Lather... Rinse... Repeat

I’m sure we’ve all felt like we’re stuck in this cycle at some point. It’s very easy to fall into patterns and ruts, especially with endless piles of work or when something has typically been handled a certain way.

The surface of the earth is soft and impressible by the feet of men; and so with the paths which the mind travels. How worn and dusty, then, must be the highways of the world, how deep the ruts of tradition and conformity!               

- Henry David Thoreau, Walden

 

If we’ve learned anything the last two years, it’s that taking a different look at the delivery of legal services is, at a minimum, a healthy exercise. Don’t get me wrong, I don’t think corporate legal departments used to search for ways to spend more money or work less efficiently. I don’t believe law firms weren’t trying to provide value to their clients prior to 2008. But it’s not a stretch to say that those issues were once lost in the “lather rinse repeat” world of legal services up until the bottom dropped out of the economy.

Now the focus on these issues is apparent, and many in-house departments and law firms have taken dramatic steps in recent months to retool their operations or install cost-containment measures. But what does it really mean? Does saving $2 million a year in legal expenses signal escape from the rut? Does reorganizing who handles a client’s work mean that a new approach has been adopted? These very well may be very positive steps, but real change has more to it – and the benefits could be tenfold.

Think for a moment about a typical EEOC matter, due diligence need or a stack of marketing contracts that must be renegotiated. If the average in-house department is already short-staffed (and swamped), where is the first call going? Outside counsel. Maybe there are good protocols in place for these issues – the associate receives the message and tries to get to these matters as quickly as he or she can, balancing it with the needs of several other clients. Even if an alternative or flat fee has been arranged for this type of work (ahhh – change!), it is still reliant upon a ‘lather rinse repeat’ way of doing things: Work comes in. Outside counsel contacted. Work handled. Invoice sent. Gratitude that the bill was as expected. There is value in known quantities, after all.

What I would say is that there are different ways to handle this work on both sides of the table. We’ve posted here about the Tripartite Model (or “three-legged stool”) model before – basically installing a new model for some of this mid-level work to client-dedicated (Counsel On Call) attorneys who collaborate with both in-house and external counsel. This allows outside counsel to focus on bigger issues and staff work in a more effective way; in-house counsel utilizes attorneys dedicated to their matters who are available as-needed. It’s flexible, fluid and responsive, and allocates resources efficiently and appropriately. It also saves money for both parties.

But let’s take it a step further and focus on value and improvement (not just process). Tracking, reporting and evaluation are cornerstones in everything, not just in e-discovery. What does the client truly get from our services? How can we better handle this work? How can we reduce the costs? What did we learn? How can we use what we’ve learned to make the work product better? Who needs to be plugged into this and at what point? What work is being duplicated by others or requires similar functions? How much time do these matters truly take? What work has been rejected by legal because of a lack of resources to handle it (but legal would really like to handle it)?

If these questions and others are being asked with your different types of work, your “legal pattern” likely has a more beautiful hue to it these days. There must be a broader perspective, even in the most “rut-like” activities.
 

Pricing In The Alternative

The “alternative” in an Alternative Fee Arrangement (AFA) can be defined as “affording a choice between two or more things…mutually exclusive so that if one is chosen the other must be rejected.”

In the arena of legal fees, the alternative is compared to the standard billable hour. One potential alternative is a fixed fee. For other AFAs, see this interesting article where Pat Lamb argues that the “real point” should be to “shift risk from the client to the firm,” among other things.

The questions to ask are: what is the goal? What is the incentive and who should have it? Who takes the risk? Who should benefit from taking that risk?

Blended rates and known budgets provide predictability. Is that the real issue for clients? Is the debate between low cost and predictability versus unknown budgetary costs, or does it involve the ability of the legal provider to use reproducible cost-effective services over time for the benefit of the client?

I would argue that these types of arrangements will have a short lifespan. After a certain period of time, all a fixed fee arrangement offers is what the cost is going to be, not how the work can be done more efficiently, for less money, more intuitively, or in a manner in which you can best meet your goals. It also encourages a law firm to use minimal staff or attorneys billing at the lowest hourly rate, which may or may not be in the best interest of a client. The lack of value will be exposed at some point.

The bottom line is to define the goals you are trying to achieve. Is it predictability? Cost savings? Particular expertise? Time reduction? Maximum manpower? All of the above?

This is the point I was attempting to make last week: it’s imperative to think how these arrangements can work for both parties, because if it’s tilted one way or the other, it’s not a great system. Someone loses. And there’s just not a great understanding in the marketplace of how these “alternatives” truly function or if value is really received.

So I like to look at what I know. I know my company’s costs of doing business. I have a pretty good idea how long it takes for attorneys to review a gigabyte of data on most software tools. I know a lot of different ways we can reduce the amount of data to review. I know how we create efficiencies throughout the discovery process. Knowing all of this, I feel very confident we can provide several different pricing options for our clients, whether it’s per document or per gigabyte (the ‘fixed fee’ options, more or less), by the hour, or some other structure. (Although I’m talking about discovery here, the same basic principles apply to different types of work that might see alternative fees, like contracts, employment matters, IP issues, etc.)

If I didn’t really know all of what we know about our business, well … I would be basing everything on a lot of subjective data. That’s simply not necessary in today's marketplace. But because we do have the objective data and we understand our capabilities and costs, the client gets a great work product at a low cost, achieves measurable efficiencies, and ultimately the predictability and consistency that are sought. That’s a win-win arrangement, which is a great goal to shoot for from the beginning.
 

The Numbers Don't Lie

We recently conducted a survey of senior-level in-house women attorneys in Atlanta, with the goal of identifying a few best practices and sharing the information with the group at a luncheon (which was held yesterday). At a minimum, we opined, it would be reassuring for these women to know that their peers are dealing with some of the same issues, and this would be a more formal way to present the proof.

We got a lot more than the minimum. Over three days, 57 women responded, ranging from leaders within Fortune 500 companies to one-attorney departments. The responses provided some very useful information, especially regarding how in-house departments are working with their outside service providers. In fact, 29 of the respondents shared the steps they are taking to manage legal expenses, negotiate flat fee arrangements and take more work in-house. A handful of the survey questions and results are included after the jump.

One nugget that isn’t so uplifting, which we have discussed on this blog in various posts, is that in-house lawyers are still very worried about job security. Thirty-four percent of respondents listed it as one of “three things that keep me up at night,” with the correlated “economy/effect on company’s business” not too far behind (31.3%). Although we have seen that some companies and departments are starting to come out of the thaw, the majority of the in-house lawyers polled simply do not feel secure yet, even as many of them (48.6%) are taking on more work and responsibility.

These lawyers are and will continue to be under tremendous amounts of pressure and the results-driven environment in which they reside is going to have an effect on the way business is done in the legal profession moving forward, there’s little doubt.

A few of the interesting survey responses (more after the jump):

Which of the following best describes your legal department budget for 2010 (choose one):
    28.6%  Less than 2009
    37.5%  Equal to 2009
    10.7%  Greater than 2009
    23.2%  Not sure

Do you expect to use any new strategies in 2010 to manage your budget?
    54.5% Yes ... of those responding 'Yes' :
       ->46.1%  Alternative/Flat rate / Discounted fee arrangements
       ->34.6%  Do more in-house / Cut outside counsel spend 
       ->11.5%  More contract/outsource help
       ->  7.7%  Consolidation of law firms / Use smaller law firms

Share at least one recent success story on how you obtained efficient and affordable outside legal support, specifically your experience with alternative fee arrangements with outside counsel, if any.
    24.1%  Flat fee arrangement
    17.2%  “Not To Exceed” amount / Caps for each project
    13.8%  Negotiated discounted rate
    10.3%  Use Counsel On Call / Contract attorneys
      6.9%  Issued RFPs
      6.9%  Reviewed invoices closely / Identified areas for cost savings
      6.9%  Used smaller firms / Smaller offices of large firms with lower rates

What has been your biggest professional challenge in 2009 so far?
    48.6%  Doing more with less / Bigger workload
    27.0%  Morale / Team management issues
    18.9%  Work-life balance / Career
    13.5%  Managing business expectations 
      5.4%  Litigation

What three things keep you up at night?
    34.3%  Job security / Salary
    31.3%  Economy / Effect on company’s business
    25.0%  Litigation-related