Cutting legal costs has become a high priority for most corporations, as they work to increase profitability in challenging economic times. One underutilized strategy is to take advantage of the “middle market” of high-quality but value-priced lawyers who just miss the cut to be top law firm associates or partners.

Ten years ago, my law firm, Reed Smith, was hiring over 50 new U.S. associates per year. Since then, the firm has more than doubled in size, to over 1,600 lawyers worldwide—yet our hiring is down to about 30 new U.S. associates per year. This trend mirrors the trend at most other top-tier law firms—the model has changed in response to client perceptions that much of the work they were getting from young associates was not worth the amounts they were paying.

Many corporate law departments shifted to a two-tier model—using temp workers or other very low-cost attorneys for what was viewed as “commodity” work, such as first-level litigation document review, and insisting on a higher ratio of experienced-versus-inexperienced attorneys to perform their most complex and challenging legal work. This trend toward greater value for the money has also been driven by alternative fee arrangements, designed to motivate outside counsel to share with their clients the challenges, risks, and potential rewards of developing an optimal staffing mix and otherwise providing efficient service.

The world of corporate legal work, however, has more than two tiers, and there are more than two tiers of lawyers available to serve. Indeed, more than half of what was considered the “top tier” of law school graduates 10 years ago can no longer win those top firm associate positions, because there are so few positions available.

What is bad news for recent law school graduates, however, can be great news for businesses. Most of those lawyers who would have commanded associate salaries and billing rates not so long ago are now available to work at rates that are a comparative bargain—typically less than half of what big firm associates earn.

Until recently, a key missing ingredient was to combine those bargain rates with the selectivity, knowledge, supervision, and training that traditional top-tier firms can provide. That is now changing, as progressive firms are becoming more flexible about staffing to best serve their clients, and are creating “career tracks” to recruit and retain talented attorneys outside of traditional associate programs.

In addition to creating “mixed teams” of partners, associates, and staff attorneys to lower costs on traditional corporate law firm work, there has also been some pushback in regard to using the “lowest tier” of attorneys for discovery document review. Some companies and their law firms have been burned by document review mistakes, like failures to correctly identify and withhold privileged documents.

Others have found that the cost savings they hoped to gain via lower hourly rates on primary review may be largely offset by the costs of correcting errors during secondary review—or the inefficiencies that may creep in when reviewers, being paid by the hour, know that their continued employment depends on how long they can make the review last. Recognition is growing about the benefits of having more qualified and experienced reviewers on well-managed teams.

There are also at least three other benefits that companies are finding when moving up from exclusive reliance on “bottom dollar” temp (or even non-U.S.-licensed) attorneys for document review:

  1. As filtering and review software has become more advanced, attorneys who have developed skill and experience using the software can generate tremendous efficiency gains.
  2. On review projects that continue long term or proceed in phases, there are consistency and efficiency benefits to having in place the same team for earlier and later phases—something that often does not happen with temp attorney teams, where attrition tends to be high and the workforce tends to be less stable.
  3. When more-experienced/higher-quality attorneys perform the document review, the learning curve that they develop, and their lower rates, can be leveraged to generate higher quality and lower costs in subsequent tasks, by involving them in follow-on tasks such as deposition preparation, motions practice, and even trial preparation.

The U.S. market today is so crowded with unemployed lawyers that the premium to recruit “middle-tier” lawyers is lower than one might expect. Indeed, after the resulting efficiency gains, clients often save money (in addition to gaining better results) from using higher-caliber lawyers.

Accordingly, even for “commodity work” the greatest value proposition today is not necessarily those lawyers who are willing to work purely on a temporary basis through bottom-dollar staffing agencies. Rather, the “buried treasure” may be found in the middle-tier attorneys who are able to command higher compensation and perform more challenging work—but are still a huge bargain—for work that does not have to be performed exclusively by traditional partners and associates.

Many or most law firms and legal departments have periodically hired staff attorneys or contract attorneys for particular projects. Fewer, though, have made the commitment to incorporate this tier of attorneys as an integral part of the workforce or to expose them to the selectivity, supervision, training, and potential career path that law firms typically provide to their associates and legal departments typically provide to in-house lawyers.

That is now starting to change, however, in response to changing times. The benefit for the law firm is to win (or sometimes to retain) work for big corporate clients that the firm would not have if all the work had to be billed at partner and associate rates. It is the clients, however, who are the biggest beneficiaries, thanks to significantly reduced legal bills. As cost pressures on GCs continue, or even become more severe, more corporations are likely to mine this “buried treasure.”

David Cohen is a partner at Reed Smith, where he leads the records and e-discovery practice group and oversees the firm’s 70-plus e-discovery and staff attorneys.

See also: “ACC Reveals Its List of In-House Value Champions,” CorpCounsel, June 2012.