Is the Market Changing Faster than Your Firm? 5 Billing Fundamentals

The Australian and international legal markets are changing and are changing at an accelerated pace. The rise of ‘NewLaw’ firms and fixed-price legal services in particular are prompting traditional law firms to respond.

This article outlines five fundamentals to a successful response: 

  1. Alternative Business Structures (ABSs),
  2. the sourcing of legal services (LO),
  3. alternative fee arrangements (AFAs),
  4. legal project management (LPM), and
  5. costs budgeting and costs management.

Tides of change for the legal market

Change is underpinning these fundamentals. Since the 1980s Australian lawyers have worked with constant changes. Some have reflected the structure and operation of their profession. Others have included enormous increases in demand from increasingly sophisticated corporate and governmental clients, competition from other professionals such as accountants and accelerating legal technological change. During this last decade however, they have seen an array of changes disrupting practice in ways not seen before:

  • Cloud computing and applications of AI such as document classification, analysis and review (but not yet complex contract drafting); and
  • cyber security (for example for deal with dedicated denial of service (DDoS) or similar attacks). 

This tsunami is transfiguring whole existing systems of production and management of business services including legal services.

Lawyers need to adapt to these fast moving markets by recognising and using the five fundamentals or risk being pushed aside by those who will.

BigLaw versus NewLaw

Over the last decade, BigLaw, the traditional partnership law firm with a business model based on pricing and payment by “the billable hour”, has collapsed in the US and NewLaw is emerging there and elsewhere.

NewLaw is a buyer-centric structure based on digital delivery of business solutions to the client at their value to the client – not the cost of the time of production.

BigLaw had its origins in 18th and 19th century UK statutes which gave or confirmed an enforceable monopoly over the delivery of legal services to lawyers licensed to practise law. The monopoly ultimately resulted in BigLaw, traditional law firm partnerships or organisational forms owned by lawyers controlling the design, staffing and delivery of legal services a client instructed and seeking payment by the hour for their work [1]. This monopoly lingers in Canada and the US because of continued attempts at enforcement of the monopoly by regulatory authorities there [2].

Trends we can now see include;

  • Markets for legal services which are irreversibly buyers’ markets with clients in control of the key decisions ranging from pricing through to staffing, outsourcing and project management to the quality and timing of delivery;
  • Clients insisting on more value for all they spend; and
  • Value including higher levels of predictability, efficiency, and cost effectiveness in delivery of what clients have instructed.

ABSs

In short clients are looking for their legal service providers to use the right resources doing the right tasks in the most efficient and cost-effective way. 

The relaxation of the monopoly, first in Australia and then in the UK, has allowed Australian and UK[3] ABSs to increase their presence in legal marketplaces.

By allowing ownership or participation by non-lawyers, ABSs are increasingly delivering business models that are more agile, better resourced, and better capitalised to ride out a pandemic.

LO

Very early in the history of development of outsourcing it was thought LO was a temporary expedient that would wither away as artificial intelligence came into its own. In fact, the growth in its use by all participants in NewLaw; buyers, sellers and others such as the continually proliferating Alternative Legal Service Providers (ALSPs) has been little short of meteoric. One example of this is the purchase by Ernst and Young (EY, itself an ALSP) of the ALSP known as Riverview in 2018. Commentators have variously seen this as a disastrous purchase by EY or, and this is the view taken in Quick on Costs, this is a signal of the accelerating industrialisation of the law [4].

AFAs

AFAs, the third of our five fundamentals, have also become an integral element of NewLaw. So much is this so that we should cease to refer to them as alternative fee arrangements. There are such a rapidly broadening range of options to BigLaw’s “billable hour” that the descriptor ‘alternative’ obscures their present and impending importance in replacing that hourly fee arrangement. Indeed, it seems inconceivable that any corporate buyer will buy legal services from a law firm with no understanding of an option such as value pricing which NewLaw’s ‘client centric integrated solutions model’ of delivery of legal services will often use.

LPM and costs budgeting/costs management

Finally, we can now see that US corporate buyers have for some time insisted on their legal service providers practising the fourth and fifth of our fundamentals, LPM and costs budgeting / costs management. This is in order to secure to them as buyers the advantages of AFAs such as price certainty and predictability[5] which can only be achieved through accurate costs forecasting and management. 

In an article in late 2017, Six things modern GCs really want from their law firms the American commentator Steven Walker noted:

Legal project management (LPM) has long since ceased to be a marketing buzz word, optional extra or throwaway requirement in a Request for Proposals…GCs want, and expect, law firms to have integrated LPM into service delivery for complex projects. Ideally, the methodology adopted will: (a) be consistent and standardised across a firm’s offices, practice groups and locations; and (b) integrate seamlessly with the client’s own processes…[6]”

Conclusion

It is useful to reflect on two well-known quotes from the past to illustrate the decisions facing Australian lawyers today:

John F Kennedy said, in 1963, addressing an audience in Frankfurt, Germany:

“Change is the law of life. And those who look only to the past or the present are certain to miss the future.”

Less oratorical and more brutal is a quote from another great American, Jack Welch, sometimes known as ‘Neutron Jack’, the legendary leader and manager in General Electric:

“If the environment is changing faster than your business is, you’re dead.”

The message to lawyers and traditional firms is clear: adapt or risk being pushed aside by those who will.

Quick on Costs is available on the new Westlaw, Westlaw AU, ProView and in Print.

  1. Thomson Reuters, Quick on Costs at [120.70].
  2. Thomson Reuters, Quick on Costs at [120.70].
  3. Thomson Reuters, Quick on Costs at [120.70].
  4. Thomson Reuters, Quick on Costs at [120.410].
  5. Thomson Reuters, Quick on Costs at [120.710].
  6. Steven Walker “Six things modern GCs really want from their law firms” in Remaking Law Firms.com, December 7, 2017.

Roger is a solicitor and costs assessor who has been a prolific writer on the constructive practice of construction law and costs law. Currently he is the leading contributor of those completing the second edition of Quick on Costs.

The service considers the elements of change that lawyers need to embrace to keep pace with their changing markets. In addition it offers a comparative consideration of costs law in Australia and the principles and practices of costs law applied in the Supreme Courts of the States and Territories, the Federal, Family and High Courts of Australia and England. Quick on Costs is available on the new Westlaw, Westlaw AU, ProView and in Print.

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