The 10% Game
"I don't care what you raise your rates to, just make sure you quote me a 10% discount."
In a number of meetings I have attended recently with leaders of large firms, similar stories are being told. The firm proposes an alternative fee and the client declines to pursue the alternative fee, instead asking for "10% off" the firm's hourly rates. According to these law firm leaders, at least some personnel at their clients are not really interested in cutting legal spend but instead are concerned that they be able to demonstrate this 10% savings. I've heard enough similar stories that either there is a grain of truth to the stories, or, alternatively, there is a single client out there obsessed with this 10% discount and I was simply lucky enough to be in meetings with the client's law firms. I'm going with the former.
I've spent enough time investigating, proposing and writing about alternative fees to know that reactions to non-hourly fees for a continuum that is quite long. I also have heard enough to know that when many firms propose non-hourly fees, the proposal amounts to "pay me a lot up front and then a lot more if we get a result'." There is no true risk sharing on the firm's part.
Suffice it to say that when firms hear the "10% solution," they are smart enough to know how to set their "base rates" so they get exactly what they want when the 10% solution is applied. Presto! Through the magic of a spreadsheet, the client saves nothing and believes it is saving 10%! Everybody's happy, right? Everyone except for the CFO, shareholders, and the General Counsel whose bonus is predicated on reducing actual costs instead of achieving such pyrrhic victories.
Much of my work is with clients trying to manage their relationship with their law firms. You are quite right - 10% is the magic number, and their is the perception that is this discount is achieved, then that is controlling legal costs. Similarly, blended rates - achieving a blended rate or a discounted rate achieves nothing if you are not getting value for the work delivered, which also means looking at how the work is undertaken. There are plenty of occasions where a bit more time adds up to that 10% discount anyway, even if the rates remain the same.
For what it is worth, I was IH at Nasdaq 100 company and our procurement group was determined to show that it could save us money. Put together a massive (wasteful) RFP that resulted in 10% discounts. They were ecstatic and wanted us to switch firms. My thought was 10% off what, if it is off a higher base or more hours than nothing was saved.
So there is some fire to the smoke you are commenting on.
