Too many of us focus too hard on hourly rates. I am an advocate for alternative fee arrangements, but I also acknowledge that most legal services are still billed by the hour. So, what is wrong with working toward hourly rate discounts? The problem is that hourly rates are not so clearly related to either legal outcomes or actual legal expenses. If your goal is to manage legal costs billed by law firms, in addition to managing rates, it is necessary to manage staffing models.
I have been focused on achieving the best possible legal outcomes for the most compelling value for more than ten years. From 2012 through 2017, I was an executive in AIG’s pioneering Legal Operations Center, where I was globally responsible for alternative fee arrangements, alternative dispute resolution programs, and non-law firm legal services procurement. After my time at AIG, I was chief innovation officer at Epiq, a leading alternative legal services provider. For the past three years, I’ve been independently advising global companies on legal operations strategies. All of my experiences have taught me that balancing legal costs and legal outcomes is always harder than it might seem. But it is not impossible.
There is no magic here. Legal operations and legal cost management must always be done in the context of the legal requirements of a particular company. We can learn tools from one another, and the recently emergent legal operations community creates powerful opportunities to share knowledge. How that knowledge and those tools are applied will vary not only with the legal and business strategies of the client corporation but also with the skills and strategies of the law firms that support them.
Why is it so difficult to measure law firm performance? There are many factors:
We don’t always have objective measures of what constitutes a “good outcome.”
What if corporations challenged these usual ways of thinking and managed the way law firms staff their matters?
Before we explore the management of staffing models, it is necessary to clarify what a staffing model is in the first place. There are two major terms we need to define – what is a timekeeper, and what is a practice area.
While the skill and perspective of every legal professional are unique and uniquely valuable, the business of billing by the hour requires categorization of individual lawyers into “timekeeper” levels. Each human being that provides legal service is a timekeeper, and each timekeeper has a rank. Could be paralegal, first-year associate, etc. all the way up to of-counsel and senior partner. Law firms vary in how they categorize their timekeepers, and that is one of the first obstacles to corporations managing law firm staffing models. Unless you use only one law firm, when there is no data consistency in how the law firms label their timekeeper levels, it is not possible to compare performance – either by cost or by outcomes – on similar matters handled by different firms.
The only solution is both elegantly simple – from a data perspective – and notoriously difficult to achieve – from a legal operations perspective. Within reason, it is possible for clients of law firms to require the law firms to consistently categorize their timekeepers. As with any data alignment initiative, the details matter. For example, “First Year Associate” is not the same as “1st Year Associate” or “1st Year” or “1st Yr.” and on and on. While it is possible for the client to build lookup tables to normalize all of the incoming billing data, that approach is error-prone and difficult to maintain. It is much easier and more reliable to ask that law firms conform their timekeeper labels to a client-defined standard, then use only those timekeeper levels when they submit their invoices through an ebilling platform.
In many law firms, rates vary not only with timekeeper classifications but also with practice
areas. Rates in the employment practice area might vary significantly from rates in the real estate or M&A practice area, for example. To build a data model that enables cross-firm cost and outcome metrics, it is necessary to define practice areas and require firms to code timekeeper, timekeeper level, and practice area in all of their electronic invoices.
With all of this data definition in the background, it becomes clear that managing staffing of matters is more complex than having a conversation with lead counsel at the outset of an engagement. Without data and processes that align activity with strategy, even the best intentions to manage a staffing model do not often survive as the arc of a matter unfolds. In contrast, if law firms and their clients cooperate and do the hard work necessary to establish and maintain useful timekeeper-related data structures, it is possible for corporate clients to understand exactly how their matters are being staffed. For clients that use outside counsel regularly, it will soon become clear how each firm is allocating staff to the matters they are supporting. Are they partner-heavy? Associate heavy? Evenly distributed? How does the distribution vary across matters? Is it possible to evaluate relative outcomes of various staffing distributions? When answers to these questions are evaluated, it becomes possible for clients to specify desired staff distributions when matters are assigned.
Of course, achieving the legal objective of each assignment is the paramount goal. It should also be apparent that there is no one “target” staffing model. Matters vary in risk and complexity. Practice areas vary in risk and complexity. Corporate clients may want matters in one practice area to be staffed with a partner-heavy timekeeper distribution; in another practice area, they may prefer associate-heavy timekeeper distribution. From a cost management perspective, the key point of staffing model management is that the total cost of a matter is often more heavily influenced by timekeeper distribution than by hourly rates.
Table 1 illustrates a hypothetical pricing list for hourly rates at 10 different timekeeper levels.
Figures 1 and 2 illustrate the cost of two 1000-hour matters with the same timekeeper levels and timekeeper rates, but different timekeeper distributions. In Figure 1, the staffing model emphasizes the use of more junior resources to accomplish the requirements of the matter.
Figure 2, in contrast, illustrates a staffing model that emphasizes the use of more senior resources. For the sake of comparison, the illustrated staffing models are symmetrically inversed across the timekeeper levels.
Figure 3 highlights the fact that under these two staffing models, the total cost is substantially different – the associate-heavy model cost just over half as much (52%). Remember, the hourly rates are the same in both models.
This simple illustration motivates monitoring staffing models. While negotiating rate cards with outside counsel is important, managing overall costs requires more detailed analysis. By measuring and monitoring staffing models, legal operations professionals can help their legal department and business colleagues achieve desired legal outcomes at appropriate costs.
When in-house counsel communicates target staffing model objectives with outside counsel, both parties benefit. As more matters are delivered in accordance with staffing model objectives, it may even be possible to use the data to construct mutually attractive alternative fee arrangements. By untethering the concept of legal value from the traditional rate card discussion, both law firms and their clients can increase their confidence that the best possible legal outcomes are being delivered at the most appropriate value.
It is possible to establish timekeeper-level standards across law firms. Managing timekeeper levels opens the door to managing staffing models for your matters. Staffing model optimization can yield even more cost reduction than hourly rate negotiations. Measuring timekeeper data across similar matters sets up the potential for effective AFAs. All of these benefits and more are enabled by a data-driven legal operations strategy that is aligned with client business objectives.
About the Author
Cliff Dutton has been a leader in legal technology for 20 years. He was the national technical editor for the first Electronic Discovery Reference Model and has testified in US Federal Court on topics including reasonability and completeness in electronic discovery. In 2012, he joined AIG as Senior Vice President, Director of eDiscovery, and Director of Strategies in AIG’s Legal Operation Center. While he was at AIG, he was a fellow of the Association of Corporate Counsel Legal Operations Section, and his team was recognized by the Association of Corporate Counsel as Value Champions, with acknowledgment of $150M+ per year in legal operations efficiencies across AIG’s annual legal spend of $2B+. Cliff was the architect of reverse-auction procurement of e-discovery services and implemented AIG’s non-law firm vendor panels for e-discovery, document review, court reporting, and other expert services.
In 2017, Cliff joined Epiq as Chief Innovation Officer, where he directed investments in product, process, and business model innovation. In 2019, he returned to his consulting practice Dynamic Legal Operations (www.dynamiclegaloperations.com) where he advises corporations on law firm panel formation and legal operations strategy. He also advises legal technology companies on product and marketing strategies.
Cliff’s contributions to business, law, and technology include: