Lack of progress on innovative pricing ‘deep rooted issue’ for legal profession, new research finds

Thomson Reuters report calls for renewed effort by legal departments and their outside counsel to collaborate more effectively

Efforts to adopt innovative pricing structures appear to be waning due to the ‘persistent frustrations’ of both law firms and their clients, according to new research which has found that 75% of matters are still billed on an hourly-rate basis.

That is a key finding of the Thomson Reuters 2022 State of Corporate Law Departments Report, which calls on in-house legal teams and their external counsel to renew efforts to collaborate more effectively.

While spend management is becoming more sophisticated, with 82% of corporate law departments now self-identifying as proactive, optimised or predictive in how they manage their spend on external counsel, these departments also report that 75% of matters and up to 80% of total billings are still billed on an hourly-rate basis, according to the report.

It highlights a mismatch between in-house legal teams which say they would like to see more innovation in pricing and law firms which are frustrated by clients who, when offered fresh approaches, ultimately compare offerings on hourly rate equivalents.

‘Persistent frustrations in achieving pricing innovation, experienced by both parties, may well account for waning efforts in this area, but with more than half of the matters we reviewed exceeding the estimated budget, this issue warrants renewed focus,’ the report argues, adding that the situation ‘has become a deep-rooted issue with the legal industry and requires true collaboration — along with shared risk-taking — to address.’

The report finds that while overall technology adoption among corporate law departments is on the rise, the least used of the main categories of tech is legal project management (30%). And yet effective project management offers law departments a way to be more efficient as the increase in matters they have to manage outpaces the rate of budget growth.

Only the largest 1% of matters involved a dedicated legal project manager, despite most large law firms having now built sizable teams of professionals with this speciality. 

‘Law departments can speed the closure of this gap simply by increasing demand for specialist legal project manager involvement in the work matters they send to law firms,’ the report says.  

It recommends that internal legal project management be high on the agenda for law departments, given the strong correlation it finds between client-side project management skills and reaching a successful conclusion efficiently.

The report shows, however, that project management is regarded by external lawyers as their clients’ weakest area of performance, with a law firm equity partner in Germany saying their client was “slow in onboarding additional resources and thereby extremely stretched the internal team”.

Another partner, this time in Brazil, said that although the relationship with a client was “very transparent and amount billed was high, it took the client an unreasonable time to review, question and approve invoices.”

‘In order to optimize the chances of efficient, successful matter conclusion, law departments must improve their own project management competencies,’ the report concludes.

“The impact of the pandemic and uncertainty propelled corporate legal departments to drive efficiency as a necessity,” said Sunil Pandita, president of corporates, Thomson Reuters. “Whether it is from a talent gap, a do more with less mentality, or the need to focus on more strategic work, the investment in digital solutions is helping corporate legal departments drive the next level of efficiency and effectiveness – now more than ever.”

Some 43% of corporate law department leaders said they expected their total legal spend to increase in the coming 12 months, compared to just 21% who said they were anticipating a reduction.

The top three legal technologies being utilised are e-signature tools (with 63.2% of respondents saying they use such tools), legal research (57.6%) and contract management (55%). 

The report was compiled by looking at benchmarking data and anecdotal interviews through three data sources: Thomson Reuters Sharplegal; the Stellar Performance research panels; and the Thomson Reuters Legal Department Operations Index.

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