Project management and alternative fees (Part 2 of 3)

This continues our three part series on how law firms are using project management to improve performance, based on the results of our national survey of alternative fees.


Effective management starts in the bidding process, when law firms define the scope of what will and what will not be included in each agreement:

If [a firm is] going to do [alternative fee] pricing arrangements, they need to define the approach and staffing ahead of time.  They scope the project, they scope the engagement, they scope the matter much better, and that results in a couple of [improvements].  One, the firm and client are more cognizant as to what’s going to happen, and two, that process forces [the firm] to engage in a protracted series of discussions that allow them to get to know the client better and also to demonstrate their confidence.

[You must] understand the assumptions that underlie any of these fee arrangements, because at the end of the day, that’s what makes them work or not work. And getting our people to be explicit with the client about that is one of the keys to [success].

But defining scope in writing is just the start.  Alternative fee projects must be closely managed every step of the way:

Lower rates are not going to provide more value to the client, but better management will.

Get the right people on the job, get a good plan.  Don’t put an overqualified person on the project just because they happen to be available.  It has to be a core competence, and they don’t teach that in law schools today.

We really need to manage the matters much more closely than we ever did before, make sure that they’re being staffed and handled efficiently.  Clients don’t want new lawyers working on their matters.  Rather than have a first-year associate spend ten hours researching something, they’d rather have a senior partner spend half an hour and solve the problem.

The more aggressive a bid is, the more pressure there is on the lawyers managing the matter to be efficient and to staff the matter at the lowest possible level.  The pressure is a good thing.  It forces lawyers to take a hard look at costs and benefits.  Is it really necessary to proofread that agreement eight times?

The most important thing to make [an arrangement] work is familiarity with the client and having a stable team who has done this before.

In order to assure that projects get completed within budget, it is absolutely critical to track spending as it occurs.

It’s important to closely keep track of the budget or else you might be unpleasantly surprised. 

You have to train lawyers to work in alternative fee situations.  Many of them don’t really know how much projects cost, so you have to get them used to the budgeting.  It’s very easy to go wrong.

This will require new habits and new tools:

In order for lawyers to really make a sea change in terms of alternative fees, they need to have the infrastructure and systems to support that. And that’s going to include things like project management tracking [and] being able to assign hours to projects.  While the current systems may accommodate that in some fashion, there are some real deficiencies.  The vendors are not there right now, [either,] and they’re going to have to catch up to what’s going on there too. In many cases, we’ve got some of the best accounting systems on the market, and [the vendors] just don’t have that capability. They haven’t anticipated that need yet. 

Firms are approaching this in a variety of ways:

In each of these alternative fee arrangements where there’s a fixed fee and we’ve got to watch and make sure that it does not become unprofitable, we assign a senior partner to manage the relationship. They get monthly reports from our finance group that show them exactly where we are against the retainer.

It’s very important for the firm to keep track of the fees during the project, and for partners to be aware of where they stand.  We have an internal system to keep lawyers informed when a cap is approached; “You are at 75% of the total fee.  How do you see the rest of the project going?”

On a daily basis, the supervising partner can look at how [a case] is being staffed, and how the costs are running against the budget. It’s an area that we have to get much better at, because if we don’t manage for efficiency, alternative fees do end up being a loss leader.

Some firms have developed quite sophisticated new tools to improve tracking:

Our firm has a web-based cost management tool that we use to provide near real-time cost updates, including unbilled time, to clients once a week.  The tool includes a Surprise Avoidance Alert to help both the client and the law firm avoid cost surprises.

Those tools include, on the front end, some fairly extensive profitability analyses that focus on optimal staffing from a cost standpoint and enable us to price more appropriately.  It includes fee alerts.  We’ve built systems so that partners can indicate that they want to be notified every time we bill another $25,000.

We’re building dashboards where partners can look at all of their matters and put in budget, fixed fee and fee cap information and then monitor their status. We do a lot of enhanced reporting that looks at performance relative to budget, including broken down by practice area, by timekeeper, by office.  We have staff who assist partners with the analysis side as well as the ongoing monitoring.

We offer online tracking of all the matters we are handling, so that someone in-house can go to a secure extranet site that allows him or her, just by clicking, to check on the status of any one of these matters. That makes it incumbent on us to keep the site updated very regularly, and to know where we stand on all active matters.  Such updating allows us to report where we are and also to assure that none of them becomes a runaway project or goes off on a tangent.

We report other substantive matters as well, [such as] where a case stands procedurally, [and] what settlement offers we have had. We set these up as interactive sites.  It varies with what each client wants and the types of cases or deals involved, but we want them to know what has gone on most recently and to be able to respond. For example, in a lawsuit, if people are out in the field taking witness statements, they will enter a report on the extranet site, and in-house counsel can see that report immediately by just clicking on it. [The client reaction] varies. Some really love that immediate interaction, and some [just] want to talk once every week or so.

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