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Clients Eager for Billing Rate Discounts During COVID-19 Pandemic

April 23, 2020 | Posted in : Fee Agreement, Hourly Rates, Legal Bills / Legal Costs, Legal Spend

A recent Law 360 story by Aebra Coe, “Clients Are Eager for Discounts As Pandemic Rages On,” reports that more clients are looking for ways to reduce the cost of their outside counsel as the world grapples with the economic consequences of the COVID-19 pandemic, with high demand for billing rate discounts, according to a group of top pricing professionals at large law firms.  BigLaw pricing, innovation and operations leaders gathered virtually for the Legal Value Network’s Council of Luminaries meeting to discuss the effects of the pandemic on the legal industry, according to a summary of the meeting posted online.

The council members include top pricing officers at Pinsent Masons LLP, Perkins Coie LLP, Covington & Burling LLP, Katten Muchin Rosenman LLP and Baker McKenzie as well as other law firm leaders, law professors and law firm management consultants.  The industry experts reported that they are being approached more often by clients or partners who need to respond to clients looking to reduce costs in light of the pandemic.  They are also more often tapped to help partners proactively approach clients looking to reduce costs.

“More law departments have been reaching out to firms to ask for discussions about discounts — with some even notifying firms unilaterally that additional (and often substantial) discounts will be applied to their invoices without any dialogue,” the summary of the meeting on Legal Value Network’s website said.  Some clients have also asked their outside firms to extend payment terms on their legal bills, the summary said.

The council members suggested law firms not accept blanket, mass reductions or payment extensions without careful consideration, and they make sure they are continuing to negotiate for the best possible rates, even during a pandemic.  “It is important to remember the importance of basic negotiation: Try to get something in return,” the summary said.  “For example, try to guarantee more work in exchange for bigger discounts.  And for those asking for extended terms, consider offering a quick pay discount for paying on time instead.”

Who is asking for the fee discount or change in payment terms is important, the council members noted. If the person asking is a general counsel, compromise is more likely, as an in-house lawyer likely has a better understanding of the value the law firm provides and may be able to trade a discount for a promise of future work.

Negotiation with a procurement department can be more difficult, they said.  “You can’t trade a discount for a promise of future work — or often for anything beyond what is in the black-and-white letter of the demand — because they are charged with implementing and enforcing rather than negotiating,” the summary said.

The council members suggested that outside counsel dealing with procurement officials loop in someone with clout in the legal department on the procurement demand in cases where the matter will affect the corporation’s nonroutine work.  “Context often helps open doors for compromise, and these internal stakeholders can consider the situation using that filter to appeal for exceptions,” they said.