Increasing Quality and Minimizing the Expense of Outside Counsel

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Increasing Quality and Minimizing the Expense $$ of Outside Counsel A New Discipline that In-House Counsel Need to Understand Jacqueline Dinsmore Cognition LLP

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Transcript of Increasing Quality and Minimizing the Expense of Outside Counsel

Page 1: Increasing Quality and Minimizing the Expense of Outside Counsel

Increasing Quality and Minimizing the Expense $$ of Outside Counsel

A New Discipline that In-House

Counsel Need to Understand

Jacqueline Dinsmore Cognition

LLP

Page 2: Increasing Quality and Minimizing the Expense of Outside Counsel

Agenda

• The History and Effects of the Billable Hour

• How trends are affecting BIG law

• Your Role in this New Era

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THE BILLABLE HOUR – HOW DID WE GET HERE?

Early 20th Century

Set fees;Annual retainers;Eyeball method;Contingency;Value based

1930’s – 1940’s

Standard Fees;Minimum Fee Schedules

1960’s

Matters became more complex;Billable hours as proxy for value

1970’s

Straight billable hours;Billable Targets

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“Law firms have been extraordinarily profitable over the last 50 years based on a model that has them charging by the hour, so clients are rewarding effort, not results.”

Washington DC Partner in Washington Post

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Is the Billable Hour the right billing model?

"The billable hour is fundamentally about quantity over quality, repetition over creativity”

Robert HirshonPresident

American Bar Association

“Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode….

That bill shall know no limits.”

Christopher Thomson, Former DLA Piper lawyer

Are the hourly rates the right rates?

‘In cost-plus pricing, cost is known before you set the

price. In value pricing, you start with the price the

customer is willing to pay and control your costs to live

within that price” Jim Hassett, LegalBizDev.com

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BIGLAW UNDER PRESSURE• Downward pricing pressure from corporate clients• Slowdown in transaction deal flow• Competition from global firms• Competition for alternative providers• Competition from offshore LPO’s• Technology pressure• Alternative fee push

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As part of his blog, Johansen (www.patrickonpricing.com) has assembled a current catalog of pricing professionals with their respective firms and titles. While the list is not exhaustive, the identified roles now exceed 50 in number. Surprisingly, more than 40 of these roles did not exist just five years ago—a clear indication of the discipline's rapid rise.

THE RISE OF LAW FIRM PRICING DIRECTORS

Steven Petrie, Chief Strategy Officer, Faegre Baker Daniels LLP

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The Role of the Law Firm Pricing Director

• Understand Firm Cost Structure (to maintain profitability)

• Implement Processes and Procedures (to maintain profitability)

• Implement Project Management (to maintain profitability)

• Understand what clients are willing to pay (to maintain profitability)

• Effectively price AFA’s (to maintain profitability)

Ensure FirmPROFITABILITY

71% of firms report clients are the primary driver of changes to pricing strategy – Altman Weil 2014 Survey

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Who is the Counterpart to the Law Firm Pricing Director?

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The Pricing Role of In-house Counsel

• Set and Maintain Budgets (in the face of budget cuts)• Resource Management of Legal Projects• Manage Outside Counsel Relationships• Target the optimal usage of the right resources at the

right price• Ensure (some) firm profitability

Act as a Project Manager toENSURE VALUE

39% of in-house counsel are doing more with fewer resources

“Corporate Counsel Agenda 2013” ALM Legal

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How Can the CLO Ensure Value?

DEFINEVALUE

right PEOPLEright PRICE

right PLACE

UN-BUNDLE

KNOW YOUR OPTIONS

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CLOProject

Manager

MANY LEGAL NEEDSMANY LEGAL OPTIONS

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THE RIGHT PRICEContinuum of Fee Arrangements™

Patrick Johanssenwww.patrickonpricing.com

LEVEL OF COMMUNICATION/INTERACTION B/T CLIENT & FIRM

GREATERCLIENTRISK

GREATERFIRMRISK

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In 2009, 28 percent of law firm leaders believed that non-hourly

billing would be a permanent change in the legal industry, according to legal consulting firm Altman Weil.

By 2013, the figure had jumped to 80 percent. Since 2012, a handful of major firms, including Holland & Knight and McDermott Will & Emery, have even ditched the billable hour model altogether for entire teams of people.

Washington Post, April 2013

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Still stuck with the hourly rate? - how to make it work better for you:

Discounts to Hourly Rate: 10% - 15% - 20%

Freeze Hourly Rate:No Annual Increase of Hourly Rate

Blended Hourly Rate: Combined Average of Hourly Rate of Senior Lawyer and Junior Lawyer

Cap on Hourly RateMaximum (or Minimum) Hourly Rate for MatterCap on Hourly Rate until Matter concluded

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Learning Time:Discount for Learning Time by Junior LawyerDiscount for Student TimeNon-billable Research TimeTime for Instructions

Overlapping or Duplicate Time:Activity billed once (e.g. review of decision, attendance at meeting)Inter-office meeting time

Still stuck with the hourly rate? - how to make it work better for you:

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Travel TimeLocal travel time is non-billableDisbursements for local travel are non-billable

Reasonableness TestWhether time billed is warranted for the complexity, risk, outcome

Other ExtrasBeware photocopying, admin fees, meals and taxis

Still stuck with the hourly rate? - how to make it work better for you:

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How to enforce the rules……

Master Retainer Contract/Engagement Letter-insist on using your own form-be specific, be clear, be firm-follow through and enforce, the backend is where pricing progress is typically lost

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HOW DO YOU MEASURE VALUE?Paul Lippe, Legal OnRamp on what criteria you might use to measure law firm performance in delivering sales contracts:

• How quickly did the contract get done?• How favorable are the terms to the company (opportunity gained and risk avoided)?• How easy are the terms for other parts of the company (finance, manufacturing, sales, etc.) to understand and perform?• How satisfied were the true business clients?• How satisfied was the counterparty?• How much did the contract cost?• Did the contracting process improve?

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HOW DO YOU MEASURE VALUE?Lisa Damon of Seyfarth Shaw on law firm value metrics that may be used in measuring work on a trademark portfolio

• “Success” rate, measured by things like first

action allowance, watch hit outcome

• Overall satisfaction

• Timeliness of communication

• Effectiveness of “lessons learned” sessions

• Strategic participation/understanding of Wolverine

business

• Proactive issue identification

• Budget variance

• Cost management effectiveness

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HOW DO YOU MEASURE VALUE?

ACC VALUE INDEX – asked corporate counsel to rank law firms based on following criteria

• Understands objectives/expectations• Efficiency/process management• Predictable cost/budgeting skills• Legal expertise• Responsiveness/communication• Results delivered/execution

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Questions?

Thank you.

Jacqueline [email protected]

416-882-1977

mailto:[email protected]

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