New Tools Put Legal Bills Under Microscope
The rise of legal analytics firms has brought a new level of transparency to legal bills while ratcheting up the pressure on law firms to justify their rates.
Boston Business Journal, Oct. 19, 2012 – Since the onset of the Great Recession, there's been an escalating tug-of-war between in-house lawyers and law firms, as companies' legal departments try to control legal spending, and law firms continue to raise rates. Indeed, despite the sluggish economy, top Boston legal rates can hover as high as $1,000 per hour.
Analytics can help companies fill in the blanks about their legal rates' relative efficiency and competitiveness. That information then becomes ammunition that in-house lawyers can use to negotiate better deals for legal services by asking for flat fees or discounted rates.
One company moving rapidly into the legal analytics space is Andover-based Sky Analytics Inc., which was launched a year ago. Sky Analytics' competitors include Thomson Reuters' Serengeti division and TyMetrix in Hartford, which have both been providing law firm analytics for more than a decade.
Sky Analytics analyzes legal invoices from companies to create scorecards for law firms. Those snapshots display stats about how long the firm's lawyers take to complete matters, how that time compares to other firms and how their rates stack up against other firms in their market. Sky Analytics officials say they can save their clients, who can rack up hundreds of millions of dollars annually in legal bills, between 2 and 10 percent annually on their legal bills.
"We couldn't find anybody else to get the level of detail they did," said Bill DeVaul, associate general counsel of Lexington-based Cubist Pharmaceuticals Inc. "They give you high-level benchmarking services, but they also give us the ability to drill down to the details and make decisions about specific attorneys and staffing." DeVaul, who works with a team of 10 attorneys at Cubist, hopes that using the service will ultimately save his company money.
The granddaddy of legal analytics is Thomson Reuters, which acquired legal analytics software and services firm Serengeti Law in 2010. Serengeti helps clients get a variety of benchmarks to analyze law firm rates and do comparisons. More than 150,000 individuals use the company's legal analytics, and more than 3,000 new users join each month.
"This is exciting to many in-house counsel because they were flying blind before," said Rob Thomas, vice president of strategic development for Serengeti, at Thomson Reuters.
Thomas said he's seen clients use the data to negotiate fee arrangements, where if a law firm completes a matter under budget, in a short period of time, they can actually make more than 100 percent of the hourly rate. Conversely, if a firm goes over budget, and the results are disappointing, the client could pay around 80 percent of the rate.
Still, Thomas said that the transparency movement is in the beginning stages, because not all clients act on the intelligence they get.
"The only way the metrics are going to be any good to you, is if you're willing to do something about it ... and many in-house counsel are (too) busy," Thomas said.
The ability to negotiate lower rates is key for most in-house lawyers. This year, according to a report from TyMetrix, most law firms raised rates again, and large law firms registered the highest rate increases. That national report found that partner rates in the top quartile rose an average of 8 percent, to just under $900 per hour.
Craig Raeburn, managing director of legal analytics at TyMetrix, says that while more than 100 companies in various industries use its legal analytics services, more than 80 law firms also have used the firm's services to get a handle on their clients' needs and how they stack up against their competitors.
Jeremy Sherman, administrative managing partner at Seyfarth Shaw, says his firm uses legal analytics to figure out what the firm's clients want — in terms of rates and other factors — and also to make sure the law firm's metrics match up to what its clients need.
"At the end of the day, we need to run our business the way clients are running their businesses," Sherman said. "And clients are forced — because of the pressure of competing in this challenging economy — to measure their performance carefully and rely on data to assess their legal service providers."
Chris Bullock, chief marketing officer at Sky Analytics, emphasizes that his firm focuses on not just hourly billings rates, but also client satisfaction. "The important thing to note is that you certainly want your attorneys working hard for you and there's many instances where working over eight hours per day is warranted," Bullock said. "But someone who consistently bills 90 hours per week, ... you have to wonder if you're getting diminished returns on some of those hours."
Sky Analytics was founded by Ron Gruner, who previously founded Shareholder.com, which he sold to Nasdaq in 2006. The firm has aggregated data from more than 60,000 invoices, and has more than 10,000 individual lawyer profiles and more than 1,000 law firm profiles.
Chris Mirabile, past president of the Association of Corporate Counsel and current managing director of the LaunchPad Venture Group, notes that legal analytics have their limitations. "This could help you establish a price baseline for commodity work, but for bet-the-company types of decisions, this tool would not be helpful," Mirabile said. "The thing that worries me the most is that for the firms, it's ultimately going to be more pressure on associates, more pressure on the quality of life at the firms and more pressure on the law firm model."
For additional information on Serengeti, visit serengetilaw.com
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