Legal Marketing & PR

Building partnerships for alternative fees

By Jim Hassett

When I conducted the LegalBizDev Survey of Alternative Fees, senior decision makers from AmLaw 100 firms reported that alternative fees work best in an atmosphere of trust.  However, as noted in an earlier post, they also reported that trust is hard to come by.  This week?s post summarizes survey interviews that focused on the need for partnerships between firms and their clients.  The quotations are from chairmen, senior partners and C-level executives at 37 of the largest law firms in the US.

The need to agree on cost reductions sometimes makes it difficult to find common ground:

"One client recently told me that any arrangement that would entail us ever recovering more than 100 cents on our standard time would never fly. Ultimately, that is not the type of environment that?s conducive for their managing their legal budget most efficiently."

"One of the problems with this whole [alternative fee] notion is [that] it [might] just be a price mechanism. If the results aren?t what general counsel anticipate from the standpoint of getting the legal services they want, they are going to rethink it. If a firm is really hurting, and is in need of volume, the firm could just offer the lowest cost possible. The client could tell us your legal budget is x, and we?ll do it for y. Now, what happens if [the firm] can?t [deliver quality for that price]?  One of the questions that general counsel are going to have to evaluate is, is it going to be truly just, 'Give me a low number?' Is it going to be, 'I really want something from a partnership viewpoint with you, to know that you?re giving me the talent and the opportunity to be of service, but you?re also giving me an economic advantage, because I?m going to work with you?' Those are the discussions you have to have."

Several participants emphasized the need for good faith negotiations:

"When we have done this successfully it?s been a collaborative effort with the clients. We?ve sat down and figured out what works for them and what works for us and we?ve worked out a process to manage it on both ends."

"It?s got to be a joint effort with the client to come up with these new arrangements. Everyone has got to give a little bit. It can?t be one-sided."

"In my experience, alternative fees can work really well if you have sophisticated clients who act in good faith.  If you don?t have that, all of the king?s horses and all the king?s men might not be enough."

These types of good faith negotiations are most likely to succeed as part of a solid, long-term relationship:

"These kinds of fee approaches have consistently worked well where there is a strong relationship with the client. It always takes trust, and that is why we are so committed to being a relationship firm.  We have had many instances in which we already knew the [client], and that is the best setting for doing alternative fee arrangements."

"You want the same continuity, because the value that we can give on the fifth case of its kind is [higher, since] you?re using very little of my time. You?re using a lot of lower billing associate time. And that?s better for both. At that point, we should be flipping to a flat rate, which also has risk in it, but by the fifth time, I know what this insurance case is going to cost."

"[We need] to see alternative billing not in the context of a fly-by-night, of a one-off, or of a taking advantage, but as a real means of partnering with a law firm. 'Gee, you have the better expertise in this one. Why don?t you take the risk on this one?' And I know that if we take a bath on it, that client is going to be around ? not to pay us back, we?re big boys ? but at least to acknowledge that we?ve taken a bath."

"To really make these things work, you need an underlying partnership.  If somebody drives a truck through a loophole, it?s a short-term victory.  We look at these arrangements like marriages."

Partnerships can be expected to develop more completely within the context of the convergence movement, which attempts to reduce the number of outside law firms that clients deal with by providing more work to a smaller group of firms:

"I would advise many clients to deal with fewer law firms [and] make a similar investment in a long term relationship that you?re hoping to get your law firms to make in you. There is unbelievable efficiency that can be gained through open communication and by making that mutual investment, [and] there is a lot of value that can be created through volume.  Not to say that somebody should necessarily sole source all their work, but it enables the law firm to have predicted revenue [and] to train people that have client-specific knowledge. It can work dramatically more efficiently than otherwise. Too often, a lot of that efficiency value is left on the table, because clients and/or law firms took too adversarial a position with the other."

Full post as published by Legal Business Development on November 24, 2010 (boomark / email).