Law Firm invoices: the 5 ways private equity handles higher-than-expected legal bills

In the private equity business, certain legal matters are prone to cost overruns. Independent market research we commissioned identified nine legal matters in private equity that are prone to bust the legal budget.

About 20% of the 160 in-house lawyers working in private equity that answered the survey say those nine matters always go over budget. In addition, another 50%, say these types of legal matters are sometimes susceptible to exceeding the budget. Add this together and it means upwards of 70% of these matters are at risk of cost-overruns. 

While this may sound like a potential windfall for law firms, the survey suggests otherwise. Here are the five ways PE organizations respond to higher-than-expected legal invoices that surfaced in this research:

• 76% frequently negotiate discounts in response to surprise invoices. 
• 74% delay payment on legal bills that exceed their expectations.
• 72% regularly challenge individual line items in law firm invoices.
• 71% have outside counsel billing guidelines to restrict block billing.
• 81% are considering working with alternative legal service providers (ALSPs). 

For law firms, those responses tend to pinch margins, slow cash flow, and generally put a lot of stress on the team. However, it’s not a pleasurable experience for in-house teams either. Nearly half (44%) say they have to re-forecast legal budgets as a result of unexpected – or unexpectedly – high legal bills. 

What’s the solution? Transparency. 

About 8 in 10 of the in-house legal leaders surveyed said visibility into accruals from law firms, before invoices are sent, would reduce the number of invoices that catch them by surprise. 

Read the complete research report: Responsibility Without Control? Challenges Facing Private Equity Legal Leaders in 2021.

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