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.

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.

 

Legal project management workshop in Chicago

On May 17, the Ark Group and Managing Partner magazine will present a “Legal Project Management Showcase and Workshop: Changing Behavior within the Firm” in Chicago.  When I chaired a similar event in New York two weeks ago, participants said:

“All of the speakers were excellent… with very different perspectives”

“I learned a great deal from their frank discussion about what had worked well at their firms and what had not worked well.  Also their frankness in the morning sessions set the tone for the small table discussions where people spoke very openly about challenges and things that had to be done to move forward at their respective firms.”

“This was a good panel – good diversity of viewpoints, and each of the panel members was willing to be candid about their experiences.”

There will be four panelists in Chicago, three of whom also spoke in New York:

Stuart Dodds, Director, Global Pricing and Legal Project Management, Baker & McKenzie

Albert Dotson, Partner, Bilzin Sumberg

Scott Kane, Partner, Squire Sanders

Mark Williamson, Principal, Gray Plant Mooty

All four firms are leaders in the LPM movement to increase efficiency and value to clients.  The panelists will compare notes about what has worked best, what hasn’t worked, and what they plan for the future. Near the end of the workshop, the audience will break into small groups to discuss unique challenges at their firms and to brainstorm the best way for each firm to make progress.

I will moderate the panel discussions, and some of the small group discussions will be led by LegalBizDev principals Mike Egnatchik and Steve Barrett.

One thing will be different from the March session.  Several audience members in New York asked for samples of tools and templates developed by the firms on the panel and by LegalBizDev, so that is what we will do in Chicago.  Sample tools and templates will not only be included in the workbook, but will also be discussed by panelists.

When I gave a speech at the beginning of the New York workshop, I said that if I were not already on this panel, I would have paid to attend the event.  It would have been worth every penny.  The workshop presented a rare opportunity to listen to partners in firms that are successfully implementing LPM brainstorm with each other about the nitty gritty details of exactly what is working and what isn’t.

If you plan to come to Chicago and are interested in alternative fees, you should also consider attending Ark’s Fourth Annual Alternative Fee Arrangements Forum which is in the same location the day before.  The speaker list is a who’s who of experts on the topic, including Fred Bartlit of Bartlit Beck, Mike Roster of the ACC Value Challenge Committee, Lisa Damon of Seyfarth Shaw, Paul Williams of Shook Hardy & Bacon, Richard Rosenblatt of Morgan Lewis and Pat Lamb of Valorem Law Group.  If you decide to attend both events, be sure to check the bottom of Ark’s registration form for a significant discount.

Managing outsourcing and eDiscovery (Part 2 of 2)

By Matt Hassett, Jim Hassett, and Mike Egnatchik

 

The oversight of outsourcers can be complex.

We will illustrate this with an example from eDiscovery, which includes outsourcing to a software team. Consider the eDiscovery technique of predictive coding. Unlike simpler forms of eDiscovery—such as keyword search, concept searching, and looking for clusters of similar document groups—in predictive coding attorneys train software algorithms to find the most relevant documents by using samples of documents called training sets. According to Predictive Coding for Dummies:

Training the predictive coding system is an iterative process that requires attorneys and their legal teams to evaluate the accuracy of the computer’s document prediction scores. If the accuracy of the computer-generated predictions is insufficient, additional training set documents are selected from the document population being considered. Multiple training sets are reviewed and coded until the required performance levels are achieved. Once the desired performance levels are achieved, decisions can be made about which documents to produce.

The great advantage of this approach is that attorneys will be able to explain the decisions made by the computer, since they worked to train the computer algorithms. This can satisfy the obligation of competent representation, so long as things are properly done. But there is always the danger that things will not be properly done. Predictive Coding for Dummies goes on to say:

Understanding how to use predictive coding tools properly is critical for several reasons. First, predictive coding is relatively new to the legal field and introduces additional complexity to the eDiscovery process. Second, many different predictive coding solutions are available on the market that vary in quality and approach. Third, even though predictive coding solutions can be difficult to use, clear instructions and training are often lacking, which can increase the risk of error. These and other factors have combined to create confusion about the proper methodology for using predictive coding tools.

The message is clear: A firm that uses predictive coding cannot rely on it as a black box that gives right answers at all times. Not all providers are equal. There must be a procurement process that evaluates and selects the best provider.

Competent representation includes understanding and monitoring the provider’s work. If that does not happen, the law firm may be at risk.

Due to the growth in outsourcing, in 2008 the ABA Standing Committee on Ethics and Professional Responsibility issued an opinion to provide ethical guidance to lawyers about how to outsource in a manner that is consistent with the profession’s core values.  State and local bar associations have also offered guidance in this area.

In August 2012, the ABA Commission on Ethics 20/20 concluded that outsourcing did not require changes to the Model Rules of Professional Conduct.  However, it did propose new Comments to identify the factors that lawyers need to consider when retaining outside lawyers (Model Rule 1.1) and non-lawyers (Model Rule 5.3) to assist on a client’s matter. The Commission also proposed a new sentence (for Comment 1 on Model Rule 5.5) to clarify that lawyers cannot engage in outsourcing if it would facilitate the unauthorized practice of law.

Like many obligations described in the Model Rules, these proposals were intended to be “rules of reason” and were not intended to preclude consideration of broader legal concerns, such as malpractice and tort liability. But they did reflect the fact that new trends in outsourcing place new demands on the supervising lawyers. A recent lawsuit has highlighted some of the potential risks of failing to manage outsourcers properly.

According to a report in the Wall Street Journal:

An increasingly contentious lawsuit by a former client against law firm McDermott Will & Emery LLP is putting a spotlight on the legal industry’s widespread use of itinerant “contract” attorneys who review documents for lower hourly wages… The case “may well be a harbinger,” said Jonathan M. Redgrave… There could be more disputes between clients and law firms over work performed by contract attorneys and outside vendors as they are used more in the pre-trial discovery process.

The Wall Street Journal also alluded to the underlying economics that are driving the move to outsourcing: “McDermott’s own attorneys billed J-M at ‘rates as high as $925 an hour’ [and paid]… $61 an hour to staffing firm Hudson Legal.” Hudson, in turn, hired the lawyers who did the work for even less.

According to Mark Ross’s description of this suit:

J-M Manufacturing alleges that McDermott failed to adequately supervise contract review attorneys who inadvertently produced privileged documents to the government. The documents were subsequently handed over to a third party who refused to destroy the documents, arguing that J-M waived attorney-client privilege when it produced them to the government.

McDermott has vigorously defended itself against these allegations. According to a firm spokesperson quoted in the Wall Street Journal article, “J-M keeps changing its story.”

Ultimately, the case may be decided for McDermott or against them. From our perspective, the way this particular lawsuit turns out is far less important than the simple fact that a client has sued its law firm for failing to adequately manage its outsourcers. As Ross summed it up, “While this may be the first e-discovery malpractice lawsuit specifically dealing with the issue of lack of supervision of contract lawyers, it surely won’t be the last.”

Firms that decide to use outsourcers will therefore need to develop effective management processes, policies, and techniques for this type of work.

 

This post was adapted from the forthcoming third edition of the Legal Project Management Quick Reference Guide, which will be published on May 20.

Managing outsourcing and eDiscovery (Part 1 of 2)

By Matt Hassett, Jim Hassett, and Mike Egnatchik

At a time when clients are demanding to pay less for legal services, it is easy to see the benefit of getting work done for lower hourly rates. Law firms and their clients are looking at each step in legal processes and asking the question, “Can I hire somebody else to do this step at a lower cost, or do it better, or both?”

Outsourcing is a growing trend, and it is leading to new challenges in managing work.

Some types of legal work are relatively easy to outsource. Here’s how Pat Lamb has explained the underlying rationale:

The four-buckets rule—developed by Jeffrey Carr, general counsel of FMC Technologies—is that that legal work fits into one of four buckets: process, content, advocacy and counseling. The Carr corollary is that general counsel are willing to pay generously for advocacy and counseling, but believe process and content should be free, or at least much less expensive, while law firms make the bulk of their revenue from the process and content buckets.

In one widely quoted discussion of outsourcing, Legal OnRamp founder Paul Lippe has argued that about 25% of all legal work falls into Carr’s process bucket:

Moving information from one place to another to create legal work product, typically either generating or analyzing contracts, or working through discovery-based work in litigation or investigation…. Process work will continue to grow, but it will increasingly be managed… with a combination of lower-cost people, process and technology.

Lippe went on to note that “large law firms charge from $150/hour (paralegal) to $400/hour (mid-level associate) for process work.” He then listed these lower cost alternatives:

• “In-house teams can execute process work for $100-200/hour, and much less if they organize for it as Cisco has.
• Non-traditional providers like Axiom charge perhaps $125-250/hour for process work, but are still often advantageous for clients, because they represent a variable, not fixed, cost, and don’t require supervision.
• Legal process outsourcers (LPOs) can deliver process work (including onshore lawyers, technology and process) for around $60/hour with predictable quality, integrated with legal departments and with formal methods for delivering and ensuring quality.
• Law firms have started to create their own ‘captive’ LPOs, like Orrick in Wheeling, W.Va., Wilmer in Dayton, Ohio, Allen & Overy in Belfast and Baker McKenzie in Manila.”

In his new book Tomorrow’s Lawyers: An Introduction to Your Future (p. 33) Richard Susskind takes this much further:

In the past, when confronted with a legal job, a client had a single choice: undertake it internally or pass it out to an external law firm (or perhaps a blend of the two). The legal world has now changed, so that new alternative sources of legal service are now available. I have identified 15 ways of sourcing legal work.

The key point here is that the identification and management of outsourcing alternatives will become an important task for firms that want to compete in the new normal.

The field of legal project management includes a variety of best practices for managing the activities of an internal legal team. If your team includes contract lawyers and other external non-traditional staff, many of these same principles apply

The challenge of managing subcontractors is familiar in other professions. The tenth edition of Harold Kerzner’s widely quoted textbook  Project Management has an entire chapter devoted to working with external suppliers. The perspective is interesting, since the chapter makes it clear that a firm using an external source for some of its work on a matter is now in a role reversal. The firm is a client of the outsourcer it has hired, and has the same responsibilities to monitor that outsource supplier that its own client has to monitor the firm’s work.

If XYZ Corporation has hired your firm for a matter, the legal department of XYZ had the job of hiring you in the first place and has the responsibility to monitor your work. Similarly, if you hire supplier DIS for discovery work, you had the job of hiring DIS in the first place and then you have the responsibility of monitoring DIS to assure that their work product is acceptable. The firm is responsible for the entire work product, and must make sure that all the parts work.

Lawyers are just starting to become familiar with the idea of subcontracting work, and the use of outsourcers presents new challenges.

As Mark Ross noted in a paper entitled The Ethics of Legal Outsourcing, “It is clear that to satisfy the duty of competently representing one’s client, a US lawyer engaging an LPO provider cannot rely on the LPO provider to evaluate its own work product and must himself or herself be able critically and independently to evaluate the work product received.”

Next week, we will talk about some of the challenges of this new requirement.

This post was adapted from the forthcoming third edition of the Legal Project Management Quick Reference Guide, which will be published on May 20.

Six ways LPM improved our practice

By Elizabeth Harris, Harris Cost Lawyers

This guest post was written by one of the first lawyers to complete our Certified Legal Project Manager® program.  Liz’s initial experience was described in this blog in May 2011.   I asked her to write this piece to report on results since then for the third edition of my Legal Project Management Quick Reference Guide (to be published on May 20).

Since I began focusing on LPM, our practice has improved in six major ways:

1.      Setting and defining the scope. We undertake work on a fixed fee basis and in the past the scope was often not clearly agreed and defined. Our expectations often differed from those of the client regarding the work which was to be included within the fixed fee, and scope creep could easily develop. By improving the way we define scope at the beginning of every matter, we have been able to make fixed fee work far more profitable.

2.      Identifying and scheduling tasks. The identification of tasks is particularly important, as the failure to identify actions which will be required affects both the fee which is set and the schedule of work. In the past, work had been held up because dependencies had not been identified and there were consequential delays in waiting for predecessor activities to be completed. By focusing upfront on identifying and scheduling tasks, we have been able to reduce the number of situations in which a failure to identify all the activities to be undertaken resulted in the fixed fee being too low and the schedule blown out. With more planning, we have a better understanding of what the finished product should look like, and work breakdown structures have helped us to formulate better estimates.

3.      Planning and managing the budget. We have considerable control to introduce changes in the way work is undertaken, including who performs particular aspects of the work. In the past, we did not sufficiently consider this when planning the budget. Nor did we take into account the level of expertise of the person undertaking the work and the fact that the time likely to be spent on the task would vary depending on the person’s experience. There was also little management of the budget as the matter progressed. By devoting more attention to planning and management, we have been able to identify potential problems much earlier in the process, and thus reduce the number of instances where the budget has been exceeded.

4.      Assessing risks to the budget and schedule. Before we started focusing on LPM, we did not assess budget and schedule risks at the beginning of a matter. Risks can be both internal and external and often we are asked to give estimates by someone who has little understanding of the background to the matter and can therefore give us only very limited instructions. We have developed checklists of possible risks and questions to be asked to identify them. A brainstorming session with all team members often goes a long way to addressing this issue.

5.      Negotiating changes of scope. In the past, most of our descriptions of the scope of work were far too general and therefore gave us little ability to negotiate changes to the scope. We have since trained our lawyers to better define scope in the first place and be more aware of changes as a matter proceeds. We have also focused on promptly speaking with the client when there is a change of scope.

6.      Conducting end of matter reviews. Before we began focusing on LPM, we did not take the time to undertake end of matter reviews. We now conduct them frequently, and as a result are learning from our experience and introducing process improvements to enhance future performance.

Five ways to improve pricing

There is so much talk these days about value pricing and alternative fees that many people think of pricing simply as setting a fixed or alternative fee. However, you are pricing whenever you decide what to ask someone to pay for your services. When you set an hourly billing rate you are pricing, and when you discount that hourly rate, you are making a pricing decision.

Proven techniques from other businesses can help any law firm to improve the way it sets prices.  Here are five basic ideas that may be particularly helpful, based on Nagle Hogan & Zale’s classic text The Strategy and Tactics of Pricing, now in its fifth edition:

1. Differentiate. You may have heard legal marketers use this word quite a bit, and it is just as important to pricing experts. According to The Strategy and Tactics of Pricing, “A product’s total economic value is calculated as the price of the customer’s best alternative (the reference value) plus the worth of whatever differentiates the offering from the alternative” (p. 19).  This differentiation value can be either monetary or psychological. Whatever features of a law firm add differentiating value, it is crucial that these features be communicated to the client. Are you different because your legal project management expertise makes you more efficient than others, or because you communicate progress better? Let the client know.
2. Communicate value. Value is perceived differently in different businesses. Legal services are difficult for clients to evaluate when compared to products like light bulbs or computers for which buyers can more easily get price and performance information. “In our research, we have found that business managers rated ‘communicating value and price’ as the most important capability necessary to enable their pricing strategies” (p. 72).  They make special note of the value of an endorsement from a client known to be especially discriminating. For example, Kaiser Permanente has an excellent reputation for being an informed buyer in the health field. Thus “when other hospitals and health maintenance organizations (HMOs) learn that Kaiser Permanente has adopted a more expensive product or service, they assume that its price premium is cost-justified” (p. 75).
3. Have a clear and consistent pricing policy. It is important to have a clear and consistent pricing policy and to avoid commonly granting price exceptions. In Chapter 6 of my new book, I advised being cautious about discounting to win business because that creates client expectations of future discounts. The Strategy and Tactics of Pricing says that “Good policies lead customers to think about the purchase of your product as a price-value trade-off rather than as a game to win at your expense” (p. 117).  In setting up your policies it is important to keep in mind that people are more affected by perceived losses than perceived gains and you should frame your pricing with this in mind. If the client is offered a service package, it is better to have a policy that allows a reduction in cost if a service is dropped (a perceived gain) than a policy that requires an extra fee to get that service (a perceived loss).
4. Know your market segments. Clients are not all the same; they fall into different market segments. The Strategy and Tactics of Pricing gives an example of a company selling a scientific device to be used in DNA analysis. The device is a great improvement over existing competitor products, and the company estimated the differentiation value in order to set a price. However the company sold to two different market segments—the industrial market and the academic/government market. The differentiation value was not the same in industry and universities, so the ultimate pricing strategy involved different pricing policies in the two segments. As long as this policy is clearly stated it does not violate consistency requirements. Airlines do this all the time when they distinguish between business travelers and nonrefundable touring seniors. What are your market segments?
5. Know your client types. Within a given market segment there may be different classes of clients, and knowing their classification may help you to deal more intelligently with each group. The Strategy and Tactics of Pricing divides clients into four categories:
   1. Value-driven clients have sophisticated analysis strategies for studying value added, and you will need to work to establish your value added for them.
   2. Brand buyers are also known as relationship buyers. For them, the cost of analyzing value added is perceived as too high. This “buyer will buy a brand that is well-known for delivering a good product with good service without considering cheaper but riskier alternatives” (p. 105).  This is an easier client so long as you do not disappoint her.
   3. Price buyers are looking for a specified service at the lowest possible price. Here you will need to “strip out any and every cost that is not required to meet the minimum specification” (p. 107).  It is also important to fence off this job, so that more lucrative clients who receive a higher level of service understand that this lower priced work is at a different level.
   4. Convenience buyers “don’t compare prices; they just buy from the easiest source of supply”(p. 108).  They know that they are paying a premium for immediate convenience and will not complain. 

Whether your pricing is based on value or cost-plus, and whether your typical agreements are hourly or AFAs, these general principles can help you set prices

 

This post was adapted from my new book Legal project management, pricing and alternative fee arrangements.