Fee thinking

Better billing is key to winning work from Aussie in-housers

As this week’s cover story explains, Australia is an increasingly attractive market for international firms. But to achieve a full financial merger with an Australian firm is challenging for a plethora of reasons, not least the disparity in profitability. It will not be cheering to learn, then, that a survey of 350 Australia-based general counsel conducted by King & Wood Mallesons reveals that making good money from the nation’s legal market may be even harder than it seems.

According to the survey, there has been a slight shift away from billable hours towards alternative billing models over the past 12 months. In total, 21 per cent of respondents reduced the proportion of their legal spend billed on hourly rates over the past year, while 41 per cent (down from 50 per cent in 2011) used time-based billing for at least 90 per cent of their external legal spend.

There has been a high level of dissatisfaction relating to billing models as corporate counsel increasingly look for more value for their dollar. Close to 60 per cent of the respondents said that they were only ‘accepting’ of, or were unhappy with, their current fee arrangements.

The poll ranked a fee estimate with regular WIP reports as the single most effective way for them to manage their organisation’s external legal costs. Capped fee arrangements and fixed-fee arrangements were ranked second and third.

In addition to higher demand on flexible fee arrangements, almost 30 per cent of the polled general counsel expected their external legal spend to decrease over the next year.

While most of the organisations participating in the survey spent the majority of their legal budget on external law firms, some companies are looking to reduce the ratios. For example, 32 per cent of the top 50 Australian Securities Exchange-listed companies reduced the proportion of their total legal budget that was spent on external law firms, handling more work in-house.

Assuming the survey findings speak the truth, winning the race down under will be more a matter of coming up with innovative and sustainable billing models.

One of the respondents gave a good suggestion on how firms can differentiate themselves from their competitors: “Firms can truly distinguish themselves by working with their clients to develop innovative billing models which address the particular objectives of their clients, are simple to use, and provide a clear link between cost and value and provide certainty.”

Simple.