Is convergence a true panacea for corporate legal costs?

Posted: 10:45 am Thu, April 29, 2010
By H. Ward Classen

One of the most discussed issues in the legal community today is the concept of convergence: the consolidation and reduction of the number of law firms utilized by a company in an effort to reduce legal costs. This concept has been embraced by many leading corporations, including Dupont (www.dupontlegalmodel.com), Levi Strauss and Pfizer.

The rationale is that by consolidating outside counsel services through a small number of law firms, a company will be able to obtain better pricing through volume discounts and a willingness by the selected firms to “partner” with the company. Convergence can also reduce a company’s administrative costs associated with managing outside counsel.

Finally, by using a small number of firms, it is believed the selected firms will develop greater familiarity with the company’s business, resulting in the provision of more efficient legal services and the firm’s ability to provide more insightful advice.

From the firm’s perspective, the firm receives an increased volume of work (albeit in return for lower rates), and a commitment by the company to “partner” with the firm. Further, many firms publicize the fact that they have been selected as a “preferred” provider to the company, thereby earning them a badge of prestige and legitimacy.

Many companies today are seeking “partnering” arrangements where firms share the company’s fee risk through fixed fee arrangements, reduced hourly rates with a success uplift and contingency arrangements.  While many firms have been hesitant to embrace these pricing metrics, the belief exists that they are more likely to do so if they can count on a long-term relationship with the company and the likelihood of increased revenue from their preferred status.

While much has been written about reducing the absolute number of law firms retained by companies, there is very little quantitative data as to the cost reductions achieved through convergence. This lack of data is likely due to the difficulty of comparing legal costs year over year.

Many legal matters are of a relatively short duration and are not repetitive.  Even for companies whose legal matters are more constant and based on recurring fact patterns, the complexity and nature of each matter varies enough to preclude any predictable usage of outside counsel.

While Levi Strauss has claimed that convergence has allowed it to reduce outside counsel fees by 20 percent, many companies and law firms are not convinced these results are typical. Further, many in-house counsel believe limiting the selection of outside counsel to a smaller number of firms encourages complacency on behalf of the selected firms, which then lack an incentive to place the most talented lawyers on the company’s account.

The success of convergence will depend on the willingness of companies and law firms to compromise to achieve symbiotic success. The present recession provides companies with significant leverage and law firms with significant incentives to accept alternative billing arrangements as well as lower hourly rates.  It remains to be seen, however, whether this spirit of “partnership” will continue when the economy improves and the inevitable demand for legal services increases.

H. Ward Classen is deputy general counsel of Computer Sciences Corp. The views expressed herein are those of Mr. Classen and not those of Computer Sciences Corp. He can be reached at hclassen@csc.com.