With companies focused on controlling costs across the entire corporation, it's no surprise that corporate legal departments are examining the cost-effectiveness of the work done by outside counsel.
I recently got some insights into alternative fee arrangements and other ways to increase the value of corporate legal services from Robert Haig, editor-in-chief of Successful Partnering Between Inside and Outside Counsel, a joint project of West and the Association of Corporate Counsel (ACC). Haig is a partner in the law firm of Kelley Drye & Warren LLP in New York City.
Haig says while alternative fees have been talked about for many years, "there's been a lot more talk than there has been action." There has been much debate about why alternative fee arrangements aren't used more often. Are the law firms responsible or is it the corporate law departments? "There's also debate about who should initiate alternative fee arrangements and who ultimately decides that they don't want to use them in particular cases."
Haig says that an additional challenge is to understand the specific advantages and disadvantages of the various billing options. "It's important to analyze carefully whether a particular situation would be a good one for use of an alternative billing arrangement and which particular arrangement is most likely to achieve the client's specific needs and goals for that engagement. Selecting the most cost-effective billing option requires, like so many other aspects of the relationship between law firms and their corporate clients, thoughtful evaluation and communication. One size doesn't fit all: you need to match up the billing method with the corporate strategy and objectives."
Recent surveys have shown that 15 to 20 percent of corporate legal fees are billed in ways other than traditional hourly billing. This number had been gradually increasing until the last few years. Haig says, "Alternative fees tended to be used more for transactions because the amount of the fees there were more predictable than litigation which has a substantial amount of inherent uncertainty. During the last couple of years, there seems to be evidence that the percentage of in-house counsel who do not use alternatives to the hourly billing method has been increasing, indicating that the hourly billing approach is even more prevalent than it used to be."
However, Haig says the state of the global economy has led to the likelihood that we'll see more billing options in practice, largely because of cost pressures on corporations. He cites three approaches being looked at with greater interest:
• Fixed or flat fees, sometimes combined with a potential incentive payment
• Contingency fees for both plaintiffs and defendants
• Discounts, including volume and early payment discounts
Haig also discussed a number of other strategies for improving the value of corporate legal services, including:
• Litigation avoidance and prevention;
• Use of contract attorneys and offshoring;
• Strategic incorporation of ADR concepts into relationships with customers, suppliers, and employees;
• Use of budgeting as a means of strategic planning;
• Early case assessment, risk-benefit and cost-benefit analysis;
• Quality management strategies such as project engineering and Six Sigma;
• Technology innovations such as extranets, shared databases, and videoconferencing;
• Billing guidelines and engagement letters which incorporate agreements on staffing; and
• Qualitative and quantitative benchmarking methodologies.
Haig's perspectives on alternative fee arrangements - and other value-enhancement strategies - are featured in a podcast at http://west.thomson.com/about/podcasts/.
Haig is the editor-in-chief of Successful Partnering Between Inside and Outside Counsel, a four-volume, 7,000-page treatise. The authors include the General Counsel of 83 Fortune 500 companies and many distinguished outside counsel. These outstanding experts show lawyers who serve corporate clients all of the problems they are likely to encounter and exactly what they should do to resolve them with practical, step-by-step advice. The treatise covers all aspects of corporate law department operations and management and all aspects of the relationships between inside and outside counsel.This publication has been critically acclaimed in nearly 100 book reviews published in legal newspapers and bar journals throughout the United States. Topics include selection of outside counsel, planning and budgeting, fee arrangements and billing, law department management, benchmarking, technology, conflicts, compliance, dispute resolution and avoidance, and many other subjects. It is available on the West Web site at www.west.thomson.com.
Craig Miller is vice president of the Corporate Sales & Marketing division for West, part of Thomson Reuters.
Robert Haig's series is available through Westlaw: Successful Partnering Between Inside and Outside Counsel (SPARTNER)