Transcript 21ST CENTURY LEGAL FEE ARRANGEMENT

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21ST CENTURY LEGAL FEE ARRANGEMENTS
A Brave New World
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TRADITIONAL FINANCIAL RELATIONSHIP
BETWEEN ATTORNEY AND CLIENT IS CHANGING
• Billable Hours

Novel fee arrangements
• “Whatever it takes!”

Budgets
• The pyramid

Customized staffing
– partners
– associates
– paralegals
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WHY?
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2000 – 2009
Costs
2009 – 2010
Outside Counsel spending worldwide
20%
Legal costs
75%*
3%**
Reducing legal costs continues to be a high priority.
*ACC Value-Based Fee Primer citing Corporate Executive Board, 2009
** HBR Consulting Law Department Survey 2011
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LEGAL ECONOMICS 101
Total legal spending

Flat

Increasing
+
Law firm overhead expenses
= Something has to give!
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THE CHOICE
• Law firm profits

OR
• More efficient and productive delivery of legal services.
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NOT JUST SYMANTICS
Alternative Billing Arrangements
vs.
Value Based Billing
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TRADITIONAL ALTERNATIVE
BILLING ARRANGEMENTS
• Flat fee
• Success fee
• Blended rate
– Problem: Often just reshuffling the deck – not finding
a solution.
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GOAL
Lower legal costs to client while maintaining or improving
law firm profitability.
•
•
•
•
Improve efficiencies
Increase productivity
Change method of purchasing and delivering
legal services
Focus on results
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Value Based Billing
• Linking traditional hourly based billing to novel fee
arrangements.
• Attorneys still bill by the hour.
• Contain overall cost of legal services.
• Take into account quality and results.
• Introduce Incentives.
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FOUNDATIONS OF VALUE BASED BILLING
• Define success
• Disaggregation of work
• Project management
• Evaluation
• Risk/Reward
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WHAT IS SUCCESS?
• Winning?
• Cost effective resolution?
• Gaining experience/knowledge?
Factors
 Short term vs. long term
 Level of risk
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DISAGGREGATION
• Breaking the legal assignment down into component parts.
• Identify potential efficiencies in staffing.
• Eliminate redundancies.
• Utilize technologies/outsourcing opportunities.
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PROJECT MANAGEMENT
• Understanding work flows
• Prioritizing deliverables
• Implementation and coordination
• Accountability
• Client reporting
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EVALUATION
• Provides continuous input to improve processes and
decision-making.
• What works, what needs to improve – both outside and
in-house.
• Promotes collaboration and team work.
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RISK SHARING
• Role of incentives
• You get what you incentivize
• True win – win!
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EXAMPLES
Incentive Fee
• success fee
• hold-back
• contingency
Fixed Fee
• fixed fee per deliverable
• fixed fee per matter
• fixed fee per period
• global fixed fee
Hybrid
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Holdback
• Fixed Fee for assignment is established.
• Percentage paid when billed.
• Percentage “held back” – into “Bucket.”
• The Bucket grows over time.
• Bucket may be earned based on result obtained.
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Modified Fee Cap
• Hard Fee Cap established.
• Target Fee Band established.
• If Target Fee exceeded, client pays only a percentage of
excess.
• If fees are lower than Target, law firm shares part of savings.
• Creates incentive to beat or at least not exceed Target.
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Fixed Fee with Success Fee and/or Carve-Outs
• Fixed Fee (by stage, time period, or entire case) established.
• Success Fee awarded based on result.
• Carve outs are agreed to in advance (e.g. number of
depositions)
• CAUTION! - Unintended Consequences.
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CONCLUSIONS
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