Now Even Clients are Trying to Cut Law Firm Expenses

Posted on October 26, 2012 by Administrator

The Wall Street Journal reported this week on an issue we’ve discussed here before – cutting law firm expenses.  The difference is that this time, it’s not law firms with their eyes on the bottom line – it’s their clients.

WSJ reports that some companies are pushing back against “miscellaneous” law firm expenses, including everything from copying costs to legal research and attorney travel.  Companies, like the firms that represent them, are looking for ways to cut costs in order to maximize profits.  That has led some to take a closer look at their legal bills, including items outside of standard billing.  AsWSJ tells it:

The changes represent a shift from the way many law firms are accustomed to doing business. “Ten to 15 years ago there were only a couple of corporations that took this seriously,” says David Paige, a legal-fee consultant and managing director at Sterling Analytics Group LLC. “Legal bills were considered untouchable.”

Big law firms used to bill their clients for everything from word processing to photocopies and faxes—so-called soft costs firms incurred while doing client work. Those charges came on top of lawyers’ hourly rates.

None of this is surprising – as we have discussed in the past, pricing pressure has become a standard reality for large law firms in the current economic environment, leading many firms to look to both alternative fees or pricing directors in order combat the issue.  However, previously the focus has been on fees themselves, not the accompanying expenses.  This new trend highlights the degree to which law firms need to look beyond pricing, to efficiency and possibly a new way of doing business.  If overhead costs can no longer be passed on to clients, firms should be looking for ways to reduce those costs.

Yet recent trends tracked by Peer Monitor have shown law firm expenses rising, not abating.  Although this rise appears to be slowing some due to leveling headcounts, the steady increase in expenses is troubling in light of client resistance to paying those costs.  For this reason, some firms may find creative ways to get those expenses paid:

Some firms are pushing back to try and recapture their expenses. One tactic is to assign clerical tasks to a paralegal. These workers, who need not belong to any bar association, can be billed out at around $200 an hour, says Mr. Paige, of Sterling Analytics. Other firms raise lawyers’ hourly rates to absorb overhead.

Posted by Emily Fisher