According to WSJ reporter Jennifer Smith (paid subscription required), financial institutions and other business clients have had it up to their earlobes with being nickled-and-dimed for pass-through "soft costs" by their outside law firms. They're mad as hell, and they're not going to take it anymore.
Invoices for food, photocopies and legal research—items that once were rubber-stamped by companies—are drawing howls. As for charges for first-class flights? Clients are simply saying, "No more."
Some routine costs, such as an attorney's cab fare to the courthouse, are minuscule compared with the huge sums lawyers bill for work on complex mergers or lawsuits. But other items, such photocopying, often pile up and can amount to millions of dollars a year for some big companies.
Clients are making lawyers squirm by making them accountable. How unreasonable!
Often, in-house attorneys are asking law firms to justify the charges. "We're a big corporation, we have pretty deep pockets," says Jordan Kanfer, an in-house lawyer who until Friday was general counsel for the T-Systems North America unit of Deutsche Telekom AG. "You're paying a partner $800 to $1,000 an hour and they're charging you because they ordered sushi."
Mr. Kanfer has signed on for a post at Nippon Telegraph & Telephone Corp. It "drives me insane," he says, to go to a meeting at an outside law firm and get billed for the food.
Personally, someone would have to pay me to eat sushi, but if scarfing raw fish and seaweed floats your boat, and you're paying the Full Monty of my hourly rate, you're welcome to belly-up your gullet to my all-you-can-eat Neptune's buffet 24/7/365 and graze gratis.
As a former in-house counsel, it warms the cockles of my shriveled, black heart to see corporate clients finally clamping down on other tricks of the trade.
Companies that make their own employees fly coach also expect their lawyers to do the same. Business class may be allowed for some long-distance flights. But attorneys who ride at the front of the plane often end up there thanks to their own frequent-flier upgrades.
Also, many clients no longer permit attorneys to charge their full hourly rate for travel time.
"We'll pay half of your time, either coming or going," says Christine Helwick, general counsel for California State University—assuming at least some legal work is performed en route.
I once had a large financial institution client who caught a big law partner billing over 24 hours of travel time to the institution for one calendar day. They asked him if he had crossed the International Date Line going west-to-east. They also fired him and his firm. Sometimes, honesty actually is the best policy, as hard as that might be to realize when your relativistic world is all about "spin."
Clients started clamping down on legal bills more than a decade ago, and the approach gained popularity as the economy tanked. Today, many in-house lawyers view back-office charges with increased skepticism. A poll of 64 law firms this year by Mr. Mattern's firm, Mattern & Associates LLC, found that 80% of respondents had clients who balked at paying for legal research and 69% said they had clients who simply wouldn't pay at all.
"We say, 'Overhead is overhead, and that's part of your cost of doing business,' " says Jeffrey Carr, general counsel at oil-services equipment supplier FMC Technologies Inc., which uses alternative billing to reduce outside legal costs.
"Overhead is overhead." That sounds a mantra to reduce overhead, doesn't it? Welcome to the brave new world your financial institution clients inhabit, counsel!
There's one more trend discussed by Ms. Smith that ought to be of interest to business consumers of law firm services: billing inexperienced attorneys, who sometimes have been known to be...well...inexperienced, at rates that are sometimes as high as those charged by senior attorneys at much smaller, less overhead-burdened firms.
[S]ome companies do object to paying for inexperienced junior lawyers, reasoning that the law firms should bear the cost of training first- and second-year associates.
I wonder if the paradigm shift that has been coming in the way legal services are delivered and compensated will be implemented with relatively minor pain or a whole lotta' hurt? Knowing how receptive to change and how proactive most lawyers are, I expect the latter.
