Project management and alternative fees (Part 3 of 3)

This week’s post concludes our series on how law firms are using project management to improve performance on alternative fees, based on the results of our national survey of alternative fees.

Project management systems may reveal some hidden traps in the way lawyers deal with alternative fee projects:

It takes a lot of discipline to manage a contingent matter.  When lawyers track hours on a traditional hourly project, they know that clients will review the results, and that creates a certain discipline.  On contingent matters, lawyers may think no one will look at the hourly record for years.

One of the lessons [we’ve] learned is that somebody has to be the point for cost control. It often happens that alternative fee matters, particularly large ones, [end up being] a dumping ground for individuals who may not be fully employed because you are reportable to the client for the result, not the cost.  [When lawyers work unnecessarily on a project] your profitability looks bad, so in order to really determine the profitability, we need to deal with that issue. 

Project management also requires an understanding of the differences between clients, and the people skills to manage relationships:

The better you know the client, the better you can predict the outcome of the situation. For example, an experienced lender will know how to manage a project and relationships with other banks to get a deal done.  But other clients have difficulty reaching consensus, which slows the process and increases the cost.  [It helps to know] what kind of client we are dealing with in terms of experience level [and] assertiveness.

It is risky doing deals with a client who will fight with you over the scope.  You put in sentences about how you’re going to make equitable adjustments, but I always presume that there will be none, because there is a game of gotcha out there.

The art of managing a large relationship and a large project requires an eye on the relationships and the ultimate goals.  The best project managers I have seen understand that some give and take [is needed].  An ability to reach quick and practical agreements is far preferable to a consistently contentious relationship which generally increases costs and produces unsatisfactory results.

Managing client relationships begins with communication:

The more the client knows about what the attorney is encountering, either in the context of what’s going on in a deal, or in the context of how the fees are accumulated, the better this works.  If you incorrectly assume that the client knows what’s going on, it can cause a fight when the work is done and the fees are to be collected.  It is critically important to keep track of when assumptions are violated [and to tell] clients immediately.

Communication is particularly vital when it comes to change orders – formal agreements that the scope of a project has changed in a way that also changes the budget:

The communication aspect between a partner and the client as the deal progresses is very important. You can’t wait until the end to talk about all the change orders. You really can’t be afraid to address these issues, [and] a lot of partners [are].

The American Institute of Architects has a standard form for a written change order if you change a design [during a construction project].  But I deal with partners all the time, [who] say that they changed something and that the client acknowledged the change.  I ask, “Is it written anywhere?” And the answer is no.

It is also useful to continue communication even after a project has been completed:

At the end of each alternative fee matter, post-action autopsies of your work are extremely valuable for two reasons.  One is that it helps internally to understand how much things actually cost, [since] they don’t teach you in law school what a deposition should cost.  The other reason is that we discuss the results with clients, to get their sense of what’s worked and how they perceive value.

There are two parts [to succeeding with alternative fees]. One is structuring the deal in a way that people are satisfied with, and two is managing to that deal.  The second is no small task; it takes the right person and very regular monitoring. What we have found effective –and this goes back to partnering with the client – is a prearranged sit-down in which we review where we are in six months, and another six months after that, and be sure the arrangement looks fair to both parties.

Clearly, the process of managing alternative fees is a large undertaking.  But it is also vitally important, and the benefits are obvious:

The things that are healthy about this trend are that it requires closer management of the work, which we ought to be able to do, and [which] is really a better way to operate than just letting everybody loose.

I am not sure lawyers in general are built for this kind of management.  Those who can find a way to manage alternative arrangements effectively are going to have a competitive advantage. 

As one participant succinctly summed it up, “If we teach our people to manage, we can make more money.”

This three part series 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.