firm. And, I suspect you will actually be seeing this role playing out in your firm – with a ‘non-lawyer’ in charge!
As always, the above represent my own thoughts only and would love to hear yours.
If you’ve recently lost a client to a competitor and have been wondering how that happened, wonder no longer. The recently published ‘2020 Future Ready Lawyer Survey: Performance Drivers‘ by Wolters Kluner has the answer.
Surveying 700 in-house and private practice lawyers across the US and EU in January 2020, this is probably the most comprehensive survey post COVID (although most of us were not entirely sure what this meant in January so I look forward to a survey report that has been conducted post March this year).
The Top 5 reasons cited as to why a client might leave your firm are:
The client no longer trusts your firm can meet their needs,
Your firm doesn’t specialise in the area of law needed by the client,
Your firm failed to communicate its value proposition properly,
Your firm did not demonstrate efficiency and productivity, and
Your firm’s leverage was/is all wrong.
And three of these are essentially because you messed up on sourcing, communicating and delivering on your pricing promise.
Take-away top tip: want to make sure you keep clients and keep them happy – make sure you (and your team):
understand(s) your value proposition and are able to communicate this,
get your team’s leverage right [hint: don’t hoard work at the top end just so you can meet budget this year!], and
understand the scope of what you are being asked to do and project manage both the scope and the client expectations (especially if out of scope creep occurs).
Manage this well, and you’ll be three-fifths of the way to keeping your client happy!
Demonstrate Efficiency
As a bonus, think about how you demonstrate efficiency to your client.
Is this by saying you have the relevant expertise/experience so that you can do this faster than others,
Is this by saying you have the appropriate IT systems that allow you to get the job done faster, or
Does efficiency even really matter – should the conversation not be about being an effective lawyer?
As always, these just represent my thoughts and always interested to hear your views.
The goal isn’t to find people who have already decided that they urgently want to go where you are going. The goal is to find a community of people that desire to be in sync and who have a bias in favor of the action you want them to take.
In around 2009 I recall reading Seth Godin’s, then recently published, blockbuster ‘Tribes: We Need You to Lead Us‘ and thinking this would have a profound impact on the way clients engage law firms. To give this thought some context, it was around the same time as we had started talking about a new fad called ‘unbundled legal services‘ (which would later also become known as ‘limited scope representation‘ – see ‘The great unbundling of legal work‘ in the Australian Financial Review). It was also a time when ‘disaggregation‘ and the rise of Legal Process Outsourcing (LPOs) (predominately in India at that time but later this would extend to South East Asia and South Asia) would have many of us who worked on bids and tenders discussing issues around disruption of the legal services supply chain – if for no other reason than clients were asking us to provide answers to these questions in their requests for tenders.
A cold wind, amounting to real structural change, in the way clients purchased their legal services was coming (Pfizer Legal Alliance).
THE ‘NEW NORMAL 1.0’
Fast forward a decade and probably the only person who still talks to me about Seth’s Tribes is my good friend Julian Summerhayes, and it is never within the context of an RFT or legal services more broadly.
Nope, in short tribes, disaggregation and unbundling, while definitely remaining vogue, never really had the impact and penetration that I – and I would suggest many others – thought they would.
The ‘New Normal 1.0’ had, to all practical purposes, failed.
KRYPTONITE TO THE ‘NEW NORMAL’ – TEAMS
Probably the biggest obstacle to the growth of tribes post 2009 has been the role that teams have historically played within the legal profession.
Since the times of Dickens a junior apprentice lawyer has worked with, and been mentored by, their senior (supervising) partner. It has always been thus, and with it has come an almost umbilical cord tie between lawyers who have worked in the same team.
Many an in-house General Counsel has sat at the foot of the table of the private practice partner to whom they send instructions. A relationship that has been forged within the confines of a team structure.
TRIBES REBOOTED – TRIBES 2.0
It’s my opinion that one of the biggest likely outcomes COVID-19 will have on the profession is the re-emergence of tribes – tribes 2.0!
There are a number of reasons why I think this might be the case, but probably the biggest is that in-house counsel have, over the past three months, become used to working with remote teams.
It should not, then, be too far removed to say that in-house counsel will be happy working with subject matter experts across firms who can enable them to achieve their objectives rather than with an individual firm that might get them across the line.
In short, on the right deal, in-house counsel will be happy to work with a group of lawyers from various law firms rather than one firm – a tribe over a team.
THE CHALLENGES
Moving from teams to tribes is not a foregone conclusion, it faces challenges.
High among these will be:
How is risk allocated?
Who wears the professional indemnity risk?
My own view is that these can be overcome with:
properly scoped Engagement Letters
proper use of Legal Project Management
a good understanding of Workflow Process Methodology
But that still leaves the issue: How do we price the ‘New Normal 2.0’?
HOW TO PRICE THE ‘NEW NORMAL 2.0’?
The cynic in me says that many law firms will not have the first idea how to price the New Normal 2.0. This presents a significant problem because if they cannot price it, then they cannot sell it (pricing still remains the principal form of credentialisation despite, or rather because of, whatever experience you claim to have).
ONE ANSWER – THE ROLE OF SCOPE PRICING IN THE ‘NEW NORMAL 2.0’
Scope pricing will play a critical role in the pricing in the ‘New Normal 2.0’.
Unlike a fixed fee, capped or fee estimate pricing, scope pricing does it exactly what it says on the tin – it prices to the scope of work being undertaken by the relevant lawyer. This means that proper use of scope pricing should allow in-house to teams to unbundle the legal work within their project – either between the role the in-house plays and the role the private practice firm plays; or, in the case of this post, the role that multiple lawyers with subject matter expertise from various firms play in a project.
And, if done properly, the biggest upside to scope pricing over any other type of pricing of legal services is that, by definition, there really shouldn’t be any scope creep – what you see [in the tin] is what you get!
Came across the bones of a really interesting game you can play with your deal team at your next after action deal debrief/lessons learnt meeting.
Handout a piece of paper to each of your deal team members and ask them to rank, in order of priority, the top 5 reasons – from the following list – why the customer is happy to pay your fees in full (no discounts/write-offs, etc allowed):
Demonstrated an understanding of the customer’s business/industry throughout the deal
Demonstrated an understanding of relevant law
Responsiveness to customer’s requests – phone/email/meetings
Built good rapport and a trusting relationship during the deal (was in the trenches with the customer)
Used expertise to help save the customer money (either on the deal or fees)
Used Legal Project Management techniques to stay within the deal scope and didn’t allow scope creep without first taking to the customers
Used technology, AI, Legal Process Outsourcing and value adds to make the customer’s life easier during the deal
Offered the customer a great discount
Hourly rate was attractive to the customer
Any other reason(s)
Remember, they can only pick 5. And they need to be in order of priority.
I would love to hear feedback on which five were the most popular chosen.
The State of Australian Corporate Law Departments Report 2019 – a joint publication between Thomson Reuters and Acritas – was published earlier this month. With more than 2,000 telephone interviews conducted and 73 interviews with Senior Legal Counsel based in Australia taking place, the sample for this report is robust. And while the usual rhetoric around “more for less” is reflected throughout the Report, one of the standouts is that Australian GCs are forecasting 45% projected budget cuts (over 2018 we have to assume):-
To put that into context, that almost twice the global average.
In a time when we have Royal Commissions being announced almost weekly, and compliance issues are on the front pages of the papers daily, you have to wonder where and how these savings are going to be achieved.
As to the ‘where’, given how much ‘top-end’ reputational compliance work that’s happening in Australia at the moment, and how little cost savings can be made from the margins in low-end commoditised work, you’d have to assume the most likely area will be in the mid-level contract drafting/negotiation/management space [the space in which about 30 out of the top 40 firms in Australia play].
As to the ‘how’, having read the Report my take is that Australian GCs will look to achieve this through:
innovation
panels, and
the elephant in the room
Innovation
‘Innovation’ has been a buzzword in the Australian legal world for over a decade. And, as one of the first jurisdictions to legislation the incorporation of law firms, to many outside Australia our system has been one of envy.
But when you ask Australian GCs to rate the innovation of Australian law firms, only 35% feel they’re working with service providers they find modern and innovative.
From where I sit this means that 65% of Australian GCs don’t think you’re really doing all that much in the innovation space!
Legal Panels
Led by procurement, the dreaded ‘legal panel’s’ stated aim is to achieve:
cost efficiencies and predictability
relationship building (de facto another way of cost savings)
less administrative burden
quality [of work]
responsiveness
access to experts, and
value adds on offer
All great and noble aims if you are looking for a 45% cost saving year-on-year – until you take a closer look at the reality:-
This chart is from the ‘GC Thought Leaders Experiment‘ and it clearly indicates that having a panel in place isn’t saving you anything! Add to that lateral hire movement over the past 5 years, and I very much doubt any of the metrics of having a panel are being met.
It’s worth noting here that swimming against the tide of rationalising panels to fragment legal spend is A Verona Dorch – Peabody’s Energy’s Chief Legal Officer who stated (on the issue of appointing panels) that:
Expanding the pool allowed me to insert a few more midsize and non-money center firms than I otherwise could have. And that’s been incredibly helpful—just a few months in, I’m noticing that those firms are extra eager to impress and put forth their top talent.
So maybe, just maybe, if you get it right there is something to be said for legal panels – only not in the form we currently have them.
The elephant in the room
And so we come to the elephant in the room, where a lot of these savings are likely to be found:
40% of Australian in-house buyers of legal services have used alternative legal service providers (“ALSP”) for support on legal matters, and over half of those who used an ALSP did so as they felt it was a more affordable option.
Private practice we are on notice.
As always though, interested in your thoughts/views/feedback.
I’ve been ‘white-boarding’ legal matters since my days helping out on front-end major projects back in 1996; so the concept of ‘mapping out’ how a transaction might progress, what may be ‘in scope’ and ‘out of scope’, the approximate amount of time the transaction may take and how we are going to resource it are not new to me. In more recent times (largely following the GFC in 2008) the legal industry has formalised my approach of ’white-boarding’ matters to become Legal Project Management.
While I was never really that sure over the years how Legal Project Management differed from the more general Project Management, I have been assured – on numerous occasions – that there is a difference. When asked how, the most common response I received was that:-
Legal Project Management is the discipline of project managing ‘tacit knowledge’ – as ‘knowledge workers’, while
Project Management is the discipline of project managing tangible products, e.g., the construction of a hospital.
And until the last month or so I thought that was a pretty good answer.
So what changed?
Well, in the last month and a bit I have attended a collective 5 day (2 day and then a 3 day) course on Project Management Fundamentals run by PM-Partners Group here in Sydney.
The two day Fundamentals (essentially, theory) session was outstanding and broken-down into the following nine (9) modules:
What makes projects succeed (and by implication, fail)
The essential project management philosophy
The project life cycle
Project planning – project definition and scoping
Project planning – creating the WBS & schedule
Project planning – estimating
Project risk
Project execution & control
Project closure
In turn, if you were on a course where you learnt all about:
scope creep
the difference between what a risk is and what an issue is (hint, one has happened and the other hasn’t)
how to do a business case and a project plan
the triangle of scope, cost, time and quality
the four dependency types [finish-start; start-start; finish-finish; and start-finish], and
you get to work on creating a Work Breakdown Structure and Estimating (Optimistic, Pessimistic and Most Likely – also looking at the Cone of Uncertainty)
Wouldn’t you think you had been on one of the best Legal Project Management training courses around?
Well, that’s exactly what the two day PM-Partners run Project Management Fundamentals course taught me and I have walked away from that course thinking to myself that you can keep the classify ‘Legal’, at the end of the day it’s project management and it’s this type of project management we need to get better at.
My biggest take-out though?
Understanding the difference between a risk and an issue, because anyone doing pricing should get their head around this because it really is as important (and probably goes hand-in-hand with) as what happens with scope creep [helpful extra tip: want to understand scope creep, look up what happens with the formula: n (n – 1) /2].
Get in touch if you want to hear/find out more, otherwise get yourself on a really good PM Fundamentals course because I can guarantee it will pay for itself!
Overnight, Australia-time, the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute, relying on data from Thomson Reuters Peer Monitor, published the findings of its ‘2018 Report on the State of the Legal Market‘. Reviewing the performance of U.S. law firms in 2017, as well as looking at the trends expected in 2018, this annual report is typically the “first” big report publication of the year and so a trendsetter of where we may be going as an industry over the next 12 months.
As has been the case in other years, the first chart I typically like to see in this annual report is the one setting out ‘Collection Realization against Standard Rates by Law Firm Segment‘ – Chart 9 in this year’s publication – to hopefully give me an indication of how an industry that largely relies on increases in hourly rates each year to boost top-line revenue is fairing.
As you can see, yet again the results here can best be described as ‘disappointing’:
AM Law 100 firms are tracking an ever declining realised recoveries of circa 80 cents in the dollar. All others aren’t doing all that much better at circa 85 cents in the dollar.
Either way, those levels of realisation would have most bank managers in a panic. And the reason they don’t comes down to one small issue: in law firms this collection rate – other than telling you that the market doesn’t see your hourly value as highly as you do – is absolutely meaningless.
What it is, is pie in the sky internal budgetary metrics against market reality cash in the bank.
So we turn to my second “go-to” chart: ‘Collection Realization against Worked (Agreed) Rates‘. This year this is represented in Chart 10:
As the name suggests, what this chart is showing us is “Collected v Worked (Agreed)”. I’m assuming the “agreed” here is upfront, and I’m accepting that the picture is far from perfect, but there is a far better flatline realisation rate here of 90-ish per cent, or 90 cents in the dollar.
So, what’s my take-out from the two charts?
If you want to try and get a better handle on your projected cashflow, no doubt better to have an upfront conversation with your client about how much you are going to be charging them – however that is (fixed fee, hourly rates, etc) – than having an arbitrary, and less and less meaningful, ‘billable hourly rate’.
One of the more interesting articles I read over the holiday period profiled a Dutch company called Pitchsome.
Heard of them?
Maybe, but I doubt many have.
But they may just end up being a catalyst for of one of the biggest changes to the legal industry in 2018 – namely, how we tender for work in the future.
Under the tagline, “Show, Don’t Tell,” Pitchsome’s business model is a simple one: Show me how your product works in a video and don’t write reams and reams of marketing bluff and expect me to read it in order for me find out what you can do for me/help me fix my problem.
Supporting this business model, the article states that:
Cisco’s Visual Networking Index says video will account for 80 percent of all consumer internet traffic by 2019.
And that got me thinking:
80% of all consumer internet traffic by 2019 will be Visual Networking + pretty much 100% of Government and 70+% of ASX Top100 companies have legal panels in place
so, how long will it be before these government departments/agencies and companies decide to replace the long and tedious word/excel document tender responses with video tenders that ask law firms to:
profile key team members,
white-board how the law firm can assist the client,
evidence how Legal Project Management can be used,
visually explain the steps in the pricing,
have client referee testimonials,
have video of the pro-bono and community activities the firm is involved in, and
have other examples of how the value adds being offered are being implemented by other clients in the tender’s industry sector?
Will never happen I’m hearing many in Australia reading this say. “It’s not professional”. “It’s nothing short an advert”, etc., etc.
But I’m left feeling: what, just what, would have happen to the industry if those of us who started down this path in 2008 (and those of you who were involved know exactly what I’m talking about) continued the journey?
It very well may have been disruptive. And that word is a real catchphrase at the moment.
So maybe, just maybe, we will be seeing video tendering by the end of 2019 – and that leaves me asking: what are you doing now to make sure you can met this need?
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