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A dramatic clamp-down on rate increases at law firms

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Wal-Mart may supplant DuPont as the mover and shaker of outside counsel management. Its latest volley, described in InsideCounsel, Dec. 2007 at 13, blasts out from a memo of Associate General Counsel Miguel Rivera Sr. to the company’s relationship partners (See my post of Nov. 22, 2005 about Wal-Mart’s those partners and the company’s push for diversity among them.).

“Until further notice, we will only consider reasonable, individual requests for rate increases for those attorneys in your firm who are performing at an exceptional level and whose experience and knowledge is adding substantial value toward meeting Wal-Mart’s legal objectives.”

Deconstruct this proclamation and you will see it packs at least wallop.

1. “Reasonableness” limits all proposed rate changes, but the giant retailer gives no touchstone for testing reasonableness (See my post of Nov. 24, 2005 about using changes in the CPI or a company’s profitability.);
2. “Individual” means that no increases can be across the board, such as by class or practice group (See my post of Nov. 11, 2007 which attacks across-the-board solutions.);
3. “Attorneys” leaves open how to treat other timekeepers, such as paralegals (See my post of Nov. 22, 2007 about large numbers of non-lawyer billers.);
4. “Exceptional” ought to be a rare standard of excellence, so most lawyers would never qualify for a rate increase;
5. “Are performing” rules out any coasting on past accomplishments – the litmus is now;
6. “Experience” suggests that newly-graduated lawyers will not get rate increases and implicitly should not even charge for work on Wal-Mart matters (See my post of Feb. 9, 2006 about newly-minted associates.);
7. “Adding substantial value” brings into the picture all the murkiness and subjectivity that dogs statements and assessments about value (See my post of Nov. 28, 2007 and references cited about “value.”); and
8. The whole statement implies a need for the in-house counsel to evaluate the performance of the individual lawyers who represent them (See my post of Feb. 25, 2007 about Caterpillar’s evaluation process.).

My basic reaction is that Wal-Mart has opened itself up for a barrage of decisions and administrative processes. With the size of its legal spend, it should focus on fixed fees and regional firms, not billing rates.