If you think you know how corporate legal services are purchased, you might want to take a second look, because the relationship between companies and their lawyers is rapidly changing-and that's good news for purchasers of legal services, who today find themselves in a "buyer's market."
The Association of Corporate Counsel (ACC) is at the forefront of these efforts in its Value Challenge initiative. Our law firm, Womble Carlyle, is proud to be working hand-in-hand with the ACC. This campaign has several goals, but primary among them is to improve working relationships between companies and their outside lawyers and to help ensure that both parties clearly understand the value of working together. Two of the biggest changes in the relationship between corporate clients and their outside law firms are the rising popularity of alternative pricing structures and the unbundling of legal services.
Alternative Fee Arrangements
Alternative fee arrangements generally refer broadly to any arrangement other than the traditional fee based on hourly rates. Examples include:
- Discounting - One category of options is to simply discount the standard hourly rates. Some examples commonly used include a percentage or dollar reduction off the standard rates, "blended" or fixed rates for categories of timekeepers (partners, associates, paraprofessionals) or for all timekeepers, and volume discounts with graduated discounts based upon reaching specific volume levels.
- Fixed Fees - Fixed-fee arrangements involve the firm charging an agreed-upon price for specified legal work. Fixed-fee pricing provides the client with more predictability and better control of costs. This option takes the focus off time and puts it on service. It can foster better communication between law firm and client, since every conversation is not "on the clock."
- Performance Based Pricing - Several innovative billing approaches currently being used involve a "holdback" or bonus model tied to incentives based upon objective and subjective criteria. Under these approaches, an agreed upon percentage or amount of the law firm's fees are dependent upon reaching agreed goals or outcomes. If benchmarks are met, the firm receives the held-back money as an incentive bonus.
- Discretionary Components - Several emerging alternative fee models employ discretionary components to the fee. In these approaches, a benchmark or fixed fee or discounted hourly fee is established and then an additional fee is set based upon defined, or even undefined, criteria to be assessed by the client entirely in the client's discretion. These components provide incentives to law firms to keep the client's goals and desires front and center; to communicate consistently, clearly, and often about results; to avoid surprising the client; to obtain the best and quickest result possible; and to otherwise provide a very high level of service in order to motivate the client to pay a large discretionary fee.
- Escape Clauses - Several of these alternative fee arrangements have risks for both clients and law firms associated with them and are dependent upon the accuracy of various assumptions at the beginning of a representation. To make sure that goals stay aligned and that neither client nor law firm become trapped in a bad arrangement which threatens the relationship or, worse yet, the outcome of the representation, some thought should be given to the circumstances in which renegotiation of the fee would be appropriate.
Unbundling Legal Services
"Unbundling" simply refers to separating specific tasks or aspects of a matter from the whole for purposes of fee arrangements and/or assignments to attorneys for performance of the work. The unbundling of services combined with alternative pricing presents a tremendous opportunity for companies to save money on their legal expenses.
The following are several real-world examples, taken from our own experience, of innovative approaches that aligned legal services with the needs of corporate clients. In each example, specific services were "unbundled" and handled separately from the law firm or firms that were retained as trial counsel.
- Centralized document and e-discovery review teams were set up for several companies facing litigation involving voluminous documents. These teams were customized to meet several different clients' needs, ranging from single lawsuits to recurring cases in multiple jurisdictions. Alternative fee arrangements ranged from a per-page or per-document fixed rate, to a deep volume discount of hourly billing. Documents and electronic data were reviewed once and key information was captured and coded for retrieval, including production, privilege, and confidentiality logs. These services were performed by counsel separate from the primary law firm or firms to whom the cases were assigned, but all firms as well as clients were provided access to the work product generated. Because this work was done within a law firm (instead of by an outside vendor), attorney-client and work product privileges were preserved. For more information, click on the following links for a document review services description as well as an illustrative statement of work.
- An early resolution/mediation approach was established for a client facing recurring litigation in North Carolina. A fixed fee per case was charged for this service, with most discovery and major motions deferred until 90 days prior to trial to afford reasonable opportunity to conclude the matters within the fixed fee. Although this program related to multiple cases handled by one law firm, another early resolution model provides a firm separate from trial counsel a reasonable number of days to achieve resolution before the case is assigned to trial counsel, on either a fixed-fee or incentive-based fee arrangement.
- A "consolidated case file" approach was set up for a company facing recurring litigation in multiple jurisdictions. Under this approach, one firm created and managed a streamlined process to organize, track, search, and synthesize the "case file" (including paper and electronic data), preserved high value work product, and made it all available electronically through a web-based unified platform to in-house counsel as well as trial counsel handling cases across the country. This service was provided on a fixed fee arrangement.
- A "medical team" was created to assist several clients and other law firms locate, retrieve, and analyze medical records; develop medical defenses; and locate and develop expert witness testimony. These services were provided under various alternative billing arrangements ranging from fixed fees to discounted hourly billing within budgets.
Better communication leads to better results, which leads to a more satisfied client, which in turn leads to more engagements for the law firm. Everyone wins in this scenario. So if you haven't spoken with your outside counsel in a while, pick up the phone and do so. You might be surprised by what they have to say.
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