Be Wary of First-of-the-Year Requests for Rate Increases

Ah, the start of  a new year.  Out with the old and in with the new. And some of the new things you often get at the the start of a year are requests from your attorneys for hourly rate increases.

In a prior blog piece, “A Primer on Increasing Hourly Billing Rates During the Course of a Representation,” I discussed applicable factors that should apply when an attorney notifies a client of a rate increase. Simply put, case law and the ethics of the legal profession dictate that timing of the notice to the client of a rate increase as well as the rate increase itself must be “reasonable.” However, this mainly address those types of situations in which the attorney and client have a written fee agreement whereby the attorney may have a contractual right to increase billing rates from time to time during the course of the representation.

But what about those situations where there is no contractual right to a rate increase such as where an attorney takes on a matter subject to a client’s billing guidelines which merely set out a process by which the attorney may request a billing rate increase? In those types of situations, the attorney is entirely at the mercy of the client as to whether a rate increase will be approved. So as a client, what are some of the factors that you should consider in determining whether to grant a fee increase request?

The first thing to consider is whether or not you want to continue to do business with the attorney or law firm. Hopefully, you have some kind of a scorecard you use with all your attorneys that provide you with data on how well they have been doing in the key areas. If the attorney or law firm has not done well (or your legal needs have changed), this may be as good a time as any to make a break. (If you want to know more on the ins and outs of breaking with a law firm, I wrote a series of blog pieces about breaking up with a law firm entitled “Cutting the Ties That Bind.”)

So if you have checked the box that you want to continue on with the firm, the next step is to examine the reason for the increase. Many rate increase requests will come with the reason that “our costs have increased.” To which the appropriate response to start a conversation is always, “Oh, really? What costs have increased?”

If the response is that staffing costs have increased, it might be good to drill down on that reason to have a discussion about just how the firm is deploying its staff. Perhaps it is that the firm is still using higher billing attorneys to do things that lower billing paralegals or even non-billing legal secretaries can do. If so, getting by with a few less higher priced attorneys and hiring a few more lower cost paralegals would save costs for the firm as well as for its clients.

What if the reason stated for the need for a rate increase is that other non-staff cost have increased? If so, this could be a good time to start a conversation on whether the firm fully leveraged technology to save on its costs. With regard to cost saving technological improvements, you will find that it is typical in many firms older partners near retirement do not want to spend firm money to make cost saving technology improvements.

In any event, if the firm has not convinced you that it is doing all that can reasonably be done to save on staff and non-staff costs, consideration should be given to whether you want to continue to subsidize the ever increasing costs of an inefficient law office model.

Finally, the most often reason often given for a rate increase is “we have not had a rate increase in x years.” This blunt straight up reason conveniently sidesteps the excuses of staff and non-staff costs increase and takes you to the real deciding factor to use in deciding whether to grant a rate increase. That is where the proposed increase stands in relation to what you pay other attorneys for the same type of legal services.

Remember, business is business and you have to always keep an eye on your bottom line including what it is you are paying (or should pay) for the legal services. In this regard, I have blogged many times in the past about the fact that the legal profession is not just an overcrowded field, but that it is a vastly overcrowded field. (See, e.g.,  “Billing Guidelines need to Take Full Advantage of Vastly Overcrowded Legal Profession.“) Thus, as sympathetic as you may be to pleas for rate increases, you should always keep in mind that it is truly a buyer’s market when it comes to hiring attorneys in most any field and will continue to be for the foreseeable future.

In summary, if the attorney and/or law firm has done well in key metric areas, has provided an acceptable reason for the proposed rate increase, and the proposed rate increase is “reasonable” in that it fits in with what you may already be paying for legal services, then the proposed rate increase can be accepted.

But even if you decide to not grant a law firm a rate increase, your costs with the firm could still increase in the coming year. How could that be even if the same amount of legal work will be done on a matter? More importantly,  what can you you do about that? I’ll take these questions up in my next blog piece.

___________________________________________________

If you need assistance with developing with a program to measure attorneys in key performance areas or assistance in developing a Request for Proposal (RFP) to ensure that prospective attorneys or law firms match up with company expectations in key performance areas, contact John Conlon at jconlon@legalbillaudit.com.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s