We return to this great perennial topic. To set the stage: law firm rates are going up. A GC cares because it means the 2007 budget locked down months ago may now be out of whack.
Two of the main reasons given for rate increases were inflation and the cost of talent. The short answers are bah and humbug.
I’ll take on inflation today, and try to thump talent tomorrow.
As to inflation, I’d be a buyer of that argument if law firms were prodigious users of energy or other price-spiking commodities. But since they sell something other than consumer durables, the simple “inflation” explanation doesn’t scan. In fact, since law firms sell something akin to knowledge you’d think they could use technology and process improvement to do what most service companies strive to do today: deliver better services at lower costs.
When a law firm raises its rates and mumbles “inflation,” that isn’t the end of the story. Clients of the law firm operate in the same economy and know how costs tend to increase. What they also know is that they cannot unilaterally pass these costs on to their customers. There may be competitors waiting to take market share and grab the price-conscious buyer. Or they may have long-term pricing arrangements in place that simply don’t allow increases.
What a solid GC then does: starts thinking about using less of what the law firms offer. What a great price-signal to send to your market in the holiday season! (Partner’s note to self: send bigger fruit cake this year.)
When a law firm (or its favorite consultants) uses a term like inflation from Econ 101 to justify the annual ritual of rate increases, it really insults the intelligence of its clients. Clients see it for what it really is: validation of the essential truth that law firms have no incentive to control costs. They may feel an ethical urge to do so. Believing in that requires no small level of trust. Or is it a leap of faith, Virginia?
No, what the upward trend of billing rates tells clients is that law firms operate on a different planet. It seems like a nice place, a happy place, but not one most other people will ever visit.