Are Outside Counsel Rate Freezes Translating to Cost Savings?
There are scant few industries where a vendor can unilaterally impose annual rate hikes upon customers without a market backlash. Historically, law firms have been able to raise rates or, at least, avoid rate freezes due to price inelasticity in the legal industry. In the legal industry’s new era, competitive challenges facing law firms are making firms more amenable to rate freezes and savvy clients will request them. Importantly, in-house legal departments should periodically calculate whether outside counsel rate freezes have translated into real cost savings. If not, examine whether the staffing mix on frozen rate matters has trended towards higher rate billers. On frozen rate matters, the natural tendency for law firms is to staff matters with higher priced attorneys who are typically more efficient, but also more costly and profitable than junior attorneys. This trend could negate any expected benefits from rate freezes.