June 26, 2019
Big Law’s Big Start to 2019
The Legal Executive Institute recently published a report titled, "The Big Law Market Through Q1 2019: Examining the Am Law 100.” The report discusses the legal market in the first quarter 2019, specially, the performance of Am Law 100 firms. While demand for all firms was flat in Q1 2019, Am Law 100 demand was up 1.2%, which was an improvement over the 0.4% demand growth in Q1 2018. Most of the demand for Am Law 100 firms came from litigation, corporate actions, IP work and bankruptcy.
“As we’ve previously noted, average worked rate growth across all segments was at a near-historic high point of 3.8% in Q1, with Am Law 100 firms recording worked rate growth of 4.4%,” noted the report.
However, the growth in demand and worked rates is not translating into billing and collection rates, according to the report, “From Q4 2018 to Q1 2019, however, billing realization for Am Law 100 firms declined by 1.2 percentage points, and collected realization dropped a sharp 1.8%.”
Big law firms also saw their expenses balloon over the first three months of 2019. While the overall legal market saw 4.9% growth in direct expenses and 3.4% growth in overhead, Am Law 100 firms grew direct expenses by 7.0% and overhead by 5.0%. “There are unquestionably good reasons for the level of increases seen in these metrics. In terms of direct expenses, much of this has been driven by increasing level of associate compensation, which has been a seemingly constant trend for most of the past two years. Clearly, increases in associate compensation will drive direct expense growth quickly,” suggested the report.
Law and the Gig Economy
In an article published in Legal Management magazine, titled “The Legal Industry Enters the Gig Economy Age” written by Erin Brereton, owner of Chicago Journalist Media, the author discusses the possible benefits to law firms from using freelance attorneys. The author notes that a majority of law firms already employ part-time lawyers and half use contract lawyers. “In addition to law firms bringing in temps for a defined time period to handle overflow work or cover for someone who’s on medical leave, some are now turning to contingent workers to boost efficiency,” notes the article.
These gig lawyers seem to be used most for project work or to fill in for lawyers on family or medical leave. Instead of tasking full-time attorneys to a project, some firms are pairing teams of contract attorneys and paralegals with full-timers to cut costs, sometimes by as much as half.
It’s important to set expectations when using contingent lawyers. Letting them know what is expected and for how long can reduce surprises on either side. Using gig lawyers can also be a great way to test drive potential hires. After they complete their contingent work, you can better assess whether they’ll be a fit for your firm or not.
An area of concern is protecting privileged information. Typically, ensuring the gig lawyer doesn’t have a conflict coming in, and having them sign a confidentiality agreement should suffice. Even gig lawyers are bound by the bar association’s legal ethics. Another area of concern is whether the time it takes to onboard a contingent worker is worth it. However, if the project is extensive enough it can be worth the effort.
“Hiring contingent workers isn’t an automatic fix for every firm or legal department, or every business problem. The system may not be a good fit in scenarios where having turnover on a project or role would mean institutional knowledge was lost. However, in today’s post-recession legal services market, that may not be an issue for a number of firms and in-house legal departments,” notes the article.
Alternative Legal Service Providers
A recent report, published by Thomson Reuters, titled “Alternative Power Source: How Law Firms Are Leveraging ALSPs to Make Themselves Better, Faster, and Cheaper,” discusses the incorporation of alternative legal service providers by law firms into their legal work. “While many legal industry observers have worried that the rapidly evolving market for alternative legal service providers (ALSPs) may leave many large law firms scrambling to catch up, in fact, many firms are seeing the rise of the ALSP field as an opportunity,” suggests the report.
Law firms have begun working with ALSPs, by either creating their own ALSP inhouse to handle certain matters or establishing partnerships with existing ALSPs. Research has shown that 20% of ALSPs have informal relationships with law firms and 50% of ALSPs are strategically partnering with law firms.
“As the use of ALSPs becomes more common, large law firms are finding new and expansive ways to use ALSPs to improve efficiencies, provide better value, or even access legal expertise that may be outside the firm’s specialties. This willingness on the part of large law firms to trust ALSPs with a wider range of work comes as firms get more comfortable with the ALSP model in general — a comfort that has grown rapidly over just the past few years,” notes the report.
Much of the work ALSPs do for law firms is in the area of legal research, litigation and investigative support, e-discovery and document review. “[A]bout 65% of large law firms that use ALSPs do so for e-discovery, compared to 42% in 2016. Further, litigation and investigation support jumped to 52% from 33%, and ALSPs are given work in document review by 52% of large law firms that use ALSPs, up from 38% in 2016,” according to the report.
Not surprisingly, the number one reason law firms cite for using ALSPs is cost savings. However, another reason cited is that they can help scale and expand business. “53% of large law firms said they use their relationships with ALSPs as a point of competitive differentiation, touting their collaboration in pitch meetings with clients. This is up from just 38% citing this as one of the advantages of working with ALSPs two year ago,” notes the report.
“Overall, as large law firms’ experiences with ALSPs continue to be mainly positive and allow firms to continue passing on the benefits of partnering with an ALSP to the firms’ own clients, then these relationships between law firms and ALSPs are likely to continue to flourish and deepen in the future,” concludes the report.
Funny or Not, Here It Comes
A young lawyer was leaving the office late one night when he found the Managing Partner standing in front of a shredder with a piece of paper in his hand.
"Listen," said the Managing Partner, "this is a very sensitive and important document, and my secretary is not here. Can you make this thing work?"
"Certainly!" said the associate. He turned on the machine, inserted the paper, and pressed the start button.
"Excellent!" said the Managing Partner as his paper disappeared inside the machine, "I just need one copy from the original."
The Legal Executive Institute recently published a report titled, "The Big Law Market Through Q1 2019: Examining the Am Law 100.” The report discusses the legal market in the first quarter 2019, specially, the performance of Am Law 100 firms. While demand for all firms was flat in Q1 2019, Am Law 100 demand was up 1.2%, which was an improvement over the 0.4% demand growth in Q1 2018. Most of the demand for Am Law 100 firms came from litigation, corporate actions, IP work and bankruptcy.
“As we’ve previously noted, average worked rate growth across all segments was at a near-historic high point of 3.8% in Q1, with Am Law 100 firms recording worked rate growth of 4.4%,” noted the report.
However, the growth in demand and worked rates is not translating into billing and collection rates, according to the report, “From Q4 2018 to Q1 2019, however, billing realization for Am Law 100 firms declined by 1.2 percentage points, and collected realization dropped a sharp 1.8%.”
Big law firms also saw their expenses balloon over the first three months of 2019. While the overall legal market saw 4.9% growth in direct expenses and 3.4% growth in overhead, Am Law 100 firms grew direct expenses by 7.0% and overhead by 5.0%. “There are unquestionably good reasons for the level of increases seen in these metrics. In terms of direct expenses, much of this has been driven by increasing level of associate compensation, which has been a seemingly constant trend for most of the past two years. Clearly, increases in associate compensation will drive direct expense growth quickly,” suggested the report.
Law and the Gig Economy
In an article published in Legal Management magazine, titled “The Legal Industry Enters the Gig Economy Age” written by Erin Brereton, owner of Chicago Journalist Media, the author discusses the possible benefits to law firms from using freelance attorneys. The author notes that a majority of law firms already employ part-time lawyers and half use contract lawyers. “In addition to law firms bringing in temps for a defined time period to handle overflow work or cover for someone who’s on medical leave, some are now turning to contingent workers to boost efficiency,” notes the article.
These gig lawyers seem to be used most for project work or to fill in for lawyers on family or medical leave. Instead of tasking full-time attorneys to a project, some firms are pairing teams of contract attorneys and paralegals with full-timers to cut costs, sometimes by as much as half.
It’s important to set expectations when using contingent lawyers. Letting them know what is expected and for how long can reduce surprises on either side. Using gig lawyers can also be a great way to test drive potential hires. After they complete their contingent work, you can better assess whether they’ll be a fit for your firm or not.
An area of concern is protecting privileged information. Typically, ensuring the gig lawyer doesn’t have a conflict coming in, and having them sign a confidentiality agreement should suffice. Even gig lawyers are bound by the bar association’s legal ethics. Another area of concern is whether the time it takes to onboard a contingent worker is worth it. However, if the project is extensive enough it can be worth the effort.
“Hiring contingent workers isn’t an automatic fix for every firm or legal department, or every business problem. The system may not be a good fit in scenarios where having turnover on a project or role would mean institutional knowledge was lost. However, in today’s post-recession legal services market, that may not be an issue for a number of firms and in-house legal departments,” notes the article.
Alternative Legal Service Providers
A recent report, published by Thomson Reuters, titled “Alternative Power Source: How Law Firms Are Leveraging ALSPs to Make Themselves Better, Faster, and Cheaper,” discusses the incorporation of alternative legal service providers by law firms into their legal work. “While many legal industry observers have worried that the rapidly evolving market for alternative legal service providers (ALSPs) may leave many large law firms scrambling to catch up, in fact, many firms are seeing the rise of the ALSP field as an opportunity,” suggests the report.
Law firms have begun working with ALSPs, by either creating their own ALSP inhouse to handle certain matters or establishing partnerships with existing ALSPs. Research has shown that 20% of ALSPs have informal relationships with law firms and 50% of ALSPs are strategically partnering with law firms.
“As the use of ALSPs becomes more common, large law firms are finding new and expansive ways to use ALSPs to improve efficiencies, provide better value, or even access legal expertise that may be outside the firm’s specialties. This willingness on the part of large law firms to trust ALSPs with a wider range of work comes as firms get more comfortable with the ALSP model in general — a comfort that has grown rapidly over just the past few years,” notes the report.
Much of the work ALSPs do for law firms is in the area of legal research, litigation and investigative support, e-discovery and document review. “[A]bout 65% of large law firms that use ALSPs do so for e-discovery, compared to 42% in 2016. Further, litigation and investigation support jumped to 52% from 33%, and ALSPs are given work in document review by 52% of large law firms that use ALSPs, up from 38% in 2016,” according to the report.
Not surprisingly, the number one reason law firms cite for using ALSPs is cost savings. However, another reason cited is that they can help scale and expand business. “53% of large law firms said they use their relationships with ALSPs as a point of competitive differentiation, touting their collaboration in pitch meetings with clients. This is up from just 38% citing this as one of the advantages of working with ALSPs two year ago,” notes the report.
“Overall, as large law firms’ experiences with ALSPs continue to be mainly positive and allow firms to continue passing on the benefits of partnering with an ALSP to the firms’ own clients, then these relationships between law firms and ALSPs are likely to continue to flourish and deepen in the future,” concludes the report.
Funny or Not, Here It Comes
A young lawyer was leaving the office late one night when he found the Managing Partner standing in front of a shredder with a piece of paper in his hand.
"Listen," said the Managing Partner, "this is a very sensitive and important document, and my secretary is not here. Can you make this thing work?"
"Certainly!" said the associate. He turned on the machine, inserted the paper, and pressed the start button.
"Excellent!" said the Managing Partner as his paper disappeared inside the machine, "I just need one copy from the original."
