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Every law firm that serves corporate clients has faced harsh realities in the last few years. While the economy has been healthy, the competition for the most interesting and profitable legal work has stiffened. Corporate legal departments are scrutinizing their outside firms more, pushing back on rate increases, forcing law firms to compete more overtly for their business, consolidating the number of outside firms they use, and firing law firms more readily. In this climate, some law firms have thrived, while others have struggled to keep up. The law firms that have thrived have done so, in part, because they stay close to their clients and adapt readily to their needs. Any firm that wants to compete needs to be aware of these factors that influence the way that in-house counsel choose and evaluate their outside law firms. 1. The way that law firms charge for their work is troubling to clients. Corporate counsel want to work with law firms that can make the case for the value they provide to their clients. Fees charged by law firms often do not relate to the value of the work because most law firms simply bill for time spent regardless of the importance of the matter to the client. Clients despise this system because it rewards inefficiency. But law firms don’t know how to correct the problem for several reasons. First, beyond discounts, most law firms don’t know how to develop or discuss alternative rate structures. Second, many law firms are ill-equipped to provide costs on a project basis, particularly if the project crosses practice areas or geographic borders. Third, lawyers have focused on getting paid for their time, rather than staffing and managing cases in accordance with the importance of the matter. Law firms that can initiate a discussion of fees will have an advantage over firms that cling to the traditional time and billing approach. To do this, they need to begin educating their lawyers about estimating costs for a client and about assignments to a budget. They need to collect more data on the costs and profitability of different types of services so that they can provide better estimates. They need to suggest alternatives for certain types of matters. Finally, they need to demonstrate to their clients that they are managing their matters with their clients’ best interests in mind. For example, law firms must show that they have staffed matters as leanly as possible and sought early resolution of the matter if that is best for the client. 2. Firms must understand that clients have increasing cost pressures. A related factor influencing law firm fees is the accelerating need for corporations to control costs. This trend has been accelerated by the increased influence of corporate purchasing departments in the selection of law firms. This phenomenon, in turn, has led to the increase in the number and complexity of corporate requests for proposals. These RFPs increasingly ask for more financial transparency, discounts, bundled rates, cost controls, quality controls, and automated billing processes. They often are part of an effort to reduce the number of law firms with which the corporation works. Given this shift, in-house lawyers expect their law firms to:

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