The Point
Tis the season to discuss next year’s law firm rate increases.
In the American Lawyer’s entry on this topic two days ago, legal industry experts cited a multitude of factors that could drive 2024’s pricing.
Except one: Clients’ purchasing power. And clients’ willingness to use their purchasing power.
And the fear that constrains almost all general counsel and chief legal officers from robustly leveraging that purchasing power in rate discussions with outside counsel.
This Matters to Your Business
What’s driving these constant hourly rate increases?
- Elements of law firm cost structure: Law firm consultant Kristin Stark as cited in the American Lawyer:”Stark and others say rate increases will be on the higher end because of still-rising costs for things like talent, insurance and some aspects of overhead.”
- Inflation-as-a-pretext: American Lawyer:”Despite the rate of inflation cooling significantly this year, firms are expected to at least keep their foot on the pedal heading into next year.”
- Simply demand-all-that-the-customer-will-bear: Law firm consultant Mark Medice:”I’ve spoken with a number of firms this year that grew rates, but they were more cautious and they’re regretting it …. There’s a lot of people trying to play a little bit of catch-up, and they’ll run out of opportunity runway if there’s a recession.”
- The mere passage of time: Legal operations consultant Mitch Kowalski: “Another year, another increase ….” Gartner analyst and lawyer Ron Friedmann:“IME, increasing #BigLaw rates is an evergreen headline”.
Because …
Most of the legal profession — including the general counsel and chief legal officers who speak for executive management — support the billable hour business model. And they treat it as simply beyond discussion. That’s because the corporate C-Suite and owners of small-and-medium size businesses overwhelmingly allow them to treat it that way.
So articles about law firm rate increases have the same tone as reports about OPEC’s price-setting. Because its oil-producing members collectively control a large percentage of supply, its members can, to a substantial degree, simply charge what they want for what purchasers need.
Spiraling hourly rate increases from law firms need not be a “given”. Clients’ purchasing power is a reality. Executive management needs to weigh in here, and use their purchasing power aggressively when bargaining with law firms over price.