Re-engineering Real Estate Law

Over the last several years, the recession has forced virtually every business to retrench and to do more with less – particularly in commercial real estate and finance.  Despite this, certain areas have resisted price reductions.  One of them is law firms. 

 The Association of Corporate Counsel (the “ACC”), the national association for in-house lawyers, puts it this way:

 “For the past two decades, there has been an unrelenting drive by companies and their suppliers to reduce costs while increasing quality and value in their products and services.  The only outlier seemed to be the law firms.

 Here’s a stunning fact:  According to a recent issue of the California Bar Journal, a survey by the Corporate Executive Board found that “while non-law firm costs increased by 20 percent over the past 10 years, large law firms’ prices jumped almost 75 percent in the same period.”  These numbers confirm the disconnect most if not all of us have been feeling.” 

 Of course, as anyone with a business background knows, it is difficult to achieve big price improvements unless you do some significant re-engineering of your business processes.  To its credit, the ACC is out there pushing energetically for change through its “Value Challenge” program.  But real change is coming only very slowly, if at all, from the largest law firms, the sector pundits call “BigLaw”, where I’ve made my professional home for most of the past 23 years.  While we read every day in the news about radical economic challenges and struggles, it seems counterintuitive that law firms keep doing things the same way and their fees keep going up and up. 

Legal services are a cost of doing business for corporate America.  Even locally based companies face increased competition every day as more and more work can be done anywhere in the world.  They need their lawyers, like all of their other vendors, to bring cost-effective efficiency to the table.

The business environment for law has changed in several important ways since I graduated.  One of them is transparency.  When I started practicing over 20 years ago, little was known publicly about the inner workings of law firms.  Companies hired lawyers based on their firms’ brand names, because they really did not have much else to go on.  The prices, track record, staffing mix and expertise of specific law firms were often almost completely opaque.  The marketplace ran on the assumption that BigLaw firms would hire the top graduates, provide the best training, do rigorous quality control across the board, and charge more for a better product.

Competitive pressures, aggressive trade journals and the Internet’s ability to move information around quickly have brought radically more transparency to legal practice, even in BigLaw.  If you want information on firms’ pricing, size, quality and specialties today, you can get it from the ACC, from trade journals like The American Lawyer, from service companies like Serengeti, and from many sources on the web.  Buyers of legal services can more readily assess their outside lawyers’ performance, and can compare quality, credentials and efficiency among their lawyer vendors.

As a result of these factors, it’s far more obvious today that the quality of legal services varies significantly from one lawyer to another within a single firm.  That’s OK.  Transparency allows buyers of legal services to assess quality and comparison shop directly, instead of using firm brand names as a substitute for unmeasurable virtues. 

Another transformative feature of the current business landscape is simpler and more powerful computer technology.  This also should make it easier for all law firms to have their lawyers practice law and deliver services in more effective ways.  The computing and information retrieval power readily available today can facilitate the efficient handling and tracking of specific legal tasks, the  standardization of many aspects of legal practice, the transmission of information and easy checking of the quality of legal work and the quick delivery of legal work -- which, like most good re-engineering, should bring prices down significantly.

This is not to say that there is not a place for BigLaw $500+ per hour billing rates.  Some engagements, such as mega-deals and massive lawsuits, really are emergencies on fire, where the client literally does not care about the price, as long as it gets the urgently desired result.

The awkwardness here is that that’s the work that most large law firms want to do; that’s what they incentivize their partners to seek; but it represents only a small fraction of the day-to-day legal needs of even the largest institutions.  The other 90% or so of essential, ordinary-course legal work in our industry does not require that approach and cannot bear that pricing.

In many industries, businesses have found ways to significantly restructure to utilize databases, automation and business process management.  Consider how much property management work that required a head office staff and a lot of written memos a decade ago is handled easily today with a computer database and tracking system and one or two people.  That potential for savings exists for legal services as well.

Providing legal services for commonplace transactions in commercial real estate, and pricing them, does not have to be a mystical art.  Other marketplaces, including the insurance defense industry law firms, have seen significant price drops in recurring types of legal engagements, once the cost information is better tracked and more widely shared.  The challenge is to rethink how law firms and clients interact, and move that conversation into collaborative planning and risk allocation.

Common patterns of transactions in our industry, like leasing, purchases, originating loans, note sales and enforcing distressed loans, can be put through due diligence, negotiated, documented and serviced with first-class legal quality – using modern business process driven methods, smart forms, predictable pricing and agile lawyering.  What I’d like to see is a flowering of lawyers, firms and service providers willing to apply technology and their own expertise to make that happen across our industry.