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Reducing the number of firms retained usually means increasing their size and cost structure

The Wilmington-tsunami – the convergence initiatives that reduce the number of law firms retained by a law department, which DuPont so skillfully publicized – has an almost inevitable side effect: leaving higher cost firms. 

If a law department chooses to find a single firm to handle matters in an area of law, say environmental, it will be tugged toward retaining a larger firm than if it stayed with several providers.  The siren song of a firm that can handle the spectrum of environmental needs favors larger firms, which – all things being equal – charge higher hourly rates.  The higher rates follow from more infrastructure, layers of management, higher compensation expectations, and larger matters.

On the other side of the ledger, larger firms can price services lower than can smaller firms because they can spread the risk over more matters and can accommodate more changes in how they handles matters, such as with technology, systems, delegation, and hiring.

The likelihood remains that law departments trade having fewer firms for paying those remaining preferred providers higher hourly charges.

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One response to “Reducing the number of firms retained usually means increasing their size and cost structure”

  1. At a macro level I agree with your assumption that fewer firms equals larger/more expensive. However, there are other areas to focus on in order to reduce total spend in a higher hourly rate world. For example selecting fewer firms from a universe of firms who that invested in KM systems so that lessons learned are saved and used elsewhere. Requiring the selected firms to give agreed quantities (or annual plan levels) of preventative law work at little or no cost (eg, compliance training). Requiring heavier use of paralegals. A good GC has a whole tool kit.
    However the most efficient method must surely be using market competition by having some of these same firms compete on price for annual packages of work. Such packages might include all IP registrations or acting as an in-house legal advisor to a HR department for 3 years.