Challenge: Streamline Review Process for Rate Increases Proposed by External Law Firms
Solution: Timekeeping Review Software and Rate Score
Annual law firm rate increases require corporate legal departments to review proposals carefully, especially when hit with inflation, but, when you manage 100 firms, as Volkswagen Group of America does, that’s a time-consuming and tedious task.
Every year Volkswagen Group gets bombarded with scores of emails from law firms representing them who want to raise their rates. Various in-house lawyers studied the proposals, calculated the percentage increase requested, and compared them to similar firms’ requests across the department.
“We want to be fair to our law firms, whom we view as trusted partners,” says Antony Klapper, Volkswagen Group’s deputy general counsel, product liability and regulatory. “At the same time, we must manage our company’s finances responsibly – and execute all of this efficiently with a leanly staffed team.”
New Approach: Centralizing and Standardizing the Intake with a Comparison Scale
The team decided it needed a centralized, uniform approach. They already used Thomson Reuters Legal Tracker product to manage e-billing and spend management. But they needed more. They instituted a designated period for increase requests to allow for side-by-side comparisons and upgraded to Legal Tracker Advanced to make intake more efficient and analyze rate increase history compared to internal and external benchmarks. Newly built into the benchmark is what Klapper describes as “an enlightening new metric,” the CAGR (Compound Annual Growth Rate) notes Trisha Fletcher, legal operations specialist, which was introduced to them by a consulting firm.
Calculating percentages of increase requests and the number of such asks beforehand is results in the CAGR score delivered by the software. For example, a firm requesting an 11 percent increase after several similar past increases would result in a 12 percent 5-year CAGR score, But another firm’s requested 11 percent increase coupled with a lower previous increase or rate freezes would result in a 5 percent 5-year CAGR score.
“We set a threshold and if the firms came in under that, we approved the increases so long as the firm was in good standing with us,” says Fletcher.
“If they were above, we knocked them down — negotiated — to the threshold we had set. If they disagreed, such as if a timekeeper (legal firm individual billing hours) got a promotion, we considered that as well.”
“A couple of firms asked why we were changing our way of doing business with them but, once we explained it, we didn’t get much pushback. When we presented them with the CAGR figure and the whys behind it, they understood the reasoning,” Fletcher says.
“We are a large client for a lot of them and negotiate our rates,” Fletcher notes. Still, she admits, it’s also about the relationship — how long they’ve worked together, what they’ve done for the Volkswagen Group, their expertise, etc.
Learning Curve
“We had to educate all the lawyers who had previously handled the rate reviews, what CAGR means, and why it would be better for them. Now, they are only needed if there’s an appeal and a negotiation needs to take place,” Fletcher says.
“The learning curve seems to be pretty quick,” says Hillary McNally, general manager, corporates legal, Thomson Reuters. “In the corporate legal world, spend management is the most widely adopted technology in the arena today. And customers get it – the technology is sophisticated now to help them make faster decisions.”
The Cost Factor
The savings are much greater than the cost of implementing the technology. The apples-to-apples rate comparisons and data analysis led to reduced spending for Volkswagen Group’s legal department.
The Wins
- Suggested rate increases cut by more than 50 percent;
- In-house lawyers and staff able to spend time on other tasks; and
- The Volkswagen Group’s executive leadership team recognizing how cognizant its legal team is in using technology to keep costs in line.
“Legal departments have told us it’s a win-win despite some of the firms being denied their raises,” says Thomson Reuters’ Alex Dobson, senior product manager. “It is helpful to see – in a data-driven, actionable way – which firms are making reasonable rate increase requests in light of multi-year history.”
“We’ve taken one thing off their plate,” says Fletcher about their lawyers’ rate increase assessments, “and they are happy about that.”
And every legal firm relationship they had remains.
Learning Along the Way
Both the Volkswagen Group and Thomson Reuters are ACC members and use legal ops resources, events, and networking to expand their knowledge base.
The Balancing Act
The project engulfed the team’s time and focus but “I try to turn work off and leave it off once I leave my office, even though my office is often at home,” says Fletcher.
