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April 04, 2018

A model for LPM success: The case of Bilzin Sumberg (Part 3 of 5)

By Tim Batdorf and Jim Hassett

This post in our series examines Bilzin Sumberg’s success meeting two top client needs as revealed in surveys conducted by Altman Weil and LegalBizDev: The need for improved non-hourly based pricing structures (i.e., alternative fee arrangements) and improved definitions of scope.

Improved AFAs

In an era when some clients are increasingly asking for non-hourly alternative fee arrangements (AFAs), firms that are able to accurately predict budgets and stick to them will be in a much stronger position than their competitors.

Litigation partner Jose Ferrer offered an example from one long-term client that was concerned with runaway litigation costs. When a new case was opened, Ferrer asked the client very directly “How much do you think the value of this litigation is?” The client gave a number, and Ferrer went to Bilzin Sumberg’s financial analyst to review past tasks and spending for the client to see if they could develop a high-value solution that fit within that budget. They dug deep into the details of what was required and what wasn’t. Then they created a task plan and budget for each phase, based on the billing rates of the lawyers who would work on the case, and the number of hours expected. Then Ferrer went back to the client and proposed a detailed task plan that fit within their requested budget:

We’re going to handle the case in three phases. In the pleadings phase, we’re going to address motions to dismiss. Then we’re going to have a discovery phase, and a trial phase. Our budget specifically excludes certain steps which we feel are not required in this case. We’re not going to include motions to strike pleadings or motions for sanctions. And we’re not going to do motions for summary judgement because they’re rarely granted in the county where this case is pending.

They then offered a capped fee for each phase, with a total cost that matched the client’s original assessment of the value of the case. Bilzin Sumberg got the business, and then:

We limited the task phases in our budgeting software to just three. If you go in to put in your time, there’s pleadings, discovery, and trial. You can’t pick anything else, because that’s how we’re tracking it.

The case is still in progress. To date, the client is happy and Bilzin Sumberg has completed the work within budget.

In another example, Jay Sakalo, the Business Finance & Restructuring and Corporate Practice Group Leader, described a fixed price bid to review 30 to 50 potential deals a year for another long-term client.

We recognized that on some of these flat fees we would win, and on some of them we would lose.

This was a new type of work for this client, so it was difficult to come up with a solid number for the first few deals, but the total revenue potential justified taking some risk, so the firm came up with a fee per deal.

We agreed with the client that after the first eight reviews, we would revisit the fee, because we didn’t know if the requirements would turn out to be wildly different from what we expected.

The first eight cases were reasonably close to the budget, so Bilzin Sumberg stuck by its original bid. The work on this substantial AFA project is now in its fourth year, and it has created both a highly satisfied client and substantial revenue for the firm. Due to the constant tracking of estimated vs actual costs, the client recently approved an increase in the fixed fee per review without any hesitation.

Improved definitions of scope

The next LPM benefit was rated #1 in one of our studies. When we asked managing partners and other leaders from 50 of the AmLaw 200 to identify the most critical short-term LPM issues at their firm, the top answer given (by 50% of respondents) was “Set objectives and define scope.”

In the last few years, Bilzin Sumberg has made substantial progress in this area. As Al Dotson said:

Before I started on our firm’s LPM initiative, I approached new client engagements with a simple thought: “You, the client, have engaged me. My hourly rate is X.” That was the end of the discussion. Now I approach new engagements more in terms of developing a mutual understanding with the client about the services we will provide, the time it will take, the team required, the budget, and the relevant reporting milestones.

Detailed planning is the key to accurate estimates, and such planning also has many other benefits. Carter McDowell, who works with Dotson, noted that:

Defining scope is particularly important in dealing with new clients who haven’t been through the process, because I can hand them a document that they can walk through for themselves. And, as a result, clients will sometimes say, “Now I understand why it’s going to cost that much, or what the range is and what the effort is.”

The real estate practice group has developed a similar process. According to Suzanne Amaducci-Adams, before they applied LPM, the group typically wasted a lot of time developing time consuming “back of the envelope” estimates, which were not always accurate. These days, they have developed checklists of the key issues for their most common types of deals, and a cost range for each. When a new deal comes in, they print out a one-page list of issues that affect scope, and the responsible attorney crosses out the issues that don’t apply. A surprisingly accurate bid can be created from this simple list. As Amaducci-Adams notes:

We now have a list of all the components that go into a loan deal. And then, when we go to quote a fee for the loan, we put a range for each element. For example, the term sheet should cost A, the loan agreement should cost B, and the ancillary document should cost C. Does the client have a cash management system? Then there is an additional cost. Are we doing the org docs? That, too, will lead to requiring additional time... The system is not perfect. But you get a much better idea of all the things that go into the transaction up front when you’re quoting a fee.

Some Bilzin Sumberg lawyers have gone a step further and require team members to use a special task code for any work that falls outside the scope as defined in the engagement letter. Having a system that requires lawyers to classify some hours as “out of scope” creates an enormous benefit, simply by requiring lawyers to be clear about what tasks are in scope, and what tasks are not. This also serves as a flag if a change process is in place to negotiate changes in scope.

A pdf of the complete case study can be downloaded from our web page.


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