Some big firms are finding profit in commoditized work
When I was in Las Vegas a few months ago, Avvo CEO Mark Britton talked about legal services and how many large law firms are leaving business on the table by ignoring cheaper, more commoditized legal work.
You wouldn’t think that law firms would be so discriminating when it comes to their revenue streams—after all, money looks the same whether it’s in a bank account or an account ledger. But for many large firms, there is a stigma that comes with doing the kind of repetitive, low-end work that rarely generates sizeable fees.
This stigma persists despite the fact that the amount of available work for law firms is shrinking. In a recent survey, BTI Consulting Group found that corporate reliance on outside counsel is at a 15-year low and that a large company now relies on an average of 36 outside law firms, down from 47 last year.
With the pie shrinking, a few large firms have taken on the challenge: Littler Mendelson and Fenwick & West, for example, have launched separate legal services for clients that specialize in performing commoditized legal work. The two services are similar—they take on document-heavy, repetitive legal work while keeping fees low by using flex-time attorneys and technology.
“After the recession, our clients started contacting us because their legal departments were under pressure to lower their legal spend,” says Littler shareholder Scott Forman, who heads the Littler CaseSmart team. “Our goal was to do things differently so we could be more efficient and reduce our clients’ legal spend.”
Forman says Littler plotted everything out through workflow maps and looked at every task being performed to see if it could be done more efficiently. He also says CaseSmart isn’t just about getting cheap work done; it’s also meant to provide metrics and tools to help companies proactively manage their risk to prevent litigation.
“Littler CaseSmart provides lower costs through efficiencies, and our flex-time attorney platform gives clients access to true subject matter experts within a cost-efficient staffing model,” says Forman, who estimates Littler CaseSmart clients save 20 to 40 percent in both money and time. “Our [flex-time attorneys] average 13.5 years of experience. They don’t want the full rigor of a law firm, but want to practice.”
Flex by Fenwick operates under a similar model. According to Fenwick partner Ralph Pais, who is in charge of the program, the firm would rep-resent a lot of early-stage companies and generate important documents relating to commercial transactions, licensing, procurements and privacy policies, among other things.
“As these companies grow, there comes an inflection point—a point where they say, ‘We love the firm, but for routine commercial stuff, we shouldn’t be spending money on outside counsel to do it,’ ” says Pais. “We had to ask ourselves if we cared about losing this business, and we found that we did care. If we stopped doing that work, we’d be less closely connected with the business of the company, and that could weaken our overall relationship with the client.”
As with CaseSmart, Flex by Fenwick uses flex-time attorneys, but unlike Littler’s model, Flex doesn’t provide hourly rates. “A client has to commit to some minimum number of hours; or when demand is higher, days per week,” says Pais. “Like many cellphone plans, it’s a ‘use it or lose it’ model, so if the client ends up using less than they’ve committed to, the implied hourly cost increases—but this rarely happens. … When you calculate the implied hourly rate and compare those with law firm rates, the cost is half or less.”
Ben Barton, a professor at the University of Tennessee College of Law, believes the reason many large firms have passed on doing cheaper legal work is because they don’t know how to do it profitably.
“Large firms at the lower end of the Am Law 200 will need to figure out how to do that kind of work profitably to scale, or they’ll have a hard time staying in business,” Barton says. “I think we’re already at the point where this kind of work is dominant.”
And Tom Clay, a consultant with Altman Weil, says law firms shouldn’t be too hung up on their branding.
“Firms talk about brand,” he says, “yet so few firms really have a brand.”
This article originally appeared in the November 2015 issue of the ABA Journal with this headline: “Aiming Low: Some big firms are finding profit in commoditized work.”