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How large firms manage the bidding process for alternative fees

By Jim Hassett

When I interviewed decision makers at 37 of the largest firms in the US, several talked about how alternative fees are approved at their firms.  I was surprised by how many different approaches were used.

In the past at many firms, there was little central control, and individual lawyers could strike their own deals.  As one respondent put it:

Until recently, [alternative fees have] been done very much on an ad hoc basis, sometimes even under the radar screen.  People were doing things on an alternative fee basis and we didn?t even know that it was happening.

But now that volume is increasing, many firms are trying to bring the process under central control: 

What we?re trying to do now, as we see demand in the marketplace going up, is bring a much more organized and thoughtful approach to alternative fees. My role is to marshal forces within the firm to make that happen.

Many firms are still trying to figure out the best way to organize this new effort: 

We are talking about putting together an alternative fee task force, [or] maybe even [have] an alternative fee czar, to help our partners move a little further along that path.  [We would like] to have a small group [of lawyers] in the firm who are experts in alternative fees, on what we?ve done in the past, and on what we can do in the future.

There are differences of opinion about how centralized this effort should be.  One firm that puts the power in each partner?s hands said:

We have a firm-wide organized effort to expand upon the use of alternatives to the billable hour, and we give a lot of discretion to our individual shareholders.  They work with clients to come up with creative methods for valuing our services. One of my responsibilities on a firm-wide basis is to oversee this expansion effort.

When I asked this senior partner, ?Does that mean that each alternative fee proposal comes through your desk?? she replied:

Not necessarily. We have many practice areas that have successfully utilized these types of arrangements for years [and] are not required to get additional approval or follow any particular protocols. They continue to do the same types of [arrangements] they have done historically.

Others have established new committees specifically to manage and promote alternative fee proposals.  Here are two examples:

Our subgroup has done reading about alternative fees and thought through the various issues that need to be dealt with.  We?ve developed some forms of engagement letters with the necessary scope definitions and escape valves.  [New proposals] should be and typically are funneled through our group so we can help design the appropriate type of arrangement, [including the] scope and dollar amount, and help coach the individual partners about how to think about these things. We?ve been doing this in a number of practice areas, [and] it has enabled us to increase our offering of alternative fee arrangements in the commercial transactional area.

We have an Alternative Fee Arrangements Committee that includes representatives from our Client Relations Group, our Accounting Group, our Information Technologies Group, and also different practice group leaders.  And we?ve created a structure for getting these alternative billing arrangements approved quickly and efficiently. We have all-partner calls in which we spotlight alternative-billing arrangements.

Some are developing documentation and guide books to help lawyers learn from the firm?s past experience: "Our firm has an 11-page chart summarizing what types of fees have worked in the past, and why.  [It also summarized] the structure we used, [and] how it worked out."

One firm I interviewed has appointed ?alternative fees czars?: 

Our firm has identified four senior partners in four different areas as ?alternative fee czars? who serve as a clearinghouse for alternative fee proposals that come in from our attorneys.  In the last six months, one czar reviewed 19 alternative fee proposals and approved almost all of them.  Most have been soft alternative fee procedures such as blended rate proposals or discounts.  Only four or five of the 19 were strictly fixed fee arrangements; blended proposals are much easier to review.  We have 14 different categories of alternative fee structures, [and lawyers] need the approval of the ?czar? for [their] area, the practice group leader, and sometimes the billings and collections partner.  In six of the 14 categories lawyers also need the approval of the executive committee.  It sounds a bit cumbersome, but approval often is accomplished overnight.

In short, the way that AmLaw 100 firms manage alternative fee bidding varies widely.  When we repeat our survey next year, it will be interesting to see how things have evolved.

For more about The LegalBizDev Survey of Alternative Fees, see www.legalbizdev.com/survey.

Full post as published by Legal Business Development on December 02, 2009 (boomark / email).