The economy is pushing even law firms to drop their prices.
To keep clients, several Orange County firms are re-evaluating their fees with some charging flat rates for work or reducing hourly costs.
“We’re trying to remain flexible and open to different arrangements especially if it can get us new business or allow us to keep our existing clients,” said John O’Hara, partner at Newport Beach-based Newmeyer & Dillion LLP.
Law firms have lost business this year as clients have cut back on their legal budgets and provided less transactional work for firms.
Legal spending a couple of years ago was robust, thanks to strong litigation work and a healthy flow of deals. Times have changed as most companies have cut back spending overall and are reading every line item on their budgets, including what’s spent on legal costs.
“The clients I’m working with have a greater attentiveness to the cost of a given matter,” said Jeff Reeves, managing partner at the Los Angeles-based Gibson, Dunn & Crutcher LLP’s Irvine office.
Some firms saw work shortened last year as companies attempting to control cash flow ended litigation cases prematurely in an effort to cut back on their immediate legal expenses.
“I’ve had the experience with cases where the client settled for less than they could have gotten if they continued to fight, but if they continued to fight it would have required a continued investment in legal fees,” Reeves said.
Flat Fees
At Gibson Dunn, the firm has started working with clients on a case-by-case arrangement to offer flat-fee services for legal work.
Most recently, the firm worked out a flat-fee arrangement with a San Diego-based drug maker.
“We were talking about bringing some motions for our client and they were concerned how much each one was going to cost,” Reeves said. “We worked out an arrangement to do the work based on a set price per motion.”
It’s a fairly new trend for the firm.
“I don’t have many examples from prior years (of fixed fee arrangements), but this year we’ve worked on several,” Reeves said.
Similar arrangement discussions have taken place at Costa Mesa-based Rutan & Tucker LLP, Newport Beach-based Stradling Yocca Carlson & Rauth, Newmeyer &
Dillion and Phoenix-based Snell & Wilmer LLP.
“It’s certainly something that has been discussed both internally and with other managing partners and executive committee members from other firms,” said Ski Harrison, managing partner at Rutan & Tucker.
Also being discussed across the board is whether to discount hourly rates.
Most firms have kept their rates flat from 2008.
“With the downturn occurring, we did not lower our rates but froze them,” said Mike Flynn, chairman of the executive committee at Stradling.
That has been received well by clients who, for the most part, haven’t demanded lower rates.
“We expected a lot of clients to push back on our rates in general in 2009,” Reeves said. “For the most part, clients are saying they would like to adhere to our prior rate structures.”
Still the law business has become more competitive,price-wise,as the larger national firms are competing with local firms for smaller clients.
“There have been efforts by the larger firms to reduce their rates,” said Harrison of Rutan & Tucker.
The larger firms don’t advertise reduced prices, but the bottom line is they will reduce their rates to some degree to keep the work or get new business, said O’Hara of Newmeyer & Dillion.
“Their published rates are almost like the sticker price of a car these days,” he said. “They still have the sticker price, but they don’t stick to it as much as they used to.”
But larger firms with numerous offices and associates only can do so much to trim their rates.
“We don’t have offices all over the world to support, so firms like ours can keep our overhead lower and pass the value on in lower rates and costs,” Flynn said.
Another place firms are helping to cut costs for clients is the number of lawyers put on cases.
“The issue out there right now is not just a rate issue, but also staffing issue,” Flynn said.
In the past, firms could run up the bill even with lower rates by adding more bodies on the case than might be necessary.
“We don’t send five people when you only need one,” said Bill O’Hare, administrative partner at Snell & Wilmer’s Costa Mesa office.
Sometimes that number is decided by the client.
“We’ve seen more things like some big companies like Home Depot or Burger King who have put out in the marketplace exactly what they will pay for legal services and nothing more,” Harrison said. “So as a firm you have to decide if that’s something that is going to work for you.”
Miami-based Burger King Holdings Inc. made waves in November when it started hunting for outside lawyers to handle its case loads. The burger chain, which spends millions on legal fees every year, negotiated several alternative billing methods with many of its national firms.
Flexibility
Some firms are not only compromising on how much they’ll be paid, but if they will be paid at all.
Recently, law firms have been willing to shoulder some of the risk of the case to garner clients, making them even more financially vested in the outcome of the deal.
“When matters don’t work out, we’ll share in the pain of a busted deal,” Flynn said. “It’s part of the partnering relationship we try to have with our clients, to see them through good times and bad.”
The increased competitive market and willingness to be flexible with clients has given some firms an edge over its rivals.
“To some extent, the more challenging economic environment has helped us somewhat,” O’Hare said of Snell & Wilmer. “Clients who in the past didn’t give any serious consideration about price or value are now at least asking the question when they are going through the thought process.”
