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The most critical issues for alternative fees (Part 2)

By Jim Hassett

A few weeks ago, I posted a list of ?The Most Critical Issues for Alternative Fees? identified by AmLaw 100 decision makers who participated in The LegalBizDev Survey of Alternative Fees.  But the survey report is 144 pages, and that post was just a few hundred words long.   I decided that the post was too short, so here is Part 2:

Several senior partners and executives in our survey talked anonymously about strained relationships with clients, and an atmosphere of distrust:

In the past, when we have unilaterally proposed various fixed fee arrangements, the clients have turned them down because they think that if we proposed them, there must be something wrong with them.

I?m working with a very large client on coming up with a good menu of alternative plans, but I?ve been working on it for quite awhile with the GC and we haven?t gotten very far yet. I?m reluctant to tell him that his own people cause a fair amount of inefficiency, because he?s not going to want to hear it.

I think both sides need to get very open with each other, [and] particularly general counsel. In most instances, who you?re negotiating with is not the general counsel, but a staff lawyer, an AGC or some other staff-level person. There is a degree of ?hide the ball? that is how GCs play. I participated in one of the ACC Value Challenge Events, and I said the same thing there, that in-house counsel need to be more open about what they think a matter is worth, [and] what the value of it is to them.  The response was mixed. Some of them said, ?If I go to build a house, the builder doesn?t say to me, ?What?s it worth to you??? I said, ?Well, actually, they do. They ask you what your budget is, because they can?t build you a mansion if your budget is $50,000.?

Many participants also talked about problems with the RFP process. The complete survey report includes five pages of comments on the topic, but here are a few of my favorites:

Getting down to the nitty gritty of what an alternative fee is going to look like, requires an open and honest relationship and a frank discussion.  I just don?t know how you do that through an RFP. Maybe you can narrow the list of firms you want to talk to, and then have an open dialog to design a really great alternative fee arrangement. But trying to do it through these formal or distant mechanisms is very difficult.

The RFP process rarely gives enough underlying data for you to craft a thoughtful alternative fee proposal. Typically what you?re left with is providing examples of approaches. It?s very hard sometimes to get the right kind of data in order to do the kind of analysis and more specific proposals that in-house counsel want to see.

Common sense needs to be brought to the [RFP] process.  I think everybody?s experience is that the process is somewhat out of control.  Many competitions are run on the ?more process is better? theory, [and] they tend to require firms to put in a huge amount of effort and submit a lot of information, which may not end up being important in the decision-making process. We?re starting to pass on some [RFPs], because they?re just not worth the effort.

Finally, the topic of cost was on everyone?s minds.  Here?s the pithiest argument I heard for why clients who cut costs may sometimes be making a mistake:

If you think good tax advice is expensive, you should see what bad tax advice costs.

On the other hand, the report also includes five pages of comments on how law firms need to lower their costs, and pass the savings on to clients.  As one senior partner summed it up:

You don?t have to have office space on the highest floor in the best part of every major city, especially for the back office.

The LegalBizDev Survey of Alternative Fees may be purchased online for $395 per copy (with volume discounts available) or by calling (617) 217-2578.

Full post as published by Legal Business Development on December 30, 2009 (boomark / email).