Research states: No progress on new pricing 'deep-rooted issue'

Research states: No progress on new pricing 'deep-rooted issue'

Legal departments and their outside counsel must collaborate better, reports Thomson Reuters

In light of the 'persistent frustration' of both law firms and their clients, new research suggests that efforts to adopt innovative pricing structures are waning. 75 percent of matters are still billed on an hourly basis, according to the research.

In its Thomson Reuters State of Corporate Law Departments Report for 2022, Thomson Reuters urges in-house legal departments and their outside counsel to renew efforts to better collaborate.

According to the report, even though spend management is becoming more sophisticated, with 82 percent of corporate law departments reporting that they manage their external counsel spend in a proactive, optimized, or predictive manner, the department also reports that 75 percent of matters and up to 80 percent of all billings are still provided on an hourly basis.

The study highlights the mismatch between in-house legal teams who want more innovation in pricing versus law firms who are frustrated by clients who compare offerings on hourly rates when they are presented with new approaches.

In this area, 'frustrated parties are often to be blamed, but with more than half of the matters we evaluated exceeding their estimated budgets,' the report argues that a renewed focus on this topic is needed, as the issue 'has become a deep-rooted concern with the legal profession, one that demands true collaboration -- along with shared risk taking.'

However, among the main categories of technology, legal project management is the least utilized (30 percent), even though general technology adoption among corporate law departments is on the rise. The increase in matters that law departments have to manage outpaces the rate at which budgets are increasing and as a result, effective project management can help law departments improve efficiency.

The vast majority of large law firms have built sizeable teams of professionals with this focus, but only 1percent of cases are managed by a legal project manager.

The report asserts that law departments can go a long way in closing this gap by requesting experts to take on legal project management responsibilities in work matters they send to law firms.

A large correlation is found between client-side project management skills and achieving a successful conclusion efficiently and it recommends that internal legal project management be high on the agenda for law departments.

Although the report shows that external lawyers are recommending that their clients improve their project management skills, one equity partner in a German law firm reported that their client was extremely difficult to onboard additional resources.

The partner in Brazil mentioned that despite the relationship being "very transparent" and having a high billing amount, it took the client an unreasonable amount of time to review, question and approve invoices.

The report concludes that law departments must improve their project management competencies if they are to improve their chances of having matters concluded efficiently and successfully.

According to Sunil Pandita, president of corporates at Thomson Reuters, "The impact of the pandemic and uncertainty had compelled corporate legal departments to become more efficient as a matter of necessity." "With talent shortages, a do more with less mentality and a need to focus on more strategic functions, corporate legal departments are turning to digital solutions to drive efficiency, effectiveness and cost-savings."

Approximately 43 percent of legal department leaders expect their spending on legal services to increase in the next 12 months, versus just 21 percent who think it will decrease.

In terms of technology utilization, e-signatures are used by 63.2 percent of respondents, legal research is used by 57.6 percent of respondents and contract management is used by 55 percent of respondents.

Based on benchmarking data and interviews from three data sources, the Legal Department Operations Index, the Stellar Performance research panels and Thomson Reuters Sharp legal, the report was compiled.