An Alternative Fee <i>Meal</i>odrama

Setting: A plush watering hole in downtown Invoice, ME. General Counsel, who oversees about $6M of spending on outside counsel fees each year, gazes politely at the Partner, who chews a breadstick and yearns to take a bigger bite out of those fees. The GC and Partner are holding menus, figuring out what they want to order, and chewing the low-fat.

Prologue

Partner: “Everything they serve here is good, GC. It's my treat and we're having the prix fixe meal. Speaking of which, we hunger for more of your fees, GC. We've been doing a good job on the crumbs from your table but other firms are eating our lunch. You deserve to be waited on hand and footnote by my firm, Best & Brightest, LLP of a good deal.”

GC: “Thanks for the invite, Partner. I'm under enormous pressure to diet my costs so I'm salivating to have this chat. Before you have a chance to gorge on more of our fees, however, you'll have to cook up something other than traditional hourly billing. The CFO and I are fed up with your firm having every incentive to stuff in more hours. Also, I've read the ABA's report on the Billable Hour and it's whetted my appetite. It's time to clear the old table of bills based on hours worked.”

Partner: “Well, perhaps I could persuade some of my more innovative partners to dramatically drop our hourly rates 2%. How's that, GC?”

GC: “That's embarrassing, old school, a flopped souffle ' back to the kitchen! Waiter, the check for Partner!”

Partner: “Hang on GC, we haven't even ordered. And besides, I'd like to talk with you about some alternatives to hourly billing and discounts. They're just the recipe for shifting economic risks and aligning our interests. In fact, I'd like to propose one for each course that we're about to have in this sumptuous nine-course meal.”

Course One: Enter Appetizers

Partner: “To get your juices flowing, we'd like you also to consider some delicacies. Alternative economics don't stop with billing arrangements. For example, we could offer you an associate on secondment at no cost for up to 3 months. Or we could provide material for your law department's intranet site. We'd also like to include your lawyers in our training programs, and perhaps our technology staff could bolster your own IT resources. Even though these benefits aren't strictly alternative methods of billing, they garnish our firm's value.”

GC: “Scrumptious ideas, each of them, and you're right we don't have to fixate on fees. There are many ways you can bring value to our department. Billing isn't everything, but it's an entr'e. I think we've hit on a starting point for success. But let's table those ideas until later.”

Partner: “Agreed. But we hope our willingness to team with your department on fees succeeds. When you fork over big fees and need to take a knife to them, a spoonful of B&B creativity helps the medicine go down.”

Course Two: Enter Soup

Partner: “Note, GC, like this soup combining ingredients, we'd would like to offer you blended rates. That is, we will charge you $245 an hour regardless of who is stirring the pot. This will save you when our senior partners assist you at higher rates and yet will preserve for us a soupcon of billing dignity.”

GC: “OK, Partner, my tureen to talk. I must admit I like the taste of simplicity in this blended billing arrangement and agree it will encourage you to leverage work; I suspect we can consomme a deal. Still, I worry that it will push you to use the law firm equivalents of bus boys. Will lower cost lawyers be capable? Will there be a constantly changing cast of counselors? Will they bill so many hours the arrangement collapses? Second, I stew about whether blended rates will clash with the flavor of your compensation system.

As I understand it, you'll need to develop a billing arrangement that leaves no fly in the soup. If fees collected per lawyer counts for much, will blended rates discourage your best talent from being staffed on our projects? You might also have to revamp your committee that approves departures from tried-and-true hourly bills.”

Partner: “Not to worry. For example, we'll look at practice groups in terms of profits earned rather than hours churned. Our bills are butter without churning. Soup to nuts, we will arrange it so that when we ladle out rewards, the blended billing rate spills in no one's lap.”

Course Three: Enter Salad

GC: “Lettuce consider a few more ideas. How about separating the oil from the vinegar, the blue from the cheese, and the thousands from the islands ' let's consider your unbundling some services to really bowl me over. This would not be just window dressing. Instead of your lawyers and paralegals doing everything, subcontract out and use specialists.”

Partner: “Unbundling? We never considered this step back in the good-old salad days, and for my partners it may be quite raddish. But you're the tops, you're broccoli, and we have to try some new ideas to stay competitive, pile up the greens and not be collard.”

GC: “If your firm coordinated and oversaw the work of litigation support vendors, expert witness firms, offshore providers of coding and scanning, legal research outfits, and providers of temporary paralegals and lawyers, you would have an alternative value proposition we would relish. With bundling, you would be the salt of the earth and pepperoni my conversation with more puns.”

Course Four: Enter Vegetables

GC: “If I think a bit more, I might turnip another good idea or two that we'd like. [pause] Since many alternative fee arrangements lend themselves to pilot studies, for a time what if we guarantee wire transfer payment of your bills within 5 days of receipt, in return for a discount? What if we agree to help you in advertisements so you can rake in new clients? What if we introduce you to several general counsel during the next year?

Partner: “Or, GC, perhaps you should turn over a new leaf and hold out the carrot of competitive bidding. If you let several firms propose how they would handle a portfolio of work, you can get alternative fee arrangements that will be hard to beet. Besides, B&B bids and bet your bean counters beam! I've heard of multi-million dollar engagements covering 24 months to handle blocs of work. I know it sounds corny, but the savings can squash your budget!”

Course Five: Enter Fish

GC: “I'm really casting about for how to give your firm incentives to perform well, yet I need to get reel, to be sure your goals and actions align with my budget concerns hook, line and sinker. Any other basis would be a serious gaffe.”

Partner: “We could have a whale of a good time if Best & Brightest were retained to handle all your troubled real estate transactions for the next 3 years on a fixed fee. We could pull victory from the jaws of defeat. Talk about Shark and Awe!”

“Yes, with that kind of arrangement we would invest in all kinds of tackle and gear and would trawl for, dare I say, e-fishiencies in our systems, practices, and associate pool. For example, we would develop form files, conduct internal training, and roll out preventive law schooling for your clients. To put a fin point on it, you'll be up to your gills in benefits, swimming in savings.”

GC: “Around here, fixed fees would be a sea change and likely tide us over. You mean, for $1.8 million over the next 36 months you cod handle all our lease workouts, even getting through the downhill salmon of our sub-leases? Holly Mackerel! That would be a net net gain and, mate, we'd be happy to have you aboard.”

Course Six: Enter Viandes, With Trumpet Flourish

Partner: “Shank you very much. Now, let's get back to the meat of the matter. For your collections litigation we could try a hold-back incentive system, because we know what's at steak. “Well started is well done,” I always say, so we'll charge you 75% of our standard fees. Every 6 months, your lawyers will decide whether we get any of the hold back or as much as 15% more than the amount held back. We'll partner closer with you than mutton Jeff! Obviously, keeping us on a short leash, not letting us pig out, will cut out much of the pork.”

GC: [Licking his chops] “Unfettered discretion to decide the hold back? Actually, I'd prefer not to be ham handed but to agree in advance on several measures of your collections performance. Average cycle time might be one, amount collected another, and satisfaction ratings by our mutual internal clients could be a third. We'd owe it to you to be explicit as to how we veal. It would not be fare for either of us to game the system.”

Course Seven: Enter Cheese

Partner: “I have one more Gouda idea. Law firms can outwit any billing system because it always has more loopholes than Swiss cheese [To himself, risotto voce: "A simple matter horning in on what Alps our bottom line."] Perhaps we should consider combining different billing methods in a hybrid?”

“For example, we'll handle your EEO claims investigations on a fixed Brie basis. We'll combine that with hourly rates for the depositions (since we can't tell how long they'll last or how many there'll be) and we'll designate the staff that can work on them. I, of course, as the client-relations partner, will be the big cheese. Any way you slice it, with staff who dedicated to a type of work, when your claimants hear their teeth will cheddar.”

GC: “St. Andre! I like the way you Kraft different economic arrangements. We can choose what suits us and grow fondue of you. And billing arrangements aren't black and white: hybrids recognize the gruyere. What else is on the alternative fee menu?”

Course Eight: Enter Groaning Board, aka Dessert Tray

GC: [A bit tartly] “I also want to cherry pick among your plum lawyers. Not all them or the fruits of their labors are of equal value to me. For instance, reviewing documents for privilege is not equal to drafting an apple brief.

“Perhaps it's pie in the sky, but could your people charge different rates for tasks that berry in value to us? Of course, people should get their just desserts and if one is the apple of my eye, I'm willing to pay a higher rate. In short, I want a fruit basket of different billing rates instead of the lock-step rigidity of traditional billing. Am I making myself eclair?”

Partner: “You are, GC, and I can taste it. [Aside: "Sweet!"] We can staff your matters with a dedicated team of associates, paralegals and partners ' low turnover. In fact, I'm thinking of two associates who you know who would make an especially good pear. As to your first idea, changing individual billing rates according to value is novel, but trying it cannoli help us both.”

GC: “I savor the idea of budgets. Don't you agree budgets fit well with alternatives to traditional billing?”

Partner: “If we prepare budgets for the near-term foreseeable future and your lawyers review them carefully, we have moved a long way from the ghost of cost-plus hourly billing. A budget's the thing to catch the conscience of a king!”

GC: Clever, Partner, but I know my milkshakespear. Methinks the lawyers doth bill too much.”

Course Nine: Slosh in After Dinner Drinks

GC: “I've also got on my table some lawsuits to recover for patent infringements and to regain some zoning rights. We know the dollar value of the recoveries we seek. What billing terms from Best & Brightest might serve them, suit my taste for alternative billing, liqueur my billing blues, and not cause you to wine?”

Partner: “No need to be sherry, GC, we can set up contingency arrangements. If you give a reasonable range for what the lawsuits are worth, we will cordially bill at half our rates to port away one-third of any recoveries. The absinthe of half our rates will make your heart grow fonder.”

Epilogue (Curtain Falls)

GC: “To fee or not to fee, that is the question. Meanwhile, I am sated, and there is certainly much we must digest. Moreover, this gustatory triumph has helped me understand the possibilities. Upon my Maalox, I assure you that whatever arrangement we work out, we durst seek a fair outcome. The ingredients are before us. If we strike a deal that pays you too much, you must realize that my internal clients won't stomach windfalls. If the flavor is too rich, Best & Brightest might have to tighten its belt and push away from the table. On the other hand, if unforeseen difficulties increase the work you must do, we will add some calories to your bill. Our goal is quality legal work at lower cost, yet sustaining your profitability. These alternatives to hourly billing when mixed with achieving that goal are food for thought.”

Setting: A plush watering hole in downtown Invoice, ME. General Counsel, who oversees about $6M of spending on outside counsel fees each year, gazes politely at the Partner, who chews a breadstick and yearns to take a bigger bite out of those fees. The GC and Partner are holding menus, figuring out what they want to order, and chewing the low-fat.

Prologue

Partner: “Everything they serve here is good, GC. It's my treat and we're having the prix fixe meal. Speaking of which, we hunger for more of your fees, GC. We've been doing a good job on the crumbs from your table but other firms are eating our lunch. You deserve to be waited on hand and footnote by my firm, Best & Brightest, LLP of a good deal.”

GC: “Thanks for the invite, Partner. I'm under enormous pressure to diet my costs so I'm salivating to have this chat. Before you have a chance to gorge on more of our fees, however, you'll have to cook up something other than traditional hourly billing. The CFO and I are fed up with your firm having every incentive to stuff in more hours. Also, I've read the ABA's report on the Billable Hour and it's whetted my appetite. It's time to clear the old table of bills based on hours worked.”

Partner: “Well, perhaps I could persuade some of my more innovative partners to dramatically drop our hourly rates 2%. How's that, GC?”

GC: “That's embarrassing, old school, a flopped souffle ' back to the kitchen! Waiter, the check for Partner!”

Partner: “Hang on GC, we haven't even ordered. And besides, I'd like to talk with you about some alternatives to hourly billing and discounts. They're just the recipe for shifting economic risks and aligning our interests. In fact, I'd like to propose one for each course that we're about to have in this sumptuous nine-course meal.”

Course One: Enter Appetizers

Partner: “To get your juices flowing, we'd like you also to consider some delicacies. Alternative economics don't stop with billing arrangements. For example, we could offer you an associate on secondment at no cost for up to 3 months. Or we could provide material for your law department's intranet site. We'd also like to include your lawyers in our training programs, and perhaps our technology staff could bolster your own IT resources. Even though these benefits aren't strictly alternative methods of billing, they garnish our firm's value.”

GC: “Scrumptious ideas, each of them, and you're right we don't have to fixate on fees. There are many ways you can bring value to our department. Billing isn't everything, but it's an entr'e. I think we've hit on a starting point for success. But let's table those ideas until later.”

Partner: “Agreed. But we hope our willingness to team with your department on fees succeeds. When you fork over big fees and need to take a knife to them, a spoonful of B&B creativity helps the medicine go down.”

Course Two: Enter Soup

Partner: “Note, GC, like this soup combining ingredients, we'd would like to offer you blended rates. That is, we will charge you $245 an hour regardless of who is stirring the pot. This will save you when our senior partners assist you at higher rates and yet will preserve for us a soupcon of billing dignity.”

GC: “OK, Partner, my tureen to talk. I must admit I like the taste of simplicity in this blended billing arrangement and agree it will encourage you to leverage work; I suspect we can consomme a deal. Still, I worry that it will push you to use the law firm equivalents of bus boys. Will lower cost lawyers be capable? Will there be a constantly changing cast of counselors? Will they bill so many hours the arrangement collapses? Second, I stew about whether blended rates will clash with the flavor of your compensation system.

As I understand it, you'll need to develop a billing arrangement that leaves no fly in the soup. If fees collected per lawyer counts for much, will blended rates discourage your best talent from being staffed on our projects? You might also have to revamp your committee that approves departures from tried-and-true hourly bills.”

Partner: “Not to worry. For example, we'll look at practice groups in terms of profits earned rather than hours churned. Our bills are butter without churning. Soup to nuts, we will arrange it so that when we ladle out rewards, the blended billing rate spills in no one's lap.”

Course Three: Enter Salad

GC: “Lettuce consider a few more ideas. How about separating the oil from the vinegar, the blue from the cheese, and the thousands from the islands ' let's consider your unbundling some services to really bowl me over. This would not be just window dressing. Instead of your lawyers and paralegals doing everything, subcontract out and use specialists.”

Partner: “Unbundling? We never considered this step back in the good-old salad days, and for my partners it may be quite raddish. But you're the tops, you're broccoli, and we have to try some new ideas to stay competitive, pile up the greens and not be collard.”

GC: “If your firm coordinated and oversaw the work of litigation support vendors, expert witness firms, offshore providers of coding and scanning, legal research outfits, and providers of temporary paralegals and lawyers, you would have an alternative value proposition we would relish. With bundling, you would be the salt of the earth and pepperoni my conversation with more puns.”

Course Four: Enter Vegetables

GC: “If I think a bit more, I might turnip another good idea or two that we'd like. [pause] Since many alternative fee arrangements lend themselves to pilot studies, for a time what if we guarantee wire transfer payment of your bills within 5 days of receipt, in return for a discount? What if we agree to help you in advertisements so you can rake in new clients? What if we introduce you to several general counsel during the next year?

Partner: “Or, GC, perhaps you should turn over a new leaf and hold out the carrot of competitive bidding. If you let several firms propose how they would handle a portfolio of work, you can get alternative fee arrangements that will be hard to beet. Besides, B&B bids and bet your bean counters beam! I've heard of multi-million dollar engagements covering 24 months to handle blocs of work. I know it sounds corny, but the savings can squash your budget!”

Course Five: Enter Fish

GC: “I'm really casting about for how to give your firm incentives to perform well, yet I need to get reel, to be sure your goals and actions align with my budget concerns hook, line and sinker. Any other basis would be a serious gaffe.”

Partner: “We could have a whale of a good time if Best & Brightest were retained to handle all your troubled real estate transactions for the next 3 years on a fixed fee. We could pull victory from the jaws of defeat. Talk about Shark and Awe!”

“Yes, with that kind of arrangement we would invest in all kinds of tackle and gear and would trawl for, dare I say, e-fishiencies in our systems, practices, and associate pool. For example, we would develop form files, conduct internal training, and roll out preventive law schooling for your clients. To put a fin point on it, you'll be up to your gills in benefits, swimming in savings.”

GC: “Around here, fixed fees would be a sea change and likely tide us over. You mean, for $1.8 million over the next 36 months you cod handle all our lease workouts, even getting through the downhill salmon of our sub-leases? Holly Mackerel! That would be a net net gain and, mate, we'd be happy to have you aboard.”

Course Six: Enter Viandes, With Trumpet Flourish

Partner: “Shank you very much. Now, let's get back to the meat of the matter. For your collections litigation we could try a hold-back incentive system, because we know what's at steak. “Well started is well done,” I always say, so we'll charge you 75% of our standard fees. Every 6 months, your lawyers will decide whether we get any of the hold back or as much as 15% more than the amount held back. We'll partner closer with you than mutton Jeff! Obviously, keeping us on a short leash, not letting us pig out, will cut out much of the pork.”

GC: [Licking his chops] “Unfettered discretion to decide the hold back? Actually, I'd prefer not to be ham handed but to agree in advance on several measures of your collections performance. Average cycle time might be one, amount collected another, and satisfaction ratings by our mutual internal clients could be a third. We'd owe it to you to be explicit as to how we veal. It would not be fare for either of us to game the system.”

Course Seven: Enter Cheese

Partner: “I have one more Gouda idea. Law firms can outwit any billing system because it always has more loopholes than Swiss cheese [To himself, risotto voce: "A simple matter horning in on what Alps our bottom line."] Perhaps we should consider combining different billing methods in a hybrid?”

“For example, we'll handle your EEO claims investigations on a fixed Brie basis. We'll combine that with hourly rates for the depositions (since we can't tell how long they'll last or how many there'll be) and we'll designate the staff that can work on them. I, of course, as the client-relations partner, will be the big cheese. Any way you slice it, with staff who dedicated to a type of work, when your claimants hear their teeth will cheddar.”

GC: “St. Andre! I like the way you Kraft different economic arrangements. We can choose what suits us and grow fondue of you. And billing arrangements aren't black and white: hybrids recognize the gruyere. What else is on the alternative fee menu?”

Course Eight: Enter Groaning Board, aka Dessert Tray

GC: [A bit tartly] “I also want to cherry pick among your plum lawyers. Not all them or the fruits of their labors are of equal value to me. For instance, reviewing documents for privilege is not equal to drafting an apple brief.

“Perhaps it's pie in the sky, but could your people charge different rates for tasks that berry in value to us? Of course, people should get their just desserts and if one is the apple of my eye, I'm willing to pay a higher rate. In short, I want a fruit basket of different billing rates instead of the lock-step rigidity of traditional billing. Am I making myself eclair?”

Partner: “You are, GC, and I can taste it. [Aside: "Sweet!"] We can staff your matters with a dedicated team of associates, paralegals and partners ' low turnover. In fact, I'm thinking of two associates who you know who would make an especially good pear. As to your first idea, changing individual billing rates according to value is novel, but trying it cannoli help us both.”

GC: “I savor the idea of budgets. Don't you agree budgets fit well with alternatives to traditional billing?”

Partner: “If we prepare budgets for the near-term foreseeable future and your lawyers review them carefully, we have moved a long way from the ghost of cost-plus hourly billing. A budget's the thing to catch the conscience of a king!”

GC: Clever, Partner, but I know my milkshakespear. Methinks the lawyers doth bill too much.”

Course Nine: Slosh in After Dinner Drinks

GC: “I've also got on my table some lawsuits to recover for patent infringements and to regain some zoning rights. We know the dollar value of the recoveries we seek. What billing terms from Best & Brightest might serve them, suit my taste for alternative billing, liqueur my billing blues, and not cause you to wine?”

Partner: “No need to be sherry, GC, we can set up contingency arrangements. If you give a reasonable range for what the lawsuits are worth, we will cordially bill at half our rates to port away one-third of any recoveries. The absinthe of half our rates will make your heart grow fonder.”

Epilogue (Curtain Falls)

GC: “To fee or not to fee, that is the question. Meanwhile, I am sated, and there is certainly much we must digest. Moreover, this gustatory triumph has helped me understand the possibilities. Upon my Maalox, I assure you that whatever arrangement we work out, we durst seek a fair outcome. The ingredients are before us. If we strike a deal that pays you too much, you must realize that my internal clients won't stomach windfalls. If the flavor is too rich, Best & Brightest might have to tighten its belt and push away from the table. On the other hand, if unforeseen difficulties increase the work you must do, we will add some calories to your bill. Our goal is quality legal work at lower cost, yet sustaining your profitability. These alternatives to hourly billing when mixed with achieving that goal are food for thought.”