Establish a process to check each invoice against your billing guidelines. Once you’ve agreed to rates and billing guidelines that both you and your firms believe adequately reflect the value they provide, it’s time to manage against that agreement. What are other companies of your size paying for similar work in similar geographies? Being able to compare against your past payment and against the market helps you assess whether rates are appropriate. The second critical data set is industry benchmarks. This will help you understand the scale of your overall rate increases. The first is understanding what you’re paying now and what you’ll pay in the future, by matter and by law firm. There are two sets of data that are important to improve your overall spend management. The next question is, What do we do about it? That is, how can we systematically manage these invoices so we are paying for what we agreed to and ensuring our rates match the value we’re receiving? Data: Many legal departments have experienced all these sources of bloat.
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And because manual review of invoices is tedious and time consuming, many law departments pay these charges despite their violating the guidelines. Through human error, firms may charge for these anyway. Common examples of excluded expenses are copies, scans, overnight messaging, word processing, and document submissions. Legal departments agree to pay for certain costs and expenses related to their matters, but they also refuse to pay for certain others. Rate increase and other billing guideline errors can add up to $375,000 in annual bloat for a $1 billion company, according to a report from Forrester. Still, these incorrect rates can add up significantly. This is usually the result of human error and not of bad intentions on the part of the law firm. This can result in clients paying a higher rate than they agreed to for certain timekeepers. Sometimes when law departments agree to a certain rate, that rate doesn’t make it into the firm’s timekeeping system correctly. They can also affect clients unevenly – if you are a long-time loyal client, you may be paying increases on top of already inflated rates. Sometimes, though, these increases don’t reflect the market rate. Law firms are certainly within their rights to request rate increases, and they should be compensated for the value they deliver.
These factors result in law departments paying more than they expect to, without seeing additional value for their money. There are three main sources of bloating on law firm invoices.
What factors are causing higher timekeeper rates? That law department and many like it pushed back on rate increases and started looking more closely at their invoices. But note that one legal department we talked to saw an average rate increase request rate of 15% last year – nearly three times the national average. Some practice areas or firms may have kept rates flat. While the recent average quarterly rate increase was 5.5%, there is a wide range. They are also finding ways to reduce this bloat so that they are paying for the value they receive. As they start to dig deeper, many law departments are finding additional sources of bloat in law firm invoices. Legal departments are feeling even greater urgency to manage increasing timekeeper expenses from law firms. This is especially true if they feel like they aren’t getting additional value for their money. A report from the Thomson Reuters Institute showed that timekeeper rate increases averaged 5.5 percent in the first quarter of 2023.įirms may be catching up after many quarters of keeping rates flat, but for clients still struggling with expense challenges post-pandemic, the rate increases are hard to stomach. Corporate law departments are seeing the highest rate increases from law firms since before the 2008 recession.
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