What drives better value for money in legal services?

Let’s start with an example of another complex problem with multiple, debatable causes. Western European countries have radically lower road traffic fatalities than the United States. And the gap has widened in recent years.

Why is that? There’s clearly no single cause. Let’s take just three factors, which I’ll roughly characterise with three Ms:

• Minor. Digital technology in cars seems likely to be largely irrelevant as an explanation, for better (automatic safety technology) or for worse (distraction) – the differences between the two places are not significant.
• Material. A factor that appears likely to be relevant, but secondary, is that US cars are heavier on average than those in Europe, making it more dangerous to be hit by one at a given speed.
• Major. One of the most important factors, perhaps the most important, is the attention and priority given to designing roads and other spaces to be safer. 

Now down to business

Here’s an attempt to apply the same three labels to ten factors that may drive cost and value for money in legal services in the UK over the next five years.

• For five of the ten factors, the likely impact seems pretty clear to me
• In four cases, I can see it going one of two ways
• For the final one, it’s more complex

A few footnotes:

• The ten factors are just a simple model, or way of thinking about something complex. They overlap and feed back on each other in complex ways. ‘All models are wrong, some are useful.’
• ‘Material’ and ‘major’ can refer to effects in either direction: less costly or more so.
• The geographical limitation (UK) and the next five year time frame reflect the market I know best, and a time frame which seems reasonable.

I’ll come back at the end to the practical point: how does this exercise help you?

But on to the factors –

1. Legal Culture: Minor

Despite all the innovation and attention on litigation in the UK, it’s ranked 45th out of 46 high-income countries in the World Justice Project’s measurement of the accessibility and affordability of civil justice. The United States is ranked 46th. This is, of course, a complex topic: UK litigation and investigations culture may tend towards the legal beanfeast, but it can also help to winkle out things which would otherwise remain obscure. The problem is, in my view, mainly one of disproportionality, with reform proposals tending often to complicate things, risking further cost.

In any case, the point is that

• Culture eats a lot more than than strategy for breakfast. It tends to assimilate and blunt all sorts of attempt at change. The pace of even fairly minor cultural changes is measured in decades or centuries rather than years.
• But it’s also very hard to influence culture directly, so I would put it as a minor factor over the next five years. It’s slow-moving and largely ‘it is what it is.’

2. Economy and the World: Material or Major 

During the quantitative easing years between 2008 and 2020, we saw mainly high demand for UK legal transaction services, with a predictable impact on law firm pricing and salary inflation. There’s been lots of talk, and some action, on innovation during these years, but the impact on value for money is debateable. Now that we are seeing a drop in demand for such services, this seems to be concentrating minds on the need to get better at certain things, in ways that I haven’t seen for more than a decade. Progress comes in fits and starts. I think the next few years could be one of the active periods. The impact and permanence of change will, however, depend on other factors.

There are also some other things going on in the world – you know, climate, conflict, geopolitical realignment – which may have a major impact. I’m not proposing to discuss them further in this context. Perhaps you have a view. They represent the ‘or Major’ part of my assessment.

3. Regulatory Law: Material

One of the big legal changes of the last quarter century in the UK has been the growth of regulatory controls, and related investigations or inquiries into financial, corporate, governmental and other major problems. Large London law firms that did mainly transactions and civil litigation thirty years ago now have significant investigation and regulatory practices.  Likewise, all sorts of regulatory laws and other changes, including the partial reversing of previous globalising/synthesising trends (e.g. Brexit and the growing US/China rift) have increased the need for specialist legal advice and the overall complexity and cost of doing business. This change is ongoing, and these are such significant factors in the growth and overall cost of legal services that I would expect a material impact.

4. Outsourcing to Companies instead of Law Firms: Material

Over the last quarter century, there’s been a lot of effort and money put into organisations which address predictable, high volume legal needs in a more organised, predictable, ‘process-driven’ way. These were known as legal process outsourcers (LPOs) in the 2000s then alternative legal services providers (ALSPs) / managed legal services (MLS) in the 2010s. This includes independent companies which just do that, but also divisions of some major law firms and consultancies such as the Big 4. A separate development has been marketplaces offering more short-term work to individuals: the quasi-employee / staffing agency version of that seems to have been more successful overall than the project version, though the boundary is not fixed. 

I think it’s fair to say that growth has been significant but nowhere close to what many people backing these horses suspected. I think that’s because, at the end of the day, there is still a huge amount of value in having a permanent establishment of people,  at a law firm or a captive / legal department. I think that will most likely continue to be the case. And with the current round of corporate legal budget reductions, I would expect the impact to include doing less legal work, as well as doing it in different ways or with different providers.

In short, I would expect this factor to continue to be material but not major.

5. Social Change: Material

We do seem to be seeing a real shift in many countries in expectations

• on the lawyer side – working hours and coming into a physical office five days or more a week, especially where it involves a significant commute
• on the client side – convenience and having to come into a physical office to meet with lawyers

The first of these will likely be amplified or dampened by economic factors, but the change seems real, and the second seems unlikely to change with economic factors.

These things seem likely to me to be a factor favouring changes in how legal services are delivered, with an emphasis on digital.

6. Lack of Public Investment: Minor

A very low level of public investment in legal infrastructure, such as laws, courts and regulators, probably implies a low level of legal costs – it’s not worth spending much on getting the legal issues ‘right’ unless there’s some prospect of this being tested objectively in a way likely to have an impact on you. Increasing such investment likely increases legal services spend, but ideally (and not always, clearly) in ways that provide greater social benefits overall.

Properly targeted investment on improved public legal institutions (e.g. more efficient court filing and information-handling services, judges remunerated at a level which attracts good candidates) could help to reduce delay and costs, and improve quality / predictability of decision-making, and therefore improve value for money in legal services as well as creating other social benefits. In a climate of reducing governmental investment in this area, the big question is perhaps whether what remains can be better targeted.

There are some interesting projects in the pipeline, particularly in England & Wales civil litigation, which I suspect may be materially helpful, but overall I fear that the poor level of public investment will cancel those out, resulting in only minor net impact.

7. Regulation of Lawyers: Material or Minor

It’s now fifteen years since the Legal Services Act liberalised who can provide legal services in England & Wales. Change so far has been modest. The law firm model actually works quite well in many ways, even though it has certain weaknesses and can be challenged by alternative models of a more orthodox-outside-law corporate nature.

We are, however, now seeing some potentially more significant changes, such as

• The initial years of the SRA transparency rules
• A building pipeline of people coming into the legal profession via the more open, non-graduate, apprenticeship route
• Fixed recoverable costs in litigation since October 2023 for many cases up to £100,000, with likely future extensions

Over the next five years, I can see these things starting to have a material effect in England and Wales, though I can also envisage them fizzling out if not developed effectively by the responsible authorities.

Hence my estimate that it could either be material or minor.

One point to clarify is that, although the obvious impact is at the consumer / ‘ordinary person’ / SME end of the market, I can envisage the impact being felt further up the market over time as ambitious firms seek to win more valuable work.

I don’t see much impact in Scotland: the England & Wales-style regulatory changes recommended by the Roberton committee have been rejected by the Scottish Government, and cross-border arbitrage is mostly in favour of Scotland because of lower costs (though there are, for example, some aspects of Scottish law property work being done in northern England).

8. Business Buying Practices: Material or Major

There have been several rounds of corporate attempts in recent decades to change buying practices. For example:

• Setting up substantial legal departments so as to do more work in-house
• eBilling and, more recently, use of natural language processing (NLP) to describe work done
• Alternative fee arrangements (AFAs) – particularly after the 2008 crisis
• Panels
• Outside counsel guidelines i.e. rules on what can and can’t be charged
• Outsourcing to companies instead of law firms (4 above)
• Budget cuts

No doubt each has had some impact but they’ve also each had well-known weaknesses.

• Legal departments can sometimes replicate the issues of law firms
• eBilling and NLP can give more data, of mixed value, without necessarily translating into useful action
• Some AFAs involved relatively modest departures from time-based billing in economic substance
• Panels often didn’t have the impact hoped for as they often don’t, without more, address the cost problem
• Outside counsel guidelines typically have impact around the edges, some of it temporary (before providers learn the new rules) rather than moving the dial
• Outsourcing to companies rather than law firms can certainly work for some kinds of task, though can creates its own dependency and therefore cost risks if taken too far
• Budget cuts have sometimes been done in a not-so-smart way, with internal headcount being reduced but more work having to be outsourced to law firms more expensively

No doubt each of these can be further optimised or, in the case of some organisations, started.

But at the moment, my bet would be that it’s another one that we’ll see more of in the coming years, and that it may be more impactful:

• More structured tendering for individual matters (not just panel membership), more involvement of procurement (rather than the legal department deciding for itself) and more reverse auctions

I can’t tell whether it will turn out to be material or major but I think it will be likely be one of those, not minor.

9. Process and Pricing Change within Law Firms and Legal Departments: Material or Major 

After the 2008 crisis, some major UK law firms took steps to do data-intensive work (e.g. document review, diligence, repapering) in a more efficient, process-driven way.

However, there was rather little impact on the way that law firms planned, managed and handled their core day-to-day work; or, a closely related topic, on how they priced it. 

I think this is a major opportunity, perhaps the most important one in the coming few years for firms to differentiate themselves positively with clients and talent, and to achieve greater financial performance.

But it’s a hard one for some lawyers to grok. My guess is that:

• Legal services providers will come under more pressure over the next five years to address this, as a result of factors mentioned above.
• Some will address it effectively and do well as a result. Others won’t get it, will seek to ignore it and will run into increasing problems.

Whether this turns out to be major or merely material depends in significant part, I think, on how far business buying practices (factor 8) change.

10. Software Innovation: (Minor in many areas) and (Material or Major in other areas)

Most technology specific to law sustains rather than disrupting. It either improves quality or helps deal with increasing noise. In some cases, it can unfortunately add to noise and expense. The effect of all this on the value for money of legal services is minor.

The more impactful types of technology over the next five years may be those which can either 

• replace some of what lawyers do and charge for at the moment, or
• facilitate the kinds of change discussed in points 5, 8 and 9.

 You may already have a view on the first type and it’s such a complex one that I’m not going to discuss it further in this article. Maybe a future piece.

However, the second type will, I think, be at least material in its impact, and potentially major.

The point of all this

I don’t claim that my answers are definitive. I may even change my mind on some of them.

The value of such an exercise is in the thinking and the discussion; and in the action that follows.

You can play the game yourself by considering the ten factors – tweak them if you like – and ask friends and colleagues to score each. 

In these volatile times, what I’d be asking myself as a legal services provider (whether external or in-house) would be things like

1. What are the factors we can ignore as likely to be immaterial?
2. What are the things we can’t affect but need to expect and adjust to?
3. What are the things we can and should do, because they’ll likely be at least material, even if their magnitude is impossible to say?
4. How can we do this in a way that creates opportunities for us ahead of the market, rather than being on the defensive?