Deeper into the Citi Private Bank Law Watch Survey

The AmLaw Daily last week featured some continuing coverage of the Citi Private Bank Law Watch Third Quarter 2010 results.

Citi Private Bank's Law Firm Group chairman Dan DiPietro and senior client adviser Gretta Rusanow expanded upon some of the findings of the recent comprehensive survey, emphasizing:

"... an increasing willingness on the part of general counsel to branch out beyond their traditional law firms are forcing many law firms to compete on price, and others to innovate in order to be profitable and sustainable in this changed market."

DiPeitro and Rusanow write that they've spent "the past three months, having traveled throughout the U.S. and London conducting roundtables with managing partners of over 150 firms, meeting with individual law firms, and learning how firms are responding to this flat market..."

One of the prominent themes they're hearing is "the constant pricing pressures firms face, and how they are responding to these pressures."

They report that two shifts in the traditional business model are leading the altered landscape:

New Low Cost Competitors

• DiPeitro and Rusanow report that the general counsel they've spoken to are facing unrelenting pressure to internally reduce outside legal costs and are now more open than ever to "other options given the availability of off-shore legal service providers, and Am Law Second Hundred firms prepared to offer services at a lower cost than the traditional law firms."

• DiPeitro and Rusanow also note that "Am Law 100 firms have commented to us about the increased competition from these alternative providers, as well as from smaller firms who are able to provide legal services at significantly lower rates because of lower cost structures."

Alternative Fee Arrangements -- Pricing and Project Management

According to DiPeitro and Rusanow, "In addition to simply discounting fees, we see an increased focus on alternative fee arrangements (AFAs)."

While AFA's are becoming more standard, the task now is to work the kinks out. To that, DiPeitro and Rusanow broke it down even further:

• The first challenge is "how to accurately price services at the outset. Firms have started to consider how they might mine data in their practice management systems and knowledge management systems to create accurate cost predictions for matters. Some firms have formed committees composed of IT, finance, knowledge management, and practice group representatives working together to identify the common characteristics of various matters, and in so doing, improving the predictability of matter costs. In other words, these firms are moving from a reactive stance to a more strategic, scientific approach to pricing of legal services."

• "The second challenge firms confront is, once they have agreed to an AFA, how can they ensure that the work will be completed within the agreed scope and to budget. To do so, some law firms are retaining professional project managers. Other firms are placing that responsibility on lawyers by conducting project management training sessions for partners and attorneys in the firm."

Interesting the trends we started looking at 18 to 24 months ago are now becoming firmly rooted in the new normal.