A possible grand bargain between law firms and corporate clients – Part 2

Part 2: The need for a reset

Elizabeth (Libbie) Evans and Graeme Johnston /3 December 2025

Originally published on LinkedIn

This is the second part of an article about managing spend on large complex business law matters.

In the first part, we introduced the current landscape. We noted that current approaches to setting and managing fees for corporate legal work are a source of widespread frustration; that there is wide acceptance that better scoping, planning and budgeting can help; but that actually bringing about effective change is challenging.

We can illustrate the gap between aspirations and reality with some recent surveys. On the client side, Thomson Reuters’ 2025 US legal operations survey, requiring and regularly reviewing budgets were near the top of the list of the things which in-house lawyers think can help to control spend (n1). But in the same company’s 2025 global corporate legal survey, only 22% of in-house lawyers expect to take the lead in ‘guiding’ desired change in this area, with 55% wishing law firms would do so. On the law firm side, BigHand’s 2025 survey of global legal pricing and budgeting reports that 47% of the 800 firms surveyed are seeing increased client demand for matter budgets, but in practice most firms say they only use budgets on 11-20% of matters.

Some argue that this gap can be closed through value-based pricing, where price is detached from effort. In section 7 of part 1, we suggested that for large, complex business law matters, pricing will in practice remain closely tied to effort. Value, understood as the desired outcome, will shape the rates paid and decisions about where, how and whether effort is applied and controlled. But effort will still be the main basis for price. The biggest opportunities to control spend therefore lie in managing the link between value and effort, rather than trying to break it – and this can be done in a way that works for law firms too. The mechanism for this is better budgeting.

Against that background, the rest of this article covers:

What do you mean by ‘budget’ anyway?
Why effective budgeting is hard
What better budgeting requires

1. What do you mean by ‘budget’ anyway?

In the first part of this article, we suggested thinking about legal fees as falling into two major lakes: open-ended time-based billing and fees with limits agreed in advance. We listed major examples of each.

Building on that, we’ll now look at how people use the word ‘budget.’ Understanding this is an important part of the foundation for doing better in practice.

An initial clarification is that our focus in this article is on matter-level budgets. The term ‘budget’ can also be used in other contexts, for example to describe a department’s overall spend, or a firm–client relationship budget. Of course, getting better at budgeting individual matters helps significantly with those as well.

Two paradigms of matter budgeting, one in each of our two lakes, are:

Loose estimate. A non-binding projection based on loose assumptions, or none at all: a ‘best guess’ that places most of the financial risk on the client. This approach is justifiable when work must start immediately with no time to scope properly: emergencies or very early stages of fast-moving matters. It works where there is high trust, restraint and a commitment to put something more meaningful in place as soon as feasible. Without these things, it tends to become a source of anxiety and disappointment.
Fixed or capped fee. This should have an agreed scope and set of assumptions designed to encapsulate the scenarios which are probably going to occur. This is ideal when the work is sufficiently well-understood and predictable that meaningful assumptions can be made up-front. The value extends beyond price level and predictability: it forces clear thinking and better conversations on value, risk, sourcing, trade-offs and likely outcomes (n2).

Small spend (below a defined materiality threshold) is not of concern here. For matters which require large spend, most fall somewhere between the extremes of

True emergencies requiring immediate action with minimal scoping.
Matters that are so thoroughly definable that a comprehensive fixed fee is feasible (n3).

The middle category, between these extremes, is currently very large, and we expect it to remain so. This involves work of broadly familiar types – transactions, litigation, investigations, advice outside a formal process and so on. Work which is amenable to some planning, because the nature of the terrain is known, even though there remain some uncertainties as to the specific path because of the complex interaction of the specific factual, legal, business, human and other factors. The uncertainties tend to be bigger and scarier the further out you look.

In this huge middle category, a well-constructed budget which goes beyond a basic ‘best guess’ has the potential to add real value. It can create a framework for restraining and predicting both spend and scope; it can force more explicit conversations about assumptions, risks and limits; and it can provide early warning when a matter begins to deviate in ways that are commercially or strategically important.

For example:

Litigation commenced a few months ago and the procedural timetable has been set. It is feasible to set fixed budgets for the short term – the next phase – with clear, reliable scopes and assumptions. Budgets for a couple of stages away have less clear scopes and their assumptions may be more fragile, but these are tightened and revised as the uncertainties reduce. Having such budgets ready to be refined over time is much less daunting than having to start again from scratch every few months.
A high stakes transaction in which counterparties and rivals are determined to pursue their own agenda and are capable of doing so effectively and imaginatively without particular regard to reasonableness. The full details of process, outcomes and effort are impossible to predict reliably for the whole transaction up front. But the overall path can be identified and budgeted with high level assumptions. Shorter term paths can be specified and budgeted more precisely, with the higher level ones being made more specific as the uncertainties resolve – not perfectly, but in a good enough way.

Budgeting of this sort is obviously more challenging than for an entirely predictable matter and, as lawyers typically have little or no training in this area, is understandably where practice is usually weakest. Budgets here are still all too often either just vague estimates, rarely revisited once the work starts or over-engineered with scenarios and assumptions which fall apart on meeting with reality, with time-based pricing applying by default in both situations. A classic example is where work starts off with a fixed price for some initial advice or other highly controllable deliverable (e.g. heads of terms, a strategy note, the document required to launch a claim) but not for the more complex work which follows.

2. Why effective budgeting is hard

In order to understand why budgeting is hardest precisely where it matters most, it helps to look at the pressures on the people doing the work, at what they have available to them to help and at the nature of human beings and organisations.

In-house legal teams and law firms of course share a common goal: to guard and advance their client’s objectives. In practice, this may be fulfilled with different degrees of diligence. But even assuming high levels of effort and competence on both sides, aspects of their responsibilities to their own organisations are quite different.

On the in-house side, key responsibilities include:

Stretch a finite annual departmental budget across an infinite pipeline of risk.

Demonstrate to internal stakeholders that legal spend is controlled, predictable, and aligned to business priorities.

Enable sufficient legal services, of an acceptable quality, to be purchased in a way which maintains relationships for the future.

On the law firm side, responsibilities include:

Price in a way which allows for work to be won from desired clients.

Do so in a way which keeps the practice sustainable: generating enough revenue to meet salary and other expenses while delivering margin in line with the firm’s profitability expectations.

Deliver in a way which meets professional services obligations and leaves the client happy with the product, responsiveness and all other aspects of the service; and which is defensible later.

Without genuine appreciation of these different perspectives, fee discussions can deteriorate into the same tired script: ‘We’re under pressure to manage spend down’ / ‘Our costs have gone up’ / ‘Your rates are too high’ / ‘We need to ensure the work is done to a proper standard.’ No one is wrong. Both sides are telling the truth through the lens of their own responsibility.

In addition to these inter-organisational factors, there are structural factors that can get in the way of individuals even when they are determined to do better. Three factors are particularly important.

Budgeting is inherently hard, at least for complex work. It involves understanding how to scope and articulate sensible assumptions in ways which draw on past experience but also respond to the needs of the particular situation. It also involves having the discipline to revisit a budget as time goes by and the situation changes. The tendency can be to put off this sort of thing in favour of familiar legal work that plays to existing skills and gives a better sense of having achieved something. The payoff from planning and budgeting is delayed, but progress in legal work is more immediate and visible.
The challenge is increased by the need to discuss, justify and negotiate with others. Not just between law firm and client but within organisations. For example, in a large law firm, lawyers increasingly need to justify their approach to pricing. And within client organisations, raising budget issues with internal business stakeholders can be uncomfortable for in-house lawyers where the nature, risk and cost of legal work are not always well understood outside the legal team. All of this involves careful thought about how to explain key points effectively, and a degree of trust about risk and value. There can be a natural tendency to delay or avoid the conversation and to sit on the decision. Managing all these different groups also takes time. This is so even though people know that delay and ambiguity means that, by the time the issue is finally addressed, options are narrower, emotions are higher, and what could have been a manageable adjustment early on has become more painful for all involved.
Good quality, readily usable data and tools are required to scope and budget well for large complex business work. These are often lacking, with existing tools and data providing friction and noise which make things even more challenging.

In recent decades, there have been efforts to address these problems in some organisations by hiring specialists in legal project management, pricing and legal operations. This has had real benefits, but in most places better budgeting is just not embedded yet as a core, standard part of legal practice.

Improvement is not going to be possible by fixing any one of these challenges in isolation or by hiring more specialists. There is going to be a need for a shift in expectations and accountability as well as in better tooling and data.

Without sustained leadership attention and explicit reinforcement from legal department and law firm leadership, better budgeting is likely to continue to be treated as something nice to have rather than as a core professional discipline.

The good news is that we think it is feasible to do so and that it also involves dropping some current practices which are onerous and disliked by almost everyone.

3. What better budgeting requires

We suggest recalibrating to do the following things.

Legal departments should require meaningful budgets in all matters which will involve spend about a clear materiality level.
There should be clear definition of what meaningful means for predictable and unpredictable matters.
For predictable matters, it mostly means fixed pricing for the whole matter. This will typically involve benchmarking at least against one’s own organisation’s prior matters (and ideally more broadly over time). It will sometimes also involve a bidding process as a method of price discovery.
For unpredictable matters, legal department leadership should make clear to their own teams and to their law firms that a loose best guess is no longer acceptable. This should be tackled as a shared problem (in a supportive, collaborative, non-accusatory way), providing training, tools and other enablers for people to get their heads around the topic and approach it more effectively and sustainably.
It should be recognised as part of this that, even where there is inherent complexity and unpredictability which cannot reasonably be addressed with up-front certainty, there is very often considerably more certainty in the shorter term – often the next quarter, not just the next month; and sometimes longer.
For this purpose, better budgeting should be approached in a rolling sense, with budgets always being set and expected to be complied with, but becoming better defined (scope and assumptions) and more reliable as the required effort becomes clearer for a particular stage or period.
Realistic light-touch approaches to the efficient planning, allocation, adjustment and reporting of work are important here so that the process overall becomes less burdensome, not heavier, even though more effort is front-loaded. This involves better tools and joined-up data rather than expecting people to plough through noisy emails and clunky spreadsheets. It also involves shortening lines of communication and talking about the real issues in a way which everyone involved can engage with, rather than each retreating into their own comfort zone of specialist jargon and tools. Little points of friction add up, so making things easier to do is incredibly important if you want them to be done.
As part of this, there should also be an effort to build systematic continuous learning. This involves gathering focused data on scope, assumptions and effort, filtering out noise, and making lessons readily usable for future engagements. It requires a combination of appropriate tooling and skilled human curation.
None of this is trivial. All of these things have to be done in ways which are realistic about the human factors, the inherent challenges of the work, the other demands on people’s time and the limits as well as the benefits of data. Where available, LPM, pricing, legal operations and similar specialist roles as key partners in implementing and sustaining the changes, with a realistic and open conversation about what limits their impact at present and how to change that.
It’s really important also to recognise that, with the addition of new things, it’s essential to stop doing some old things which are costly (particularly in time / distraction) yet ineffectual or even counterproductive. This includes habitual time narrative reviews, detailed OCGs and shadow billing. These become unnecessary with better budgeting, and special cases such as suspected fraud or exceptional out-of-scope unbudgeted work can be controlled in other ways.
The net result to aim for should be less time spent overall on ‘work about the work’ but much more valuably directed.

We call this a grand bargain because it involves doing some new things but also stopping some old things; tackling them in both clients and law firms in a coordinated manner; and approaching the topic in a way which gives both what they need – more effective spend management for clients and sustained (or improved) profitability for law firms.

For the most part we think clients’ legal department leadership will have to drive it by making their expectations clear and taking steps to implement. But there are also major benefits for the law firms who choose to get ahead of this and create stronger client relationships, rather than waiting for push to come to shove.

This is not entirely novel methodology: it involves applying project and portfolio management concepts which businesses already use. But it involves doing so in a way which is realistic about the particular challenges of large, complex legal work (its uncertainties, pace, adversarial nature) and the people who do it.

The third part of this article will offer more specific examples of situations and techniques to illustrate how this approach can work in practice.

Endnotes

Setting budgets and regularly reviewing them on large matters were the 3rd and 4th method, in terms of frequency of mention out of 17 possibilities presented. 1st and 2nd were OCGs and seeking hourly rate discounts. We discussed the limits of these in the first part of this article.
A fudge between unconstrained and fixed/capped is the ‘soft’ cap in which a progressively high discount applies to spend on a matter over certain thresholds. The economic substance of this depends on the thresholds and discount %s but in practice it is in our experience closer to the unconstrained side.
It’s still quite early days with predictable work: ALSPs and competitive bidding / benchmarking have increasingly been used to manage spend, and the scope of matters which are predictable will likely expand with improvements in process, data, software and pricing transparency. But we think it has real limits.