Why are legal costs stubbornly high? In short, because clients want them to be.
It sounds counterintuitive, and it’s certainly not a conscious decision, but it does seem to be the case.
This article examines why that is, what causes it, and what clients can do about it.
The psychology behind pricing
As discussed by former Stanford University professor Robert Cialdini, where there are “markets in which people are not completely sure of how to assess quality, they use price as a stand-in for quality.”
We’re not saying that clients aren’t able to assess the quality of legal work, but that it can be tricky to ascertain before the work has begun.
And because legal work is so vitally important to the functioning of a company, people don’t want to feel like they are taking risks. The natural inclination can therefore be towards using price and prominence as a proxy for quality.
Making difficult choices
All of this means that selecting the right firm for your company’s legal work can be tricky.
If you have a specific problem that requires specialist legal advice, your choice is more straightforward. You simply find the most eminent partner at a law firm that is specialised in that area.
However, this type of legal advice does not constitute the bulk of the legal work a company requires. In fact, the majority of legal work isn’t legal advice at all, it’s legal process work.
That doesn’t mean it’s less important. It just means that the method used to select a service provider should reflect the work you are hiring them to do.
Separating legal process and legal advisory work
The aim here is to select the right provider for the work that needs doing. You wouldn’t hire a football manager to coach a rugby team, for example.
So the first exercise is to consider the work that you need doing, and assess whether it is actually legal advisory work at all. Because if it isn’t, if it’s actually legal process work, you should be using a firm that specialises in that type of work.
And nine times out of ten, that’s going to be an Alternative Legal Solutions Provider (ALSP).
What does an ALSP do better than a law firm?
The key difference between an ALSP and a traditional law firm is the approach taken to the work.
Legal advice requires a lawyer with great experience to consider the intricacies of a particular situation, evaluate how various different laws and regulations apply, and then provide a suggested course of action to the company in question.
Legal process work, on the other hand, is where a repeatable process is carried out to conform with a company’s specific guidance.
For example this might be the handling of Freedom of Information (FOI) requests, Data Subject Access Requests (DSARs), contract repapering exercises, large scale due diligence, discovery, or any procedural work of that nature.
For this type of work, an ALSP applies project management methodologies to gauge the scope of what’s involved, provide timelines for its completion, and submit accurate quotes for the work involved.
As the work commences, forecasts can then be produced detailing exactly what will be completed and by when, which can be amended should there need to be any alterations to the project while it is under way.
Why are Alternative Legal Solutions Providers cheaper than law firms?
So, if ALSPs can manage legal process work better than traditional law firms, why are they cheaper? For two key reasons:
Firstly, because of their rigid cost structures, traditional law firms cannot afford to be too flexible of fees or rates. All of the work they do is based around the same billable hours. This means that all work done by traditional law firms is charged out as if it were bespoke legal advice.
As an ALSP doesn’t offer legal advice, it can ameliorate costs to suit the work at hand, drastically reducing rates, usually by over 50%.
Secondly, to address this issue, many law firms themselves have begun to use ALSPs to carry out the legal process work. In fact, a study by Thomson Reuters in the U.S. found that 79% of law firms used ALSPs.
This inevitably means that a markup is applied which pushes the cost of services above what it would have been if the client had engaged an ALSP directly.
So, how can clients reduce their legal spend?
By selecting a provider that’s suitable for the work they require.
Companies will always need bespoke legal advice, that’s not going to change. And partners at the top firms will (rightly) always be able to charge top rates for carefully considered advice in their specialist area.
However, that doesn’t mean that companies need to pay those rates when the work they need carried out is actually legal process work.
Clearly, the world needs the work that law firms do, and it always will.
As we discussed in a recent article, Johnson Hana is both friend and foe to law firms. We have a wonderful, mutually beneficial relationship with many forward-thinking law firms that see the benefit in focusing their energies on bespoke legal advice, and leaving the volume heavy process work to us.
For clients, though, the best approach is usually just to go straight to the ALSP if the assistance they require relates to legal process work.