Do Law Firms Offer Discounts? Should Those Discounts Replace Invoice Review?
“Can you knock 10 percent off?” This is a question that modern consumers routinely ask many retailers. Everything seems to be on sale, and unless it is, people are often unwilling to buy. Have law firms become part of this discount culture?
According to Bloomberg Law, some of America’s top law firms charge over $2,000 per hour, and rates increased by approximately 40 percent between 2007 and 2020. However, many corporate clients get a discount because law firm partners generally can offer these clients a 10 percent discount without first consulting firm leadership, and rarely does a corporate client of any size pay the “standard” rate.
There are three types of rates to consider when discounting rates:
Law firm rates. The hourly rate a law firm charges for each hour (or part of an hour) that the firm’s attorneys spend working on a matter.
Discounted rates. Law firms typically offer their corporate clients a 10-15% discount off their standard rates.
Target rates. The per-client rate is generally less than the discounted rate law firms charge.
According to Law.com, discounts in Big Law are relatively new. In 2007, firms received nearly 95 percent of the billing rate that their clients had agreed upon. However, when the Great Recession hit in 2008, discounted rates seemed to be necessary to win matters and retain clients, but they made a mockery of what were once known as standard rates. So now the question is: Are rates increasing to offset discounts, or are discounts a necessary response to runaway pricing strategies of law firms?
Why Legal Bill Review is Essential
Since most corporate clients receive a discount and are presumably paying less than the standard rate, does this mean invoice review is not necessary? Here are some reasons why companies do not always carefully review legal bills from their outside counsel and why this is a mistake:
They don’t have time. In-house legal departments of large companies receive stacks of legal invoices from their law firms each month. Understandably, little attention is typically paid to individual line items to ensure accuracy. It is true that when in-house counsel spends their time reviewing bills, they are not delivering a clear return on investment (ROI) for the time spent. However, the risk of paying these bills without reviewing them is obvious. Although it can be challenging to determine whether overbilling happens when legal invoices are thoroughly examined, it is virtually impossible to catch errors when they are not.
They trust their outside counsel. While trusting your outside counsel is essential, you should not assume that they are incapable of making clerical errors or time entry mistakes on a bill before it is sent out. Additionally, in complex and costly legal matters, there are often numerous time entries from associate attorneys, paralegals, and administrators that in-house counsel might not be familiar with (and who might feel pressured to bill maximum hours).
They don’t feel comfortable challenging their law firm regarding the reasonableness of bills. Some in-house teams believe that if they question the accuracy of legal invoices received from their outside counsel, the scrutiny will ruin the relationship. However, legal departments should consider replacing outside counsel that is unwilling to discuss inaccurate invoices with a firm confident that their bills are correct and will withstand thorough examination.
They are already receiving a discount, so why review the bill? Obtaining a standard discount from a law firm is rarely a good reason to skip legal bill review. Although discounts are always appreciated, with the hourly time billing model utilized at most law firms, it doesn’t take many billing errors (or overzealous associates looking to reach quotas) to erase the standard discount buffer. In addition, discounts are taken off the rates, up-front, before billing begins, can be per client or matter, and do not impact the number of hours bills or the level of experience of someone completing a particular task.
Discounts should not replace or impact bill review. Instead, bill review should focus on the amount of time spent on a task, the staff level at which a job is completed, and duplicate entries, among other guidelines. For example, suppose a corporate client accepting a discount fails to review the invoices or question the billing practices of its third-party counsel and a duplicate entry of $700 was being unknowingly billed to the company each month. At a 10 percent discount, the $700 duplicate entry is repeatedly billed at $630. If that practice continues for a year, it will result in more than $7500 in charges that should never have been billed – or paid.
Third-party Legal Bill Review: A Necessity, With or Without Discounts
Traditionally, legal invoice review has been the responsibility of in-house counsel. However, there is now a trend to reduce the burden of invoice review while still preserving the level of quality needed to examine outside counsel and vendor work. One option involves engaging a third-party service to provide review services. These reviewers (often U.S.-based attorneys) are incentivized to examine line items for errors. In addition, they are knowledgeable regarding the actual value of legal services and the length of time particular legal tasks will typically take. In-house counsel must educate themselves on current solutions for reviewing bills from third-party counsel that will help them manage and reduce outside legal spending. Before you pay your law firm’s legal bills, you need to ensure the statement is accurate and free of mistakes. Whether your organization has an eBilling system in place or not, adding a third-party legal bill review service will likely encourage your outside firm to accept the adjustments suggested by professional reviewers and also streamline your team’s spend management process.
Although many organizations view in-house legal departments as “cost-centers,” third-party legal bill review can do much to change this perception. Consider how appreciative corporate management would be if your legal department came up with new ways to save, rather than cost, their organization money.
