114 posts categorized "Alternative Fee Arrangements"

January 20, 2016

How to improve the process of defining legal scope:  The case of Levenfeld Pearlstein (Part 2 of 2)

By Gary Richards and Jim Hassett

Managing partner Rob Romanoff provided a specific example of how our scope workshop related to an ongoing matter where a client requested some work for a flat fee:

This was in an area where we typically work on an hourly basis because there are so many things that can’t be predicted.      We only represent one of the parties, and we don’t know the other party’s lawyer, so this could go on a while. But in the email where our client said he wanted us to do this work, he repeated more than three times that he wants it done for a flat fee…

One of my partners who wasn’t at the scope workshop said “we really can’t do this for a flat fee.”  My response was that the client had made it very clear he wants a flat fee. We can’t simply say “no”!

So the pricing partners broke down the core phases with a detailed analysis of scope, and we agreed to work on a flat fee basis for drafting the documents. When we begin negotiating with the other party’s lawyer, at that point it will be billed on an hourly basis going forward.

It could be a win-win both for the client, in terms of certainty of costs, and for us, either not being taken advantage of or having to take on all the risk that the other lawyer will delay the process and drive up the fees. 

David Solomon, another workshop participant and a partner in the Corporate & Securities Group offered a different fixed fee example, and explained how the course had led him to refine and improve a process that the firm was already using:

In the past, we have set up our budgets based on a pricing matrix which combines our experience with some input from our pricing people. Then I’ve been putting together simple intuitive spreadsheets to show the client the status of the budget and taking time with our bills to allocate out all of our time to each bucket of the project. Then I’ve been sending it to the client without any editorial comments.

But for the last couple of project budget status reports since the workshop, I’ve sent quite a few editorial comments about exactly where we are, especially if we are higher on certain things, and telling them where I predict we’re going to be. This helps set the stage for when there may be scope changes, as opposed to waiting until there actually has been a scope change. It’s been very effective.

Stuart Kohn, Head of the Trust and Estates practice group, gave another example of how the workshop helped him improve a process that was already in place:

A lot of the work we do for estate planning is based on flat fees that cover creating the documents.  But for work after they sign, such as funding their trust, we bill them hourly. We state that in the engagement letter, but I think the need to have the conversation again to remind them and to clarify is really important, and that was a good highlight of the workshop.

Also, we already use an estate administration checklist internally to guide our work and activities on a matter. But now we will take that one step further and incorporate that description of our work into the engagement letter.

Another key reminder was that it is better to talk with the client along the way about scope changes as opposed to waiting till they get a bill and complain, and we deal with it after the fact.

Overall, I thought it was a great workshop. Incredibly helpful!  The materials are really valuable and I have gone back over them a couple of times.

The benefits of the program extend not just to client interactions, but also to internal communications within the firm.  Marc Fineman noted that:

The value of a specific scope statement carries over to delegating and supervising tasks that are assigned to others. That means that you have to 1) give people on your team the benefit of knowing the scope of work that has been developed and 2) make sure that they operate within that scope of activities… so that things don’t go off the rails. I realized after the workshop that this is something I need to work on myself, and I’ve already started.   

Similarly, David Solomon reported that:

I can have it all in my head and know what the budget is, but everybody that is working on it also needs to know. So at our last team meeting, I showed everybody’s budget, how it was spread and especially in their particular area. And I urged them “…when something seems to be going awry, raise your hand and tell me.”

I certainly think the team will benefit from seeing the entirety of what has to happen, and this will help get their agreement/ buy-in to all the things that go into the plan. Also, their involvement will help me to make sure that when I’m creating a budget I’m not forgetting something.

Executive director Angela Hickey summed up the workshop’s benefits as follows: 

Instead of avoiding conversations about scope, our partners now recognize that this is a business process and that it only gets better with more give and take, as opposed to just hiding from the discussion, and hoping it all will work out in the end.

In addition, the workshop tips for how to handle a fee increase negotiation has had a positive impact on our partners to rethink the client relationship. I heard some light bulbs coming on in conversations among our partners when they discussed how negotiating is sometimes a natural part of the process. It’s not distasteful, it’s not bad, it’s something that we should embrace, expect and plan for. And it does not have to be adversarial. It could, instead, be a way to get to every party’s interests.

After all, it is a business transaction and most clients are used to negotiating the terms of everything: contracts, agreements, standards, and processes. Clients don’t find it distasteful to negotiate. It’s just business as usual.

December 30, 2015

Alternative fee arrangements: The state of the art (Part 4 of 4)

Whether one uses a narrow definition of AFAs or a broad one, from a law firm’s business perspective, one of the most important questions about AFAs is whether they are profitable.

In 2002, the ABA Commission on Billable Hours Report (American Bar Association, 2002) predicted that the non-hourly approach would be a financial boon to law firms: “Alternatives that encourage efficiency and improve processes… increase profits.” 

Many consultants love to spread this good news message, and when law firms and law departments talk publicly about the topic, they too often focus on the upbeat side. For example, James D. Shomper and Gardner G. Courson argue that “if properly structured, an alternative fee arrangement should result in a win-win scenario for client and law firm.”

To cite another example, a New York Times article about alternative fees quoted Carl A. Leonard, a former chairman of Morrison & Foerster, about AFA profit potential:

In one case... Morrison & Foerster negotiated a fixed fee for defending a company in court, covering work up to the point of a motion for summary judgment.

On top of the fee, if the case settled for less than what the company feared having to pay if it lost in court, the law firm got a percentage of the amount saved. The arrangement made sense when the goal was to resolve the dispute quickly....

Lawyers on the case negotiated a settlement for much less than the client’s worst-case number, Mr. Leonard said. “The effective hourly rate was something like 150 percent of our hourly rates,” he added. “We made money, the client was happy.” 

However, the data suggests that such happy outcomes are not the norm. It can be very hard to turn fixed prices into win-wins, especially in a highly competitive market.

Lawyers have been rewarded for their entire careers for putting in extra hours to analyze every risk from every possible angle. Many will have a hard time learning to deliver the quality they are comfortable with when they must work within strict funding limits. And law firm managers will have an even greater challenge when they try to juggle staff on dozens or hundreds of projects with constantly shifting deadlines. If a firm expects lawyers to bill 1,800 hours per year or more and shifts a significant portion of their work to a fixed price basis, many will find that goal unreachable.

One of the biggest pressures on AFA profitability is the fact that in many firms, lawyers are paid more if they bill more hours. Several participants in the LegalBizDev Survey of Alternative Fees noted that without proper management, AFAs can be seen as a giant loophole, a place where lawyers who have too little to do can bill as many hours as they like without risking client complaints:

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.

Some relationship partners we’ve worked with encourage associates to put in extra hours on AFA matters. Associate salaries are a sunk cost, the partners reason, so they might as well put in extra time to assure quality and client satisfaction on fixed fee matters. It’s more productive than Googling or staring out the window.

In the short term, they have a point. But in the long term, this type of thinking is highly counter-productive. It reinforces the bad habits created by decades of hourly billing and substantially increases the chances that AFAs will be unprofitable.

It is not surprising that systematic data on AFA profitability is hard to come by. Law firms are notoriously secretive about their finances, sometimes even with their own partners. And nobody likes to talk about their losses.

The best available data on the topic of AFA profitability comes from Altman Weil’s annual Law Firms in Transition Surveys. When the most recent survey asked, “Compared to projects billed at an hourly rate, are your firm’s non-hourly projects more profitable or less profitable?” the results were 16% more profitable, 38% the same, 32% less profitable, and 15% not sure.

Even more interesting were Altman Weil’s findings about which firms profited the most. When Altman Weil asked, “Is your firm’s use of alternative fee arrangements primarily reactive (in response to client requests) or primarily proactive (arising from your belief in the competitive advantage of alternative fees)?” about one-third said they were proactive (32%) and two-thirds classified themselves as reactive.

When Altman Weil compared AFA profitability for the two groups, they found that it pays to be proactive. For proactive firms, 29% of AFAs were more profitable, compared to 10% for reactive firms.

But if firms are not making more money with AFAs, why are they offering them? Because in today’s competitive environment, many feel they have to.

The perspective of law firms vs. law departments

When both inside and outside counsel talk about alternative fee arrangements, they will probably continue to accentuate the positive and focus on win-wins. People will speak most freely about the matters that make them feel good and look good. But in fixed price deals one side often wins a revenue concession and the other side does less well.

Consultant Jordan Furlong summed it up like this:

It may come down to how we define “winning.” I think a win-win alternative billing scenario right now might look like this: the client wins because it reduces its outside legal spend, or at least improves its legal cost certainty, and the law firm wins because it gets to keep the client for one more day. That’s not the kind of victory lawyers are accustomed to settling for, but I think they ought to get used to it.

In the ALM Legal Intelligence survey, when law departments were asked, “What role did receptivity to AFA pricing play in any changes your legal department has made to its

roster of outside counsel?” 49% said it had indeed played a significant role.

And when the same survey asked law firms to name the top benefits of AFAs, number one on the list was “Attracting or maintaining clients” (49%). (For law departments, the top benefit was “Cost predictability/transparency” at 44%.)

So it is not surprising that twice as many law departments (40%) as law firms (19%) said they were very satisfied with AFAs.

And when asked to predict the growth rate of AFAs by the year 2019, law departments predicted a greater increase in AFAs (34%) than law firms did (24%). They should know. The client is always right.

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016. 

December 23, 2015

Alternative fee arrangements: The state of the art (Part 3 of 4)

Before leaving the discussion of types of AFAs, it is important to note that the ALM Legal Intelligence survey also included the category of blended rate, which was reported by 39% of firms. These 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 AFA definitions: narrow and broad. These days most people use the narrow definition, which reserves the term “alternative fee arrangements” for fees that are fully or partly non-hourly. The broad definition used by the ALM survey and others also includes blended rates which are 100% hourly, but offer a single hourly rate that applies to all lawyers on a matter.

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 the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016.

December 16, 2015

Alternative fee arrangements: The state of the art (Part 2 of 4)

There is no universally accepted taxonomy for classifying all the possible types of AFAs, but there is good data on which types are most common. The graph below is based on a recent ALM Legal Intelligence survey and includes the seven most common types of arrangements:

Percent_of_firms_using_AFAs

The most common arrangement (reported by 60% of firms) is a fixed fee, which is a mutually agreed sum for a set of well-defined services. It could apply to a single matter or a portfolio of matters, such as a single fee for handling all of a Fortune 100 company’s US labor and employment litigations in a single year. In order to succeed with this approach over the long run, defining scope clearly at the start is absolutely critical. It also helps if firms have many fixed price deals, since they will surely win some and lose some. This arrangement can be risky with new clients until mutual trust and understanding has been established.

Next most common are contingent fees (43% of firms) which are paid only if the firm succeeds in producing a financial recovery or other mutually agreed result. This approach has long been used by plaintiffs’ lawyers, but it is now becoming more common for the defense to use as well.

With partial contingencies or success fees (37% of firms), a law firm typically receives part of an hourly fee or fixed fee, and a lump sum—or success fee—at the end of the matter, but only if it achieves a result desired by the client. Criteria for success fees are sometimes spelled out at length and sometimes left entirely to the client’s discretion. Clearly this can have the benefit of aligning the interests of clients and their law firms.

With capped fees (36% of firms), hourly rates are charged up to an agreed maximum amount for a particular matter. Beyond that, if additional work is required to complete the matter, the law firm pays for it. Of course, this is really just hourly billing with a twist: a hard limit on the maximum. Some lawyers see fee caps as the worst of both worlds—you can do worse than hourly, but you can’t do better—and refuse to do business this way. While this arrangement does clearly benefit the client more than the law firm, other firms see fee caps as an inevitable element of the changing legal landscape, and an important way to get new work.

Next most common are phased fees (30% of firms), in which firms have a separate fee—whether hourly or AFA—for each phase of a matter. This can be especially useful in situations where it is relatively easy to predict the amount of work required in the short term but where the long term need is uncertain. In essence, both the client and the firm agree on one predictable phase at a time.

Risk collars, the sixth most common type on this list (17% of firms), are in my judgment the most interesting, because they can truly align the interests of clients and law firms by offering incentives to both. The term generally refers to a billing arrangement built around an estimated budget for a particular matter in which the client pays a bonus if work is completed under budget and/or gets a discount if the work goes over the budget. The ways risk collars can be structured are limited only by the imagination of the lawyers involved. The table below provides six examples reported by interviewees in the LegalBizDev Survey of Alternative Fees. Example 1 is the “best” for clients and firms that want to share risk equally and fully align their interests.

Table

However, it must be pointed out that many clients want the law firms to take more risk. Indeed, in the ALM survey they did not ask about the familiar term “risk collar” and instead used the term “flat fee with shared savings,” which is a particular kind of risk collar in which client and firm share any savings if the hourly fees turn out to be less than a fixed fee. In this arrangement, if the hours exceed the fixed fee, only the law firm is at risk. Presumably this definition was selected by ALM because more firms are taking risks these days than clients are, since it is a buyers’ market. If they had used the more neutral and more common term “risk collar,” the total would have been greater than 17%.

Finally, the seventh and last type of AFA used by more than 5% of firms was the holdback (9%), an arrangement in which the law firm is guaranteed to receive part of its fees but where the other part is paid only upon achievement of a certain milestone or result. For example, a firm may receive 80% of its negotiated hourly rates while a matter is underway. At the end of the matter, the firm may be awarded the remaining 20%, or less, depending on the client’s satisfaction with the result.

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016.

December 09, 2015

Alternative fee arrangements: The state of the art (Part 1 of 4)

One of the main forces driving interest in LPM has been the growth of non-hourly alternative fee arrangements (AFAs), especially fixed fees. Nothing gets a lawyer thinking about efficiency faster than knowing that if they go over budget, they will have to use their own money to pay for the cost overrun.

In 2008, when the AFA buzz was first building, we interviewed senior decision makers at 37 AmLaw 100 firms for the LegalBizDev Survey of Alternative Fees. Those interviews revealed a significant split of opinion about the future of AFAs. At one extreme, some chairs and managing partners said AFAs could rapidly replace the billable hour in many practice areas. At the other extreme, some felt AFAs were just another fad that would soon fade away.

Since then, surveys have consistently shown that both extremes were wrong. AFAs have neither exploded in popularity nor disappeared. Instead, there has been slow and steady growth, year after year.

In its annual Law Firms in Transition Surveys for the last several years, Altman Weil has asked firms to estimate the change in non-hourly billing revenue. Since 2011, the percentage of firms who reported an increase in AFA revenue over the previous year has ranged from 43% to 58%, while only 1% to 5% have reported that AFA revenues went down.

Similarly, in the 2015 survey Who Really Drives AFA Use—and Why? ALM Legal Intelligence found that 40% of firms and 48% of law departments reported an increase in “AFA volume” the preceding year.

While most surveys in this area have been limited to the perspective of either law departments or law firms, this particular survey took the unusual step of interviewing both: senior managers at 197 law departments and partners at 114 law firms that use AFAs.  The complete survey includes data on such topics as reverse auctions, whether clients limit billing by first and second year associates, how often do they discuss an AFA but then decide to do hourly, who approves AFAs, what are the perceived benefits by firms and departments (quite different, not surprisingly), obstacles to growth, the use of software, task coding, ratings of law firm profitability and law department savings, and predictions for the future.

In the context of this post, the most important finding is that it is crystal clear that the use of AFAs is growing.  However, it is almost impossible to precisely determine the percent of law firm revenue they represent. There are many reasons this question is difficult to answer, including law firm secrecy about finances, disagreements over the definition of the term “alternative fee arrangements,” and the fact that some firms simply do not know. In the Law Firms in Transition Surveys, 6% to 13% of firms said they did not even know whether their firm’s AFA revenue had gone up or down the preceding year, much less exactly what the percentage was.

While we may never know the average percentage of AFA revenue for all firms, we do know that there are wide differences between firms. In Altman Weil’s most recent survey, about one quarter of firms reported 5% or less of their revenue came from AFAs, one quarter said 16% or more, and the remaining half fell between 6% and 15%. The median value of AFA revenue—that is, the mid-point, with half the firms above it and half below—was 10%.

While in some ways that may not sound like much, if you apply 10% to the $100 billion of annual revenue for the AmLaw 200, it implies that about $10 billion worth of legal work was performed on a non-hourly basis. And the figure is going up.

This post was adapted from the fourth edition of the Legal Project Management Quick Reference Guide, which will be published in October 2016.

November 25, 2015

New survey reveals how clients define value

Just about everyone agrees that legal clients are demanding greater value these days.  But what exactly do clients mean by “value”?  As a senior executive from one AmLaw 200 firm summed it up in my research for the book Client Value and Law Firm Profitability:

The truth when it comes to value is that I’m not sure what our clients mean. It means different things to different people.

While there will always be individual differences between clients, it is useful to start by knowing what clients in general mean.  Altman Weil’s recently published 2015 Chief Legal Officer’s (CLO) survey provides significant insights into this issue based on answers from 258 CLOs.   (Full disclosure: Altman Weil is a strategic partner of LegalBizDev, but I’d write about these findings even if we weren’t.)

From the law firm point of view, I think the most interesting question was “Rate the value to your law department of the following things law firms can do to better understand your organization.”  Here are the results:

Rank

Item

Average value rating*

1

Conversations with you about pricing / budgets

7.7

2

Conversations with you about matter management efficiency

7.3

3

Conversations with you about project staffing

7.0

4

Legal issue spotting and preventative law strategies (at firm expense)

6.5

5

Post-matter reviews

6.2

6

Industry research and issue spotting (at firm expense)

5.9

7

Formal interviews to get your feedback

5.0

8

Law firm participation in industry groups and events

3.8

9

Formal survey program to get your feedback

3.6

10

Visits from law firm management

3.3

* On a scale from 0 (no value) to 10 (enormous value)

If you are involved in legal marketing, it would be interesting to rate the time and money that your firm devotes to each of these ten items.  In my experience, most marketing departments are investing heavily in exactly the wrong things:  numbers 8, 9 and 10 (the old marketing), instead of numbers 1, 2, and 3 (the new marketing). 

Four of the top five items are examples of legal project management.  As I noted in my recent article for Bloomberg BNA’s Corporate Counsel Weekly Why Law Firms Must Change their Marketing Priorities, a few firms are headed in the direction of putting more emphasis on LPM, but most have not yet adapted to the changing needs of the marketplace.

Another important question in this year’s survey asked: “Of the following [ten] service improvements and innovations, please select up to three that you would most like to see from your outside counsel.”  The top three, according to 258 CLOS, were:

  1. Greater cost reduction (selected by 50% of respondents)
  2. Improved budget forecasting (46%)
  3. More efficient project management (40%)

It is worth noting that this question has been asked for the last several years, and these have consistently finished as the top three.  Since LPM leads to #1 and #2, and is the very definition of #3, I like to sum up the results by saying that what clients want most these days is LPM, LPM, and more LPM.

How well are law firms doing in meeting this client needs?  Not very well.  When CLOs were asked “In your opinion, in the current legal market, how serious are law firms about changing their legal service delivery model to provide greater value to clients (as opposed to simply cutting costs)?”  On a scale from 0 to 10, the median rating (with half the firms above and half below) was 3.  These results were almost identical to last year’s, so despite all the press releases law firms are putting out trumpeting their successes in increasing value, clients have not been impressed by the results.

The complete survey includes a great deal of additional information on law departments, and can be downloaded for free.  Now that’s what I call value.

 

November 11, 2015

LPM Case Study: Hanson Bridgett (Part 2 of 3)

By Jim Hassett and Jonathan Groner

 

Transactional partner Leslie Keil worked with coach Gary Richards to break down the work and costs involved in one client’s corporate reorganization.

“I worked with Gary to put task codes on every aspect of the matter,” Keil says. “The idea was to check on progress at every point and to build a very detailed budget. This worked well even though I had already given the client a fee estimate for the matter. But when I broke it down with Gary, the number of tasks on the list doubled, though my overall fee estimate remained the same. I identified tasks I hadn’t thought of before. That increased the client’s and my team’s understanding of the project and of its costs.”

In order to do this, Keil had to work with the associate and the paralegal on the project to review exactly what they do on a project like this and plan how long it would take them.

“Now we have a better idea of the work that will be delegated, and to whom, well in advance,” Keil says. “And we developed a spreadsheet and a template that can be used in similar matters. As an incoming partner, LPM is a very important skill to have these days.”

“One of the things that we can now do,” she concludes, “is to use these tools to review past projects so that we can see how much work was involved in each category and at what rates. This helps us understand our own costs and estimate better in the future.”

Adam Hofmann, a senior counsel who was coached by Natasha Chetty, says the main advantage of LPM is developing the mental discipline “to think about the process and better advise my clients, because we can predict our projects and costs in a more reliable way.”

Hofmann does most of his legal work for public entities such as local governments and special districts. One of his main practices is in eminent domain matters where the government is legally obligated to pay fair compensation for taking someone’s private property for public use. Often, the main issue is the value of the property and the amount of compensation due.

“Since most eminent domain cases go roughly the same way,” Hofmann says, “this type of practice is ideal for LPM. We lay out each step and who will do what – will it be me, someone else on my team, or the client? – at each stage. From the moment that the government decides that it needs the property, there is always a standard series of steps. So for each case, we want to identify early what are the tasks and who will take responsibility.”

“I had some idea of how this type of planning and standardization worked even before, but now, having learned from people who have been through it, I am even more motivated,” he says. “It’s good business, and it’s not rocket science.”

Hofmann says this “gives us an advantage over other firms that don’t use LPM. A client can now see behind the curtain a bit, so that they can really understand how we are reaching good results. Sometimes a client may see lower bills but may not know what went into that. We show them that the lower bills are based on ideas that we had right from the start, from the initial thought about that client. We try to communicate that to the client very directly. The client will appreciate seeing the forms that standardize our work and seeing the other aspects of how we organize each matter. Some clients will see the value immediately, while others will understand it a bit later, but they will always see it.”

Kathryn Doi is a health care litigation partner who joined the firm in November 2014 from a smaller law firm. She brought in a specialty to the firm – litigation on behalf of health care providers who claim that they have received insufficient dollar reimbursements from the Medi-Cal program or private insurers, or are challenging the Medi-Cal program’s proposed adjustments to health care providers’ reimbursement rates.

“The way my coaching worked was very straightforward,” Doi says. “Mike Egnatchik and I identified certain types of cases, and we talked about the implementation of LPM principles in these cases. I had not even heard the term LPM before we started, but the idea immediately resonated for me. Lawyers like me are always trying to be mindful of the need to be efficient, to bring value to their work, and to meet or exceed client expectations.” Doi also worked with Senior Value Pricing Specialist John Murphy and CFO Roger Robles to create budget and planning estimates.

As a result of her coaching, Doi notes, “I began to think more like a client – to see what we do through the lens of a client.”

Doi represents a major air ambulance company that, at any given time, is pursuing a large number of small claims. With help from Egnatchik, she developed templates and “road maps” for these types of claims based on the firm’s past experiences of its budgeting and workload for these cases.

Now the client is sent a summary of where each active case stands on a regular basis, along with results that allow the client to compare results with expectations and anticipate future workload. “I have received very positive feedback from the client on providing this type of regular communications,” she says, “and it has resulted in a stronger client relationship.”

“The client was going to follow me from my prior firm,” Doi says, “but by doing this, we were able not only to rebuild the work but to create a more efficient model for the work. The client needs to know on a high level what is going on with its matters. Now they have a work flow matrix that can be plugged into all the cases to give an immediate sense of where each case stands.”

October 28, 2015

LPM Case Study: Hanson Bridgett (Part 1 of 3)

By Jim Hassett and Jonathan Groner

 

“The law firm of the future will require many new skills that were never taught in law school,” according to Andrew Giacomini, the managing partner of Hanson Bridgett, a northern California law firm with more than 150 attorneys in four offices. “That’s why we have decided to make a significant investment in training our lawyers in legal project management (LPM), value pricing, and leadership training, to enable them to be more successful.”

This series of posts discusses the process and results of the LPM portion of Hanson Bridgett’s training, which began in July 2013 when partner Garner Weng and Chief Information Officer Chris Fryer organized a group of 11 attorneys to compare several variations of our LPM coaching program.

Most of the firms we work with these days concentrate on two months of one-to-one LPM coaching, which looks for “low hanging fruit” and applies LPM to ongoing real-world engagements as explained in several previous case studies in this blog and on our web page. The one-to-one approach allows any number of lawyers to begin whenever it is most convenient. However, the best approach for any given firm depends on its culture and its needs, and based on the results with their first group, Hanson Bridgett decided to organize the coaching into groups, beginning each with a just-in-time training workshop on LPM. At the end of the two months, each lawyer also had the option of completing a third month. (Only a few have exercised that option, but everyone seems to appreciate having it available.)

Based on the success of the 11 in the pilot test, they offered this LPM program to 13 more lawyers beginning in April 2014 and then another 14 starting last March, for a total of 38 to date. Fryer expects to keep offering this program until he has offered it to all the lawyers who could benefit, with “sessions for 10-14 lawyers about once a year in the future.” The program has been helpful to a wide range of lawyers, including some of the most senior partners in the firm.

Larry Cirelli is a senior trial lawyer and business litigator. In addition to his business litigation practice, he is frequently asked to step in and assist when the firm goes to trial in almost any type of matter.

“I have always applied certain principles that I would call LPM,” says Cirelli. “For example, I always ask the client at the start of a matter, ‘What are your goals? What is your ideal resolution of the matter?’ Then I create a plan to attempt to achieve those goals. I use an Outlook task list in part to do so. Outlook allows you to set deadlines and relate each item on the list to the overall strategy of the case. But just because I’ve been doing this all along doesn’t mean I can’t improve. There are always better ways to do things.”

Cirelli says that as a result of his LPM coaching with Mike Egnatchik, he streamlined his task list, added subfolders to break down tasks more precisely, and added management objectives such as ticklers to stay in touch with clients on a regular basis.

Also in the coaching, Cirelli discussed the way he handles certain cases all over the United States for a major client – cases that tend to follow a pattern. He then worked with John Murphy, Hanson Bridgett’s senior value pricing specialist, to set up budgets for these types of matters. As Fryer explained, the pricing position was created in December 2014 to “improve budgets for AFAs and hourly matters in order to make our budgeting approach more professional and ultimately more profitable.”

According to Cirelli: “Working with John, we set up budgets for these cases using the information we had gleaned from completed cases to guide us with regard to the time needed for each specific task. So we were able to say for each case, ‘Did we/could we go over budget? If so, why? Did we underestimate anything? Can we provide service to the client in a more efficient manner?’” Using these budget templates, he was able to reassess and rebudget some of the eight ongoing cases. “In each case we sent these budgets to the client and the client was very pleased with this approach.”

“The whole training process has made us more efficient in handling all these cases and it has made me more productive,” Cirelli concludes. “You can never stop learning and improving. And although I already had my system of project management, now that we have the technology to use LPM, it helped me make my system more efficient.”

 

October 21, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 4 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.

 

The urgency of change

The topic of the most cost-effective way to implement LPM remains controversial. We recommend beginning with a pilot test to change the behavior of a few influential partners, so they can become internal champions for more substantial changes. It would take a much longer article to completely explain our approach and how it compares to others.

But there can be no doubt that clients are demanding change. In my Client Value and Law Firm Profitability survey, when I asked “Will firms have a competitive advantage if they change more quickly?” 85% said yes. (10% said they didn’t know and only 5% said no.)

In business, success starts with meeting client needs. And, as the managing partner of one firm in my research put it:

The vast majority of lawyers in the big law firm environment have to be focused on LPM, otherwise they’re just not going to be successful in bringing in the work. I don’t care how much of a quality practitioner you are; there are very few practice areas that are so insulated that general counsel are not evaluating every firm they’ve worked with for 30 years to say that maybe it’s time to make a switch.

LPM will be beneficial in both hourly and non-hourly work, but law firms see the need for LPM most clearly in alternative fee work where a budget overrun comes directly out of the firm’s bottom line. The same managing partner went on to say that:

You can’t do the alternative fees unless you really understand what your client’s objectives are. You really have to have a game plan for how you’re going to accomplish them, and you have to have management in place to ensure that you’re consistent with the plan. So whether you call it project management or something else, you need to be constantly focused on what kind of fee arrangement you have in place and how you’re going to ensure that it meets the client needs as well as the law firm needs. You can’t agree to these alternative arrangements and continue to do business as usual. It doesn’t work.

As the number of firms experimenting with LPM rises, the competitive bar will continue to go up.

When I published an article for Bloomberg Law on LPM and marketing two years ago, Wendy Tucker, director of marketing and business development at Seyfarth Shaw, said she had seen “a dramatic change, and a very recent change, in the questions that we are asked by clients.” In the past, “in the RFPs that we received, we rarely saw any questions about project management. Then, the question was whether we had project managers at all. Now the question is ‘How will you apply LPM in practice to our work?’”

Most of the law firm leaders I interviewed for my survey believe that the world has permanently changed, like the managing partner who said:

The way law firms deliver legal services to clients is undergoing a huge revolution. It’s going to change before our eyes in the course of a very short period of time. And it’s all being driven by clients who want to get value for their money.

As the chair of another firm summed it up:

I believe that we’re still in the beginning of the process. There are a number of famous economists who have talked about disruptive technologies and disruptive business processes. I think there’s a lot of evidence out there that this profession is being subjected to those pressures. Five years from now, if I turn out to be wrong, that will be great. But if I’m right, then I have to believe that those firms that adapt more quickly will have a competitive advantage, because the firms that don’t adapt quickly enough will be out of business.

September 30, 2015

Legal project management: An opportunity for firms to gain a competitive advantage (Part 2 of 4)

Note:  This series is adapted from a chapter I wrote for a new book just published by the Ark Group entitled 2020 Vision: The Future of Legal Services.

Why is LPM so important?

In the current highly competitive environment, many law firms are struggling with two key issues:

  1. Pricing: How do we bid high enough to make an acceptable profit, but low enough to get new work?
  2. Managing: After we win work at a particular price, how do we manage the work to make a profit?

Another chapter in this book discusses how law firms are addressing the first question. While both are important, we would argue that management holds the keys to success. This is an era of dog-eat-dog competition in the legal profession, and firms often have little control over pricing or whether a matter is to be handled on an hourly basis or under an alternative fee. But once the price is set and the fee is structured, they CAN control how the work is done.

When I interviewed managing partners, chairs, and other leaders of 50 AmLaw 200 firms for my book Client Value and Law Firm Profitability, several talked about the importance of implementing LPM:

One of the problems that we have, and frankly that most firms have, is just teaching lawyers how to manage a project, getting them out of the habit of just automatically starting out with some rote process. Just because the client says “I think I might have a lawsuit” doesn’t mean you go off and conduct 40 depositions. Lawyers need to sit down and talk about what the client is trying to accomplish. It might turn out that we are able to accomplish the client’s end goal without taking any depositions. Or we might be able to do an M&A transaction, not by going through all the traditional steps, but stopping and thinking critically first. That’s something that we spend a lot of time trying to get across to our younger lawyers.

Project management is the next great horizon we need to reach. Historically, I believe that legal matters have been handled largely by just forging ahead with the project team leader directing various team participants to address this or that task without any formal checklist in sight. That has led to the bills for legal services being larger than one might otherwise expect or desire.

Most of our clients are no better at understanding or applying legal project management than we are. But in the future, the fact that you can actually do something on time and within budget is going to become an important indicator of whether or not you really are a good lawyer.

If you apply all its principles, LPM is not that scary, and it’s not that hard. Just getting people to understand it and do it is the biggest challenge.

According to the ALM Intelligence survey, firms that have begun to apply LPM, even in very limited ways, have already seen benefits. When the survey asked “Which of the following 13 benefits has your firm realized from its project management effort?” every single benefit in their list had been realized by at least 20% of the group. The most common benefit was “More productive relationships with clients” (achieved by 62%).

The ALM survey concluded that:

LPM can help bring increased effectiveness, reduce wasted time, and manage client expectations… Law firms can overcome [the] hurdles by targeting initial efforts in areas that would be most receptive, incrementally rolling out initiatives, and getting experienced help. Those that can successfully implement LPM will find over time that they gain a competitive advantage.

Altman Weil’s 2015 Law Firms in Transition survey has presented the most systematic evidence to date that greater efficiency pays off. They found that firms that had changed their approach to efficiency were more likely to report that revenue per lawyer was up (76% of firms that changed had increased revenue per lawyer vs 62% of firms that had not changed) and that profits per equity partner were also up for a higher percentage of the firms that had changed (76% vs 61%).