The Alternative Fee Landscape

A mind map of the main options for alternatives to billable hours.

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The Alternative Fee Landscape by Mind Map: The Alternative Fee Landscape

1. 7. Value Billing

1.1. Embodied by Valorem Law Group

1.1.1. The firm offers a "Value line adjustment"

1.1.1.1. Clients are able to make any adjustment to the proposed fees they feel needed

1.1.1.2. Insane but authentic - not only does it assist in respect of the fees, it says a lot about the firm

2. 2. Variations on Hourly Billing (may not really be cast as alternative fees but included here for completeness)

2.1. % discounts

2.1.1. Can be graduated based on amount or spend or a flat discount

2.1.2. Challenging to administer if retrospective - How should it be applied fairly over a range of work or multiple jurisdictions?

2.1.3. May be factored into fees already so not a genuine reduction

2.2. blended hourly rates

2.2.1. Places the onus on the firm to properly allocated work

2.2.2. Blended rates should be designed with appropriate weightings of time to reflect the input of different levels of lawyers

2.2.3. Could be offered as an alternative to billed rates if that happens to be lower on a matter

3. 3. Bonus

3.1. May apply to the whole portfolio or individual cases

3.1.1. Factors that may result in the bonus e.g. a win or turnaround within a particular time

3.1.1.1. May be linked with reduced fees and a bonus payable on satisfactory completion

3.1.1.1.1. A great example of this is Jeff Carr's ACES model(TM) for FMC Technologies

3.1.1.2. In practice may not sufficiently motivate advisers on the ground and be a pain in the neck for in-house teams to administer

3.1.1.2.1. Difficult if the matter is a long running one or there are many changes in strategy or scope

3.1.2. For the caseload as a whole, it maybe linked to a reduction in overall spend

3.1.3. Can work well with high value as opposed to routine work

3.1.4. Can present problems in terms of accrual accounting - What is the correct reserve for the case?

3.1.5. If it is linked to discounted fees what is the real benefit?

3.1.6. Contingency fees may not be acceptable in all jurisdictions

4. 5. Fixed Fee Arrangements

4.1. Can relate to all or categories of work or individual cases

4.1.1. Offers an opportunity for in-house teams to identify what they think the work is worth (although be clear what the going rate is)

4.1.2. Works well where case load can be predicted/tasks are predicted

4.1.3. Difficult to manage from a firm perspective without excellent processes

4.1.4. Challenging to set the fee without good historic data

4.1.4.1. But if set at an appropriate level provides advantages to firms

4.1.4.1.1. Supports partnership with clients without spectre of the clock being turned on

4.1.4.1.2. Security of instalments

4.1.4.1.3. Firm can embed relationships with the business

4.1.4.1.4. May provide a platform from which to obtain premium work

4.1.4.1.5. If on a per case basis, encourages a through case analysis at the outset

4.1.5. May limit the firms wanting to provide the fee

4.1.6. Is there an effective strategy for management of work exceeding the fixed fee? A reversion to hourly rates there may be an incentive to blow through the fixed fee barrier

4.1.7. Good budget management tools are important

4.1.7.1. Can encourage opportunism from the business which may impact on insurance premiums and future fees

4.1.8. In-house teams should be invited to test assumptions in the Fixed Fee Agreement to ensure that it is robust

4.1.8.1. There is no point in agreeing a fee that is known to be a low ball figure. Either the work will not be performed well or requests for increases will be forthcoming

4.2. Could be a monthly or annual retainer, fixed fee per case

5. 10. Determinants of Sucess

5.1. Understanding how the process will work is essential and process redesign may be a significant source of savings in itself

5.2. Focus on determining your priorities and aligning fees so as to encourage the lawyers to support those priorities

5.3. Don't assume one size fits all. Delineate between types of work

5.3.1. Consider how the different elements of an alternative fee proposal work together to create an effective and efficient picture

5.4. A detailed an specific breakdown of the work covered is essential

5.4.1. Jointly consider various scenarios to confirm that instructions are clear

5.5. Ongoing monitoring is very important and there is a close link with matter management, billing and reporting systems

5.5.1. If fee agreements are ignored on a regular basis, all the effort in negotiations is wasted

5.6. Have contingency plans in place to manage challenging situations

5.7. Make sure agreed variations are properly documented

5.8. Few firms are really adept at implementation of alternative fees. It is a genuine differentiator

6. 4. Menu (Unit) Pricing

6.1. Strictly a fixed fee form of arrangement menu pricing is where specific prices are identified for tasks or phases

7. 6. Cap and Collar

7.1. A cap is where fees are capped at a certain amount

7.2. In a collar arrangement, where the firm can drive fees below a certain amount there is a bonus of some form

8. 4. Secondments

8.1. Can integrate well with the business

8.2. Can replace the need for work to be sent out to law firms

9. 9. Possible future directions

9.1. Dynamic pricing as with airlines (see the comments on dynamic pricing by Ron Friedman of Prism Legal)

9.2. Mastermind group/Knowledge sharing network

9.2.1. e.g. Wiki based or private social network based options are available

9.2.1.1. Could crowdsourced legal advice ever be possible?

9.3. Combined fee proposals with LPO/performance of tasks in lower cost jurisdictions

9.4. Clearer integration with expert technologies

9.5. Opportunities for firms specialising in lean operations and lower cost based arrangements

9.6. Law firms could employ pricing experts i.e. specialists with the skills to assist in accurately assessing pricing for fixed fee bids

9.7. Novel Pricing Arrangements

9.7.1. Deal a day model

9.7.2. Subscription services e.g. a gym

9.7.3. Ultra-lean firms

9.7.4. Group deal style arrangements for lawyers

10. 8. Outstanding Questions

10.1. How do you manage complex litigation or transactions where, at certain times, costs are being incurred quickly and rapidly developing issues inhibit accurate costs forecasts?

10.1.1. Hourly billing may well be the most suitable approach here but the issue is budget management and costs transparency

10.2. Is the relatively low take up of AFAs a sign of lawyers' resistance to change or an indication that in truth, hourly billing yields a reasonable result most of the time i.e. if it aint broke...

11. 1. Why Consider Alternative Fee Arrangements?

11.1. AFAs are not a universal good but time based billing "rewards efforts and not results"

11.2. AFAs encourage discussions with firms about what the client considers to be of value and how they will measure success

11.2.1. It is a sad day when lawyers reveal the costs they have incurred and everyone knows it is vastly more than first discussed

11.3. Encourages firms to participate in cost control

11.4. More than cost control, your business may prioritise cost certainty and predictability in arrangements with a smaller number of firms. AFAs can help achieve this objective

11.5. Why not try them? - you can always revert to the status quo

11.5.1. Although they should not be undertaken without solid preparation to ensure that they accurately reflect the impact of the fee arrangement as opposed to the process (see Determinants of Success)

12. 11. Resources on Alternative Billing and value based pricing

12.1. The Strategy and Tactics of Pricing (5th Edition) by Thomas Nagle, John Hogan and Joseph Zale (Mar 12, 2010)

12.2. Winning Alternatives to the Billable Hour: Strategies that Work by Mark A. Robertson

12.3. The End of Lawyers?: Rethinking the nature of legal services by Richard Susskind OBE

12.4. In Search of Perfect Client Service by Patrick Lamb

12.5. The LegalBizDev Guide to Alternative Fees by Jim Hassett