Introduction: Quality is still the best policy

Innovation and disaggregation might be the latest legal buzzwords but our in-house survey reveals that the most important factor when choosing a law firm is good old-fashioned quality 

How innovative is your delivery of legal services? Or to pose a more pertinent question, how much do your clients care how innovative you are?

If the responses to this year’s research among in-house lawyers for The Lawyer Management Guide is a reliable indicator, the answer to the latter is “not much”.

This year’s report poses another pertinent question: are your clients buying the ‘innovative’ services you are offering? And if they are, are they getting the benefits from it that they expected and you promised? You may be surprised by what we found.

This year’s edition of The Lawyer Management Guide focuses on the apparent trend for an increasing number of firms to deliver their legal services differently. 

‘Apparent’ because what is clear from these results is that although change is certainly happening, it is happening slowly. 

In today’s market innovation could mean captive centres in lower-cost regions, third-party providers, fragmented delivery mechanisms relying on web-based services or flexible resourcing schemes supplying legal talent as and when required.

There is a growing array of options now being offered to in-house lawyers. But what do they think of them? And what do the responses to this survey tell us about the buying habits and behaviours of in-house lawyers themselves?

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Passing on the benefits

In short, the survey confirms that many buyers of legal services remain conservative in their habits and preferences. And many of the providers do, too.

This overview will look at the answers to each question individually and will include the verbatim responses to four open-ended questions. But allow us to offer some of the highlights upfront.

Such as this finding, for example. Despite all the noise about disaggregation and new models, 27.3 per cent of respondents to Question 8 in our survey said they had “rarely” been offered some form of disaggregated or unbundled legal service, while 28.6 per cent ticked “never”. An additional 29.9 per cent said they had been offered these services only “occasionally” while only 5.8 per cent said they were regularly being offered disaggregated legal services. That’s 5.8 per cent.

And what of the much-trumpeted cost reductions? Clients report that they are yet to see any widespread reduction as a result of disaggregation. The answers to Question 13, which asked clients what impact on costs the disaggregation of legal services has had, are telling.

Well over a third (36.1 per cent) said purchasing these services resulted in the same level of costs while 10.3 per cent said they had seen an increase in costs. These findings suggest that any savings being made by firms are not being passed on to clients. Either that or firms have managed to disaggregate their services and make it cost more to their clients.

“I’m staggered by how many respondents say they haven’t enjoyed a significant reduction in fees,” says one well-known UK managing partner. “Are the disaggregated services not being provided in a way that gives cost certainty? If not, why do it?”

DWF managing partner Andrew Leaitherland, who knows a thing or two about providing legal services differently, says The Lawyer’s findings confirm that the disaggregation of legal services is not yet delivering enough of a cost advantage.

“This suggests inefficient processes in law firms and perhaps a lack of clarity and control from the perspective of in-house counsel,” Leaitherland adds.

Keystone operations director William Robins (who appears in the Finance feature, page 24) argues that disaggregation generally divides the legal profession, especially regarding quality and risk, although one thing is usually agreed: with greater efficiency comes lower cost.

“Clients can rightly expect to see the benefits of their work with their firms to improve efficiency,” says Robins. “This is the all too familiar ‘more for less agenda’ and not the ‘more for me agenda’. If law firms want to succeed they need to show they are on their clients’ side, in all respects.”

Quality first

While a reduction in costs is certainly a factor in driving the reshaping of the UK legal market, what comes through particularly clearly from The Lawyer’s research is that it is far from being the primary factor for clients when buying legal services. For most in-house lawyers, what really counts is quality. 

Delve into the survey results and the theme of quality being paramount recurs again and again. It is the highest-rating purchasing factor (Question 7), the biggest concern (Question 11) and implicit in the list of major concerns (Question 12).

It also scored top in terms of satisfaction levels when in-house lawyers were asked to rate the service they have received in terms of quality, cost and control (Question 18).

Innovation, according to the results of our research, is not what clients really care about. On the contrary, the majority of clients appear to be traditionalists at heart, with one single factor (quality) outweighing all others when it comes to buying external legal services.

This focus on quality coupled with the reassurance of a well-known brand is another theme that should give firms such as Ashurst, Allen & Overy and Herbert Smith Freehills (HSF), which have opened their own captive lower-cost regional centres, comfort that they are on the right lines. As we comment further on in this report: “if these firms can drive the innovation from their centres in Glasgow or Belfast… why would they go to several providers”?

The responses to Question 12, which asked in-house lawyers to rate the risk factors in buying disaggregated legal services, validates their business case.

“What’s interesting is the focus on quality, regardless of the approach to delivering legal services,” says Alison Bond, co-founder of Pinsent Masons’ flexible resource hub Vario, after analysing The Lawyer’s results. “Clients want to see innovative, flexible, cost-effective approaches to delivery but without compromising the quality they have come to expect from their main law firms,” adds fellow founder Katherine Thomas.

Ashurst partner Mike Polson, the man behind the firm’s business support and legal services in Glasgow, sees a similar theme, particularly in the answers to Question 7.

“There is clear blue water between quality as a factor in buying legal services and anything else,” says Polson. “It is the key factor in buying.” 

The private practice view

The Lawyer Management Guide’s findings include responses from almost 200 in-house lawyers spread across a wide range of sectors, team sizes and legal budgets.

Further on in this year’s edition of you will find views from the other side of the table. This year’s editorial includes seven peer panel features focused on the key operational areas in law firms: HR; technology; facilities and operations; finance; marketing and business development; risk and compliance; and knowledge management.

All seven strands are focused on the issues facing operational staff relating to the disaggregation and unbundling of legal services.

For example, in the Finance feature (page 24) we ask how can firms reduce the cost of their services but maintain the profitability of their work streams in a fixed-price environment?

Among the contributors to this article is Lindsay Beardsell, general counsel of retailer SuperGroup. Her advice is simple: “Speak to clients. Clients can tell law firms what their competitors are doing to attract and retain clients. It is also important to be innovative. They should put themselves in the shoes of the client and really think about what the client wants and needs. Happy clients mean retention and retention means a reliable stream of revenue.”

It is sound advice, whichever side of the disaggregation equation you’re on.

Survey results

Question 5: Overall, how satisfied are you with the level of innovation shown by your primary legal services providers in relation to the delivery of legal services?

The response to this question ought to have many a law firm partner quaking in their custom-made shoes. Just 7.1 per cent of respondents said they were very satisfied with the level of innovation shown by their primary legal services providers in relation to the delivery of legal services.

Given how much time and effort firms have been spending telling anyone who will listen how client-focused they are, this must be disappointing. If they genuinely are offering innovation, that message has not reached their clients.

The largest single proportionate answer – 37.1 per cent – said they were neither satisfied nor dissatisfied, suggesting that clients themselves may be a touch ambivalent about innovation levels. Indeed, the answer to Question 7, which asked respondents to rate the importance of a number of factors when purchasing external legal services, confirms this. 

Innovation scores lowest, with the majority of respondents scoring it as a three. What counts, as this question underlines, is quality, with almost every respondent scoring it a five.

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Question 6: Can you provide one example of a recent innovative offering by your primary legal services providers?

The next question offered firms a chance to shine, or at least bask in the glory and recognition of a job well done. If the UK’s top law firms really are delivering legal services in new and exciting ways, this was the question that would reveal it.

So much for the best-laid plans.

“We are the innovation,” was the pointed response of one client. From several others who were asked whether they could provide one example of a recent innovative offering, the response was even more to the point: “Sadly, no”.

“This is the really telling one for me,” says Motive Legal founder Mark Brandon. “How innovative? Not at all, apparently.”

But the response from the in-house lawyers was far from universally critical. Indeed, the list of negative responses, although cutting, was outweighed by those that were at least partially positive, with one or two clients singling out individual firms for particular recognition.

“Excellent management information from Riverview Law,” said one, while another mused: “It is innovative that Osborne Clarke has started to look at its secondment programme much more critically”.

Other responses included: “Provision of asset management legal services which had been unbundled to our benefit and that of the law firm”; “Fixed-price employment tribunal work”; and “Free helpline service for pieces of work taking under five hours”. (See box, below, for the full list of responses).

Positive

“They are more flexible on billing, and have offered busted deal discounts with a bonus for completed deals”

“Abort fee rate reduction on abandonment of deal”

“Fixed costs”

“Fixed price employment tribunal work”

“Excellent management information from Riverview Law”

“It is innovative that Osborne Clarke has started to look at its secondment programme much more critically”

“Alternative fee arrangements for recurring non-rocket science work”

“Free helpline service for pieces of work taking under five hours”

“Just asking what the primary concerns are in today’s evolving global regulatory environment – and addressing concerns as they arise”

“Im[port] and export reporting services to Indian authorities”

“Sharing lastest EU legislation to protect the business from a potential new competitor that is likely to be state aid-funded”

“Discounted billing with stage gates and success fee element agreed (for favourable arbitration result)”

“An offer to run something on a trial basis on a fixed fee which was subsequently withdrawn”

“Enabled us to offer bonds without use of investment bank as underwriter”

“A complicated project being dealt with through three offices and five different tiers of lawyer”

“Implementing project management to better coordinate and control budget, staff, cycle time, and results delivered”

“Our main transactional firm provides a free advice hotline for small questions”

“Delivery of management information in relation to work undertaken”

“Access to compliance and training software”

“Offering a fixed monthly fee for an employment law ‘helpline’ up to certain number of queries/hours spent advising”

“Provision of a helpline on a fee-free basis with a view to their recovering fees if a matter proceeds”

“Online case management”

“Legal service by Skype”

“Fixed-fee bulk work by Hill Dickinson. Great service, reasonable cost”

“Hart-Scott-Rodino threshold calculator – very useful”

“Free use of conference facilities”

“Provision of asset management legal services which had been unbundled to our benefit and that of the law firm”

“Breakfast training events”

“E-research”

Negative

“We are the innovation”

“No innovation whatsoever”

“Innovation mostly comes from us”

“None really”

“No I can’t”

“Nobody has made any suggestions to us. I have asked for fixed fees, but even that is unpopular with the law firms”

“No innovation as far as I am aware apart from offering webinars as a new means of knowledge sharing”

“Innovation not really, being proactive yes and managing the relationship with us better is perhaps the only area that I can identify”

“None. All innovation offered by service providers is reactive, to accommodate our specific requests. Such changes include alternative billing methods, advanced spent tracking and approval”

“None. But I’m not really looking for them to be innovative: I’m a traditionalist at heart”

“Sadly, no”

“Most cost savings we see are just through decreased levels of partner/senior associate review, which means that we as clients are spending more of our own time reviewing and correcting junior work”

Question 7: How important to you are the following factors when purchasing external legal services? (Please rank on a scale of one to five where five is very important).

Quality clearly stands out as the most important factor. Almost 80 per cent of respondents marked quality as five,  or “very important”. The next highest was “understanding you as a client”, marked as a five by 52 per cent.

And the lowest factor? Innovation. This prompts the question about the level to which clients are demanding radical thinking from their lawyers in the first place. 

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Question 8: How often have you been offered some form of disaggregated or unbundled legal service by your external providers?

This is among the most surprising results in the survey. Only 5.8 per cent of respondents said they had regularly been offered some form of disaggregated or unbundled legal service by their external providers. 

In contrast, 28.6 per cent said they had never been offered these services, 27.3 per cent said rarely and 29.9 per cent said occasionally. That is a total of 85.8 per cent of clients saying they had at best only occasionally been offered innovative methods of delivering legal services.

As one lawyer shown the results puts it: “The response to those who ticked the box ‘regularly’ is woeful.” Another simply said: “Talk about lacklustre.”

The curve suggests there is a large gap between expectation and what is happening in practice. Although there is a lot of discussion in the market about disaggregated services and an increasing number of examples, the client appetite for it seems to be unsatisfied. “There’s still a big gap in terms of delivery,” adds Polson.

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Question 9: Which disaggregated or unbundled external legal services/products have you used or been offered?

The responses to this question reveal an interesting disconnect between what is being offered to clients and what is being used.

When asked which disaggregated services clients had been offered two (e-disclosure/discovery at 85.7 per cent and large-volume real estate deals at 88.2 per cent) scored above 80 per cent. But only 52.4 per cent of clients said they had used the former and 47.1 per cent the latter.

The results also appear to show that as firms get more innovative, clients become less inclined to use the services.

Online case/client management had been offered to 75 per cent of clients but used by only 40 per cent; web-based services had been offered to 70.6 per cent and used by 41.2 per cent; LPO services had been offered to 75 per cent and used by 40 per cent; and disaggregated sevices using a firm’s own reduced cost centre had been offered to 74.2 per cent and used by 48.4 per cent.

In other words, the inherent conservatism shown by the majority of clients, most of whom will have trained and worked for years in traditional law firms, is apparent.

“I would have expected the number of users of these services to be much higher,” comments Jomati founder Tony Williams. “It bears out the theory that this is still a very conservative user base.”

The option that the highest number of respondents said they had used it was the direct instruction of counsel (75 per cent). This, although interesting in itself, is hardly a radical solution.

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Question 10: For which type of law/project did you find a disaggregated service the most useful and why?

The answers to this question – listed in the box below – should be helpful to any legal services provider looking to target their offering more accurately.

But the results appear to underline the mismatch between clients’ expectations and what is being offered and used.

“Contract management and document review for small non-critical contracts to ease burden on legal department”

“Employment work. Large-volume, low-value work”

“Debt recovery on contingency basis” “Direct use of counsel to cut down costs”

“Largescale projects”

“Multiple acquisition and disposal of small interests in land”

“Due diligence and disclosure”

“Commercial contracts as regular and routine”

“Legal opinion and confirmation of legal opinions taken internally”

“Major real estate portfolios where there is a high volume of low-value work”

“Infrastructure projects”

“Deals, helplines, cost efficiency”

“Disclosure exercises”

“Recurring work/projects”

“Proposed business aquisition – scope developing during exercise, need to call on additional and specialist resource”

“Direct use of counsel and online access to precedents are the most useful”

“For projects where technical advice is sought from the external adviser to complement in-house skills”

“Review of tricky policy document and advice concerning consumer credit legislation”

“Real-time/live chat help – accessibility on our terms”

“Dispute work as contingent working reduces costs risk and allows firms to share in successes and failures”

“Direct use of counsel”

“Usually most appropriate for repeating transactions such as contract drafting, due diligence reviews and so on”

“Fixed-price services as it shifts the risk of efficiency to the firm and gives predictability to my budgets”

“Fixed-price budgets”

“Employment: ‘niche’ supplier”

“Corporate transactions, property and employment law”

“Family law because of its different aspects”

“M&A. Simplifies approach and minimises effort”

“A trade sale of a subsidiary company”

“Large-volume document review as this requires effective process as well as legal knowledge”

“Free development of template and fixed fee per deal arrangement for vanilla loan products”

“Significant disputes now demand a disaggregated service so that the right resources are used for 
the right tasks”

“For a project financing in Serbia, we retained a London law firm with an office in Serbia. Part of the services are offered by local offices in Vienna and Bucharest, where individuals with the skills we need are based, and they are cheaper than the London lawyers”

“Discovery”

“Big urgent projects”

Question 11: Which of these are concerns you have about using disaggregated legal services? 

Quality is by some way the biggest concern potential clients have when considering using disaggregated legal services.

75.6 per cent of respondents said this was their biggest concern about using disaggregated legal services.

Verbatim responses included: “Project management difficulties”; “Lack of accountability/time zone issues”; and “Data security”.

Respondents were free to tick as many of the available options as they wanted. 

Loss of control at 50.4 per cent and loss of personal relationships at 43.7 per cent scored the second and third highest.

Cost effectiveness scored only 31.9 per cent, suggesting that most in-house lawyers have accepted that if they use disaggregated services they will by definition be cheaper. However, that assumption does seem to jar somewhat with the experience of these respondents, with 36.4 per cent (the highest proportion) of respondents to Question 13 confirming that their use of disaggregated legal services had resulted in the same level of costs.

Worse still, one respondent had this to say: “At a former employer where services were put out, the legal bill increased by over 30 per cent and had to come back in-house.”

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Question 12: Thinking about your concerns when purchasing disaggregated legal services, please rate the following risk factors (5 = most risk).

Respondents were asked to rate a number of potential risk factors associated with purchasing disaggregated legal services on a scale of one to five, where five meant the highest level of risk.

Broadly, it seems the further away their legal services are performed and the more remote or anonymous the provider is, the more concerned clients become.

In other words, clients are more comfortable with the idea of work being sent to an onshore facility (which the largest number of respondents on this factor, 33.9 per cent, scored a three) than they are to a European country (31.9 per cent scored this as four) or one outside Europe (34.8 per cent scored this five).

And the worst-case scenario, according to the results, is when the client has no knowledge of who else the third-party provider works for (38.3 per cent scored this as a five) or if disaggregation means having to hand over templates and precedents to a third-party provider outside the UK (25.9 per cent scored this a five).

The responses to this question validate the business case for firms such as Ashurst, Allen & Overy and HSF, which have opened their own captive lower-cost centres. If these firms can drive the innovation from their centres in Glasgow or Belfast, clients take comfort from that, so why would they go to several providers?

“This shows that if law firms get their acts together they could have a serious competitive advantage in building on-shore centres,” says Tony Williams. “It also shows there has been quite a barrier for outsourcing companies, despite them having been in the market for 10 years or more.”

It also appears to validate the projection made recently in The Lawyer (16 June) by management consultancy OMC Partners that by 2019, every firm in the The Lawyer’s UK top 100 will be using some form of alternative sourcing. OMC director David Ellis also said that 20 firms are currently planning to set up their own regional low-cost centres. 

“Most will choose to set up their own legal support centres to carry out routine procedural and regulatory legal work,” added Ellis in the feature.

The responses highlight the issue of where risk falls when there are multiple providers on a project, a theme highlighted on page 34 in our feature on risk.

Before these firms start celebrating, they should take note of the fact that 40.2 per cent of respondents scored ‘work undertaken where possible by non-qualified legal staff’ as a four.

“This confirms all my suspicions about client nervousness about outsourcing or disaggregation abroad,” says Motive’s Brandon. “I wonder if many law firms consider the issue of giving client-confidential documents to a third party. It is also interesting that the response relating to partner supervision doesn’t seem to be as much of an issue.” 

And yet this response in the survey to Question 12 from an in-house lawyer confirms there is certainly an appetite out there for legal services that are delivered in a disaggregated way: “We WANTED the work to be disaggregated – the firm’s ability to disaggregate was crucial in retaining them, not a ‘risk’ factor.”

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Question 13: In your experience, has the disaggregation of your legal services (if any) resulted in…

The fact that the disaggregation of legal services is resulting in the same level of costs is a remarkable finding. For clients, it should be particularly disturbing. 

Well over a third (36.1 per cent) said purchasing these services had resulted in the same level of costs, while 10.3 per cent said they had seen an increase in costs.

A total of 53.6 per cent did say they had seen a cost reduction, which is encouraging for providers, but only 12.5 per cent of the total sample said it had been a “significant overall reduction” in costs, while 19.6 per cent said the reduction had been “small but sustained”. The largest group of lawyers who had seen a reduction in costs, 21.6 per cent, said it had been a “small one-off reduction”.

As Motive’s Brandon says: “This suggests outsourcing is a great way for law firms to boost profits and not a great way to save money for clients”.

DWF’s Leaitherland emphasises this point when he says the findings seem to show that the disaggregation of legal services is not yet delivering enough of a cost advantage, “which suggests inefficient processes in law firms and perhaps a lack of clarity and control from the perspective of in-house counsel”.

For disaggregation to work successfully for both law firm and client there needs to be transparency with key milestones for delivery, adds Leaitherland. 

“Rather than pricing on a time basis, a better approach is value billing, whereby firms look at the value of the work to the client and work back to determine whether the firm can deliver that piece of work within that price, profitably, and with the right outcome. 

“Otherwise the risk is that firms simply revert to an old-fashioned hourly rate concept where junior resource has no incentive to work efficiently. Open and effective dialogue combined with good process management has to be the way forward.”

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13b. Please provide details of the biggest saving/cost increase 

“Document review and discovery – substantial reductions through using LPO but coupled with law firm oversight to give comfort around quality”

“We would have needed a local law firm anyway. By retaining a firm that had these skills, we avoided the costs of having the London firm supervising the local firm”

Question 14: Approximately what percentage of your external legal spend would you estimate is billed by the hour?

In our finance feature we ask the question “Has the hourly rate model finally died?”

In this feature, SuperGroup’s Beardsell says that “there will always be a place for billing based on an hourly rate”, but believes it is now limited to certain types of activity such as litigation.

“Even with these activities,” she adds, “law firms need to give their clients a degree of cost certainty by giving accurate cost estimates to allow effective budgeting. 

“For most types of work, law firms are prepared to cap or fix fees as they tend to recognise that the world has moved on and understand that general counsel have to justify their expenditure and manage to a budget.”

This is no doubt true, but despite widespread anecdotal evidence of the use of alternative billing arrangements, our survey reveals that the majority of matters continue to be billed by the hour.

The highest number (20.8 per cent) said that between 71-80 per cent of their external spend was billed by the hour while only 17 per cent said 40 per cent or less was billed hourly. A similar proportion – 16.2 per cent – said between 91-100 per cent of their legal spend was billed hourly.

The hourly rate is clearly alive and kicking, and the results to this survey confirm it. As one legal market expert puts it: “The