Legal Business Development

How to track legal work that is out of scope

A few months ago, during a routine review call in our LPM coaching program at Bilzin Sumberg,  Executive Director Michelle Weber mentioned that her firm was beginning to require lawyers to systematically track work that fell outside the scope defined by each engagement letter. 

Steve Barrett was on the call with me, and we both had the same reaction:  Why didn’t we think of that?  It is such a simple idea, and such a valuable one, that neither one of us could believe we’d never suggested it, nor heard of anyone else doing it.

When I later learned that Baker & McKenzie was also tracking work this way, I began asking around looking for more examples.  So far I have heard of only one other that does this: Faegre Baker Daniels.  According to Steve Petrie, the firm’s Chief Strategy Officer, Faegre Baker Daniels uses separate matter numbers to track out of scope work for certain fixed-fee arrangements.  This is done in collaboration with the client and is subject to a clear and mutually-understood, change-order process.  (If your firm requires lawyers to track work that is out of scope, please email me the details, and I’ll write about them in a future post.)

At the beginning of every matter, lawyers should be asking clients about their goals and expectations, so that the legal team delivers what the client needs, and is willing to pay for. A failure to get a clear understanding at the beginning of a matter can lead to unnecessary work, strained client relations, and ultimately to reduced realization and profitability if clients refuse to pay their bills.

Anyone who has ever worked at a law firm knows that a clear definition of scope at the beginning of a matter often simply does not happen.  Many lawyers are impatient problem solvers, and they like to just jump in and start working. In the third edition of my Legal Project Management Quick Reference Guide (page 15), I quoted the executive director of an AmLaw 100 firm (who preferred to remain anonymous) about the ambiguities in a typical engagement letter: 

The scope of work often contained in our engagement letters is generally no more than one or two lines.  Lawyers are missing an opportunity to clearly specify the scope of what is included in each matter, and what is not.

And even if an engagement letter is well defined, there is the question of who sees it.  A senior executive at different AmLaw 100 firm (who also preferred to remain anonymous) recently did an informal survey of senior associates during a talk he gave on LPM.  He asked very simply:  How many of you have seen the engagement letter on the matters you’ve worked on lately?  Only 1 in 4 raised their hands.  To put it another way, 3 out of 4 of these lawyers had no way of knowing what was in scope, and what was not.  When this executive later shared those results with a group of partners, “they were horrified.”

Any system that requires lawyers to classify some hours as out of scope starts with a huge benefit, simply by requiring lawyers to be clear about the distinction. 

At Bilzin, at the beginning of key matters they now post the statement of scope on their intranet, where every team member can review it.  Then lawyers are required to record each hour worked under two different codes in their accounting system for each matter: one for work within scope, and the other for work that falls outside scope. 

As Bilzin partner Al Dotson summed it up:

Keeping the scope of work top of mind has many benefits.  The tactic of tracking out of scope work requires:

• An understanding by all billers to the file as to what the scope of work is
• An ongoing recognition of the status of the matter and when a task is out of scope, and
• An understanding of the protocols to be followed when out of scope work is requested or done.

This benefits both the client and the law firm and often is the basis for clearer communication before there is a problem.

At Baker & McKenzie the procedures are a bit more complex, as you might expect at a firm with more than 4,000 lawyers in 73 offices around the world.  According to Stuart Dodds, the firm’s  Director of Global Pricing and Legal Project Management, some groups use the same approach as Bilzin, while others have developed task codes that provide additional detail.  For example, in an M&A deal, a particular type of due diligence could be in scope or out of scope, depending on exactly what is involved and what was expected and agreed to.  Some lawyers therefore have two task codes for due diligence, one for in scope, one for out of scope.

Whatever system is used, Dodds said, tracking improves awareness, internal management and external communication.  If the responsible attorney sees the number of hours beyond scope growing, it is a warning sign to report back to the client and ask “how do you want us to proceed?” before the number gets still higher.

“There are many ways to accomplish this coding,” Dodds said in a recent interview.  “We don’t want to be too prescriptive in defining the details.  The battle right now is getting lawyers using a tracking system they are comfortable with. The key to success is to keep it simple.”

 

Today’s publication of the third edition of the LPM Quick Reference Guide

The first two editions of my Legal Project Management Quick Reference Guide were purchased by firms with over 85,000 lawyers.  Today we are publishing the third edition, which adds over 100 pages of new tools and templates that law firms are using to increase client satisfaction, new business, and profitability.

Last February, I published Legal Project Management, Pricing, and Alternative Fee Arrangements to explain WHY firms are focusing on these new areas.  This 226-page Quick Reference Guide is a companion volume and is the only book that explains HOW to implement LPM.

A number of sections were written by 13 contributing authors, including lawyers that have been leading the LPM movement at such firms as Squire Sanders, Morgan Lewis, McDermott Will & Emery, and Valorem. The book also includes a complete list of the readings and assignments from our Certified Legal Project Manager® program.  Readers of this third edition can now complete much of this program on their own, without signing up for certification.

See the book’s description on our web page for reviews by noted experts a description of what’s new in the third edition, and a downloadable free excerpt.

Sample assumptions for defining scope (Part 2 of 2)

This post was adapted from the new Third Edition of the Legal Project Management Quick Reference Guide. It was written by Steve Barrett, Mike Egnatchik, and Jim Hassett.

 

Scope assumptions

• Based on the attached breakdown of work, we will analyze the legal and factual issues presented by the complaint (including preliminary witness interviews), prepare a memorandum of law in support of a motion to dismiss, analyze ABC’s opposition brief, and prepare for and argue the motion for a budgeted cost not to exceed $XX in legal fees


• Alternate Dispute Resolution (ADR): If we determine to pursue ADR, the budget includes preparation and participation in mediation. The budgeted number assumes a one- to three-day mediation session, the negotiation of a settlement agreement, and limited discovery.


• Fact investigation and development: The budget includes preparing for a case management conference, making initial disclosures, propounding and responding to discovery requests, preparing documents for production and reviewing produced documents, negotiating a confidentiality agreement, and preparing for and attending fact depositions

 

Discovery budget assumptions

• To the extent mediation is unsuccessful, the case will move into the discovery phase. For budget planning purposes, we have further divided this phase into the following three parts: (i) pre-trial planning, (ii) offensive discovery, and (iii) defensive discovery. Our estimated cost for the entire discovery phase is $XX. 


• A breakdown of this estimate is set forth on the attached spreadsheet. There are several key assumptions in this cost estimate, including: (i) each side will depose no more than five witnesses; (ii) all discovery disputes (if any) will be resolved without court intervention; and (iii) we will not seek third party discovery. These assumptions are reasonable in light of the circumstances of this case; however a change in circumstances may impact the estimated costs.


• Expert Discovery: The budget includes preparation of expert reports and rebuttal reports (we currently estimate a total of three reports to cover the issues of infringement, patent validity, and damages) and preparing for and attending expert depositions. This budget does not include any fees for experts.


• Document Review: All required documents are readily accessible and in a machine readable and searchable electronic format. If a significant fraction of the documents are available ONLY in hard copy format, client agrees to reimburse firm for converting the material into readable/searchable electronic form. If such conversion is not possible, or if documents are damaged beyond acceptable scanning standards, the firm and client will negotiate a formula for their manual review.


• Case preparation includes:
  •  Analysis of complaint and motion to dismiss
  
  
  • Factual investigation
  
  
  • Preparation of discovery requests and review of discovery responses by opponents
  
  
  • Motion to compel discovery (assumes one such motion)
  
  
  • Review of documents produced by the other side (assumes opponent’s production is XX pages)
  
  
  • Responding to opponent discovery requests
  
  
  • Review and production of our documents (assumes production is XX pages)
  
  
  • Responding to the opponent’s motion to compel (assumes one such motion)
  
  
  • Preparing our witnesses to be deposed (assumes XX witnesses)
  
  
  • Preparing for and taking opposition depositions (assumes XX depositions)
  
  

Transaction budget assumption

For purposes of the fee proposed, we have made the following assumptions:

• The target does not have any material or significant legal/regulatory issues that necessitate material or significant changes to the transaction structure or require extensive additional due diligence


• Opposing counsel is sophisticated and knowledgeable in these matters


• Negotiations will take place in [insert city]


• Transaction documents will be executed within XX weeks and the transaction will close within XX weeks from the time of engagement of our firm for the transaction


• Each transaction document will be “turned” in three passes or less


• Diligence documents will be provided electronically or delivered to our firm’s XX office 


• A tax diligence and opinion letter will be delivered by ___ or another leading accounting firm to be mutually agreed upon

Sample assumptions for defining scope (Part 1 of 2)

This post was adapted from the new Third Edition of the Legal Project Management Quick Reference Guide. It was written by Steve Barrett, Mike Egnatchik, and Jim Hassett.

 

These posts provide sample wording for various assumptions and exclusions that may be used as a reference to define, qualify, or limit the scope of work in an engagement letter or to plan for any legal matter.

Law firms need to protect themselves by being careful about phrasing assumptions. But if the list of carve-outs gets too long or too specific, it can annoy the client and lead to lost business.

Unfortunately, there is no simple general way to create assumptions that balance client needs and firm needs. The details must be worked out case by case. This can be especially difficult in a highly competitive environment, if clients take advantage of the awkwardness of this negotiation to pressure firms to agree to budgets and fixed prices without adequate protections.

These samples may be especially appropriate when providing budget estimates to clients where key details are not known, such as:

• Number of deponents, expert witnesses, consultants, etc.
• Number of document turnarounds
• Volume of document production requests from investigative agencies
• Quantity and physical condition of discovery materials (electronic, hard-copy, or poorly preserved documents)

For these and similar situations, law firms should develop general standards for use of the sample wording. Firms must constantly balance the level of written detail needed for self-protection vs. the business demands of good client relations.

Lawyers sometimes tend to err on the side of including assumptions and exclusions that protect themselves too well, and could wind up losing the business as a consequence. Excessively protective language in a highly competitive marketplace might result in the client saying, “Never mind. I’ll hire a different lawyer.”

The samples below are designed to give you some ideas about how to word assumptions, exclusions, and carve-outs for your clients.

 

Catch-all statement for material changes

This statement of work, together with the assumptions and tasks provided, is the basis for our budget estimate.  If there are material changes, it may be necessary to negotiate appropriate budget adjustments.

 

General assumptions/carve-outs

• Matters not covered above in the “Activities” column of the attached spreadsheet are excluded from the budget 
• Reimbursed costs and expenses are excluded from the fixed fee
• Local and foreign counsel fees and expenses are excluded from the fixed fee
• Any material change to the transaction structure will be handled at the firm’s prevailing hourly rates
• If the closing date of the transaction occurs after [insert date], work conducted past that date will be handled at the firm’s prevailing hourly rates
• An electronic “deal room/litigation room” will be created for the use of all client personnel and relevant counsel and related entities, in which electronic datasets will house all documents produced, including segregation of privileged materials
• Documents sought for discovery and/or due diligence purposes will be readily available in electronic format
• All critical deal/litigation documents will be reviewed and revised in no more than three “turns” of drafts
• The agreed budget does not include risk factors such as extended negotiations on the bank commitment or requirements to increase the level of due diligence as a result of issues uncovered during the due diligence process
• The agreed budget does not include due diligence beyond one week, due diligence in specialized areas (such as employment, IP, IT, environmental, insurance, litigation, competition, real estate), a formal written due diligence memorandum or exceptions summary
• We anticipate that three experts will be needed for researching, vetting and selection, and deposition preparation and/or report analysis

 

Additional examples will appear next week in Part Two of this post.

Business development tip of the month: Follow up

There’s no way around it: business development takes time. To build new business, you must follow up, week after week, month after month, and year after year.  As Jeffrey Gitomer sums it up in The Sales Bible: “Most sales are made after the seventh no…It takes 5 to 10 exposures (follow-ups) to a prospect to make the first sale…[so] you’d better have what it takes to persevere through the follow-up process and not quit.”

 

The first Wednesday of every month is devoted to a very short and simple tip like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. This month’s tip was adapted from my book the Legal Business Development Quick Reference Guide.

Are blended rates alternative fee arrangements?

Blended rates are 100% hourly arrangements, in which a single middle rate is charged for senior lawyers who normally charge more and junior lawyers who normally charge less. Whether the client or the firm benefits from this arrangement depends on the actual numbers in a particular situation.

For example, consider a case that is expected to require 100 hours of senior time at an average of $500 per hour ($50,000) and 100 hours of junior time at $300 per hour ($30,000), for a total of $80,000. A firm might offer a blended rate of $350 per hour, which reduces the predicted cost of the matter to $70,000 ($350 times 200 hours).

But now suppose that once the matter is underway, the firm discovers that almost all the work could actually be performed by more junior lawyers. If the senior lawyers only need to spend 20 hours supervising the matter (which would have cost $10,000 at the original rate of $500 times 20 hours), and junior lawyers put in the other 180 hours (which would have cost $54,000 at $300 times 180 hours), the client who pays the blended rate will actually pay more ($70,000) at the blended rate than they would have at the non-discounted rate ($64,000).

Now you could argue that it’s still a win-win, because if the firm had not offered blended rates, senior lawyers would have delivered 100 hours out of the 200. The client won by paying $70,000 instead of $80,000, and the firm won by charging $70,000 instead of $64,000.

From a marketing perspective, that is a terrible argument. In essence, it implies that senior people never should have been doing the work in the first place and the client must agree to be overcharged a little in order to avoid being overcharged a lot.

Blended rates invite gamesmanship, as individual lawyers may be tempted to manipulate predictions to maximize profit. And they encourage the use of more junior level lawyers, even when it may not be to the client’s benefit. Here’s how the general counsel at Marriott International described his unhappiness with his blended rate experience:

The law firm only assigned to the matter those lawyers whose regular hourly rate was at or below the blended rate, and more senior lawyers were unwilling to engage in significant supervision.

We will leave it to others to argue about whether blended rates are a good thing or a bad thing. In this context, what is important is that there is a philosophical difference between two types of alternative fee arrangement (AFA) definitions: narrow and broad. Our LegalBizDev Survey of Alternative Fee Arrangements used the narrow definition which reserves the term AFAs for fees that are fully or partly non-hourly. In contrast, when ALM published its AFA survey last year (Speaking Different Languages: Alternative Fee Arrangements for Law Firms and Legal Departments) they used the broad definition which includes blended rates.

People feel very strongly about which definition should be used. When members of our Advisory Board reviewed a draft of my book Legal Project Management, Pricing, and Alternative Fee Arrangements, some said that we made a mistake and that blended rates should be considered AFAs. Others said we made the opposite mistake and needed to be much more forceful in explaining that “blended rates are not alternative fee arrangements and are no different than discounting.”

The fact that two conflicting definitions of AFAs are in wide use adds considerable confusion to an area that was already confusing enough. If a firm claims that 50% of its work is performed on an alternative fee basis, that could mean that they are moving away from the billable hour (under the narrow definition), or it could mean that they are engaging in some creative hourly rate discounting (under the broad definition).

Some have a vested interest in maintaining this confusion. Announcing that a firm offers 50% of its work on an alternative fee basis sounds much more thoughtful and less desperate than saying, “Half the time, we have to slash our hourly rates because we need the business.” 

 

This post was adapted from my book Legal Project Management, Pricing, and Alternative Fee Arrangements.

 

Press release: Altman Weil and LegalBizDev announce new strategic alliance

NEWTOWN SQUARE, PA and BOSTON, MA,  April 23, 2013:  A new strategic alliance was announced today by Altman Weil, Inc., the leader in legal consulting since 1970, and LegalBizDev, the thought leader in training and advising lawyers on project management and business development.

The two consulting firms will remain independent entities, but will work side by side on selected client matters to provide solutions that fully integrate Altman Weil’s strategic advisory services with LegalBizDev’s tactical expertise. 

“Law firms face a dual challenge in 2013 – to deliver greater efficiency and value to current clients, and to win new clients in a contracting market.  LegalBizDev equips lawyers with practical tools and training to accomplish both,” said Altman Weil principal Thomas S. Clay.  “In our work with law firms, we often see a disconnect between strategic intention and bottom-line results.  LegalBizDev helps lawyers translate good strategy into effective action in these critically important areas.”

“The firms we work with increasingly ask us about the larger strategic implications of a more competitive legal marketplace,” said LegalBizDev founder and president, Jim Hassett, Ph.D.  “Should firms re-evaluate their overall marketing strategy?   Should lawyers be compensated for efficiency instead of for billing more hours?  How should practice group leaders manage these changes?  These are exactly the type of problems that Altman Weil has been solving for decades.  This new alliance will enable us to offer integrated services that align individual execution with firm-wide strategy.”

About Altman Weil, Inc.: For more than 40 years, Altman Weil (www.altmanweil.com) has been providing a broad range of strategic services to law firms and corporate law departments throughout the world.  The company has a deep understanding of how legal organizations work, and decades of experience working with lawyers to solve problems, enhance performance, and improve profitability.  Altman Weil provides advice on strategic planning, practice group management, client surveys and custom benchmarking, lawyer compensation systems, and more.

About LegalBizDev: Boston-based LegalBizDev (www.legalbizdev.com) helps law firms enhance client satisfaction and increase profitability by improving project management and business development. Since 1985, the company has offered award winning training, coaching, webinars, workshops, retreats, train the trainer programs, publications, and more.  Next month, LegalBizDev will publish the third edition of its Legal Project Management Quick Reference Guide, the most widely used reference in this rapidly growing field. The book was written by Hassett with 13 contributing authors and will feature dozens of tools and templates that law firms can use to increase efficiency, client satisfaction, value, and profitability.

 

Closing (Part 2 of 2): When should you ask for the business?

A lawyer that I was coaching once said that she wanted to spend more time “learning how to close.” It’s a request I’ve heard repeatedly, not just from lawyers but also from sales professionals.

Often, when people ask this question, what they really mean is, “What can I do to get new business faster?” I know, because many years ago when I hired Don Schrello as my first sales coach, that’s what I asked him. I still remember his reply: “Jim, selling takes time. You can’t make the corn grow faster because you’re hungry.”

Closing may be the most controversial part of the selling process. There are two main schools of thought, and they could not be farther apart.

The old school preaches that you should “close early, close hard, and close often.” In this view, the ABC of sales is Always Be Closing. If you’d like to dig into this school of thought, see Zig Ziglar’s book, Secrets of Closing the Sale: 410 pages of techniques with names like the Three Question Close, the Presidential Close, and the Nieman Marcus Close. And if those don’t work, you can try the Challenge Close, the Opportunity Close, the Kreepy Krawly Close, or dozens of others.

Do these names remind you of all your worst fears about the tackiness of selling? Me too. And we are not the only ones. They also offend many sales pros.

I’ve written before about my respect for Neil Rackham’s research. His book SPIN^® Selling has an unfortunately misleading name, but more data than any other sales system. Near the beginning of the book (page 6), Rackham wrote that the professionals who sell complex products and services:

Complain that traditional sales training treats them as if they were selling used cars. What’s worse, it treats their customers as simpletons waiting to be exploited by verbal trickery and manipulation.

Rackham belongs to the new school of “consultative selling.” When he did his first study of closing several decades ago, Rackham observed 190 sales calls for a company that sold complex and expensive office equipment. (I suspect it was Xerox.) In each call, he simply counted the number of closing behaviors each salesperson tried. When Rackham later looked at which clients actually purchased the equipment, he was surprised to find that salespeople who used a low number of closing techniques (an average of 1.4 per visit) got more new business than people who used a high number (5.8 per visit).

So he did another study. This time he measured the effects of training to improve the closing skills of 47 professionals at a high tech company. The good news was that the training was quite effective in getting professionals to use more closing techniques in each call (3.2 closing behaviors per call before training vs. 5.6 closing behaviors per call afterwards). The bad news was that when people closed more aggressively after the training, sales went down.

This led to a third study. This one was in a chain of photographic stores that sold both high cost and low cost items. Again, people completed training to use closing techniques, and again, Rackham looked at actual sales. With high cost items, the results were the same as before: more training led to more closing actions and fewer sales. (Low cost items were different. But I don’t think those results are relevant to lawyers, unless they are billing less than $10 per hour.)

Does this research imply that you should never again “ask for the business”? Of course not. As Rackham Page 38) summed it up:

It may sound as though I’m saying that you shouldn’t try to close the sale—that because closing techniques are ineffective, you should somehow wait for the sale to close itself—but clearly this doesn’t work either.

He goes on to nod towards lawyers (page 39) when he says:

If the overuse of closing is a problem in many industrial and capital goods sales, then its total absence may be an equally severe problem in some service industries.

The trick is to find the balance. If you never ask, you will never receive. But if you ask too much, it will do more harm than good.

 

This post was adapted from my Legal Business Development Quick Reference Guide. 

Closing (Part 1 of 2): Can you learn to close faster?

Do you want to learn how to close new business faster? Me too. But we can’t.

Teaching people how to close deals faster is a little like teaching gardeners how to pick tomatoes. Picking them isn’t the hard part. The hard part is growing them.

Selling is a process of growing a relationship to a point where the close will come naturally. Buyers have their own timetables, and their timetables are more important than yours. Selling is a process that can’t be rushed.

What you can learn is how to keep the process moving, how to avoid spending too much time with people who will never buy, and how to maximize the chances that the process ends the way you want it to, with the close belonging to you, not to a competitor.

In the book Stop Telling, Start Selling: How to Use Customer-Focused Dialogue to Close Sales, Linda Richardson conceptualizes the selling process as a series of “small c closes,” each measured by an achievable objective, such as getting an appointment with a line manager who will influence the decision to engage a particular law firm.

Each small c close must flow logically in a developing relationship. Doing your homework and preparing a list of general milestones will help you ask for that line manager meeting exactly when you most need it, and are most likely to get it. (Note the resemblance between Richardson’s “small c closing” and Neil Rackham’s concept of advances.) 

If you ask for the meeting and get turned down, then you can ask a backup question about when you could meet a key manager. That answer may reveal other homework you need to do to get the business. If the client says, “Not until I learn more about your costs,” you know you’re still being auditioned for the work. If the client says, “As soon as I can arrange to bring in my boss,” you know you’ve made important progress.

You should also ask what other concerns the client may have, and ask it religiously. This question will often uncover issues that need to be resolved before the selling process can get to what Richardson calls the “capital C close” of actually signing a new engagement.

When you get near to that capital C moment, Richardson suggests asking questions regarding time frame, budgets, and the decision process. You can also ask whether there are any lingering questions about working with your firm. After you resolve them, that is the moment to ask for the business.

If the client isn’t ready to say yes at this point, use the opportunity to ask what else needs to be done before you can get started, and probe about what caused the hesitation. And when you find out, work on getting the client to feel confident that you can help them solve those problems too, and ask for the close again.

Richardson says that second, third, fourth efforts “don’t have to be hard sell. […Clients] want to do business with people who really want to work with them.” Your job is to make it clear how much you care, and why they should work with you.

 

This post was adapted from my Legal Business Development Quick Reference Guide.  

Business development tip of the month: Measure results

The business development tactics that work with one client may fail with another. What works for you may fail for your partner. And what works this year may fail next year. Markets change, people change, and fashions change. The only thing that does not change is the need for testing. As it says in the New Testament, “test everything, retain what is good.” (1 Thessalonians: 5:21)

 

The first Wednesday of every month is devoted to a very short and simple tip like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. This month’s tip was adapted from my book the Legal Business Development Quick Reference Guide.