Fees: just a quarter of companies always negotiate
A new law firm ‘broker’ is targeting companies that believe they are overpaying for legal services.
The Legal Broker (TLB) argues that even the most sophisticated clients are having trouble finding value for money and good service from their external lawyers.
TLB’s chairman is Sandy Orr, a Scottish lawyer turned hotel entrepreneur, while his son Peter Orr – a solicitor who went on to found mobile marketing agency Intelligent Mobile – is chief executive.
Other directors include one-time Allen & Overy partner Alanna Lee, former European head of legal affairs at post-bankruptcy Lehman Brothers, and Ellora MacPherson, whose previous general counsel posts include Freud Communications.
It commissioned independent research among a cross-section of 50 FTSE-350 and major private companies that found nearly 30% believed they are overpaying for their external legal services (rising to 35% for companies with no in-house legal team) – equally this means a big majority do not think they are. Those who reckon they overpay estimate that their legal expenses are on average 18% higher than they should be, with two-thirds spending a proportion of their working day on fee disputes.
Half of businesses interviewed said they either ‘never’ or only ‘sometimes’ negotiate their legal fees; and just a quarter negotiate ‘all the time’. In choosing a legal service provider, 86% of businesses rated overall cost as the most important factor, with legal specialism and the skills of individuals following close behind at 82% and 76% respectively. Nearly one in three companies cited cost as a driver to change legal supplier, with 28% changing due to lack of skills.
Peter Orr said: “Nearly 40% of companies want help in reducing their legal fees, which is why we have set up a skilled and independent intermediary service to support in-house legal teams and decision makers buy and manage their legal services and spend.
“Board accountability is another big issue for companies, with 43% of businesses interested in benchmarking their current legal providers to provide evidence of value for money to non-executive directors and chief financial officers.”
TLB maintains a database of firms’ fee rates, track records and fee-earner competency to help it identify appropriate legal services providers for their clients, negotiating terms of engagement. It will also project-manage the relationship if required.
Companies pay either a fixed fee or percentage of legal spend, potentially with a success fee element, that works out at up to 5% of the spend depending on the matter. There is no legal panel.
Mr Orr said TLB has already completed a job for a FTSE-250 company looking to hire a firm with negotiation skills to manage a complicated deadlock joint venture with a sophisticated counterparty. The most expensive quote obtained was 733% higher than the lowest, delivering a six-figure cost saving to the client.
He said: “The UK’s leading law firms already accept that to remain competitive they now have no option but to lower costs and offer more flexible charging structures. There is an inherent lack of transparency in the legal market. Understanding this opaque and rapidly changing market, who are the best providers and the right terms upon which to instruct is becoming increasingly complex.”
The idea of intermediaries helping in-house lawyers find outside counsel is more common in other countries, but first emerged here in 1999 with the launch of First Law.
I still believe that the best way for in-house legal departments to get value for money and control over their legal spend is to implement a formal e-billing process with external suppliers. This has to be done in conjuction with the defining of a set of billing guidelines and using the appropriate software which allows all legal spend to be analysed and a comparison made across all law firm bills – which will be coded using the UTBMS Phase/Task and Activity codes.