Redaction on Pricing Legal Services

Fixed Fee or Blended Rate

The first approach is to “just do it” by offering a fixed fee or blended rate and then to debrief after each matter to find the efficiencies the law should have found. In many cases this is not the law firms' choice. It may be forced upon them by a client. The risk is that there will be losses until firms figure out how to make their work more profitable and deliver the services in a more effective and efficient way. The driving force is to satisfy the firm on matter profitability and the accountability to perform at the level expected by the firm. But it would be much better for profitability to prepare ahead of time for the coming events.

Creating an Internal Process

The second approach has much less risk, but needs a much higher level of accountability and leadership. In this scenario, the firm creates a map of the process. This map creates a picture of the tasks, and names those who should perform them within the firm or outside counsel. It outlines what must be done by phases of litigation, or a transaction for each billing level within in the firm and outside counsel. The map is a flow chart of all the tasks required during initial discovery, discovery, pre-trial or pre-negotiations, and final negotiations or trial.

Creating a Process Map

The Association of Corporate Counsel (ACC) provided some comments in their “Value Challenge Tool Kit Resource.” Their first focus was on the teams working collaboratively with outside counsel. “These teams jointly develop and pool legal research, motion briefs, checklists, trial materials and settlement concepts, and then test and refine them.” Let's look at this by subset. A pool of legal research is a set of standards that belong to a particular type of case or transaction. The standars must be referenced by a process to allow access to them by both the in-house and outside counsel that identifies each task and document. Let's define a process. If anyone has seen a map produced by accounting firms for their professional services in an audit, that is similar to a law firm's process map. It includes all phases of the effort and details each task and substantive system involved in each phase. Therefore, the map developed by an inside or outside counsel will require a set of phases, tasks, and substantive or expert systems. All lawyers and para-professionals must have access to the map in preparation and in debriefings. The statement to test and refine the checklist, or process, means that there must first be a budget and then a debriefing process to test the efficiency of the effort that was used by the in-house counsel and the outside counsel. This debriefing is a rigorous affair going through each phase of effort on a task by task basis.

An example from the Tool Kit: “At another company, the teams handling employment cases around the country have completed a year-long effort to re-engineer the way that they manage their cases and found many ways to streamline their planning, improve their briefs and motions, and anticipate the tactics of the opposing counsel ' . Where practical, the lead lawyers should integrate “actual” data into the budgeting process (or map) so that the budget (or map) can be reviewed and updated on a realistic basis.”

Re-engineering

Re-engineering requires looking at an entire process map on a board (even post-it notes) and then deciding what can be done by various billing rate people, systems, and expert systems. By going through each task, the lawyer can determine who should be doing what and what systems or expert systems need to be employed. This map must be reviewed and critiqued by a group of lawyers who know what should be done on a more efficient approach.

Identify a Client's Goals

One of the ACC's Value Challenge Tool Kit statements is to “identify a client's goals and desired results for the case or matter.” There needs to be a model for what drives these decisions. That is the perceived value of the work to be done, which can be demonstrated by the “Cobb Value Curve,” below. The Value Curve compares the value of the work to the client with the volume of work available or the perceived repetitive nature of the work. The higher the perceived value added, the less price sensitive the client will be and more the client will be willing to invest. The more the client sees the work as repetitive and a commodity that any lawyer can do, the more price-sensitive the client will be and the more the client will demand in effectiveness, efficiency, and a map. Legal work at the higher end of the curve will be much more dynamic and much less programable. Work at the lower end will be much more programable or subject to mapping.

Service Investment

There is an issue of the approval process for value pricing matters and for the training of the teams that will have to implement the process maps. There is a model for that effort as well, called the Services Investment Grid. Look at this as an “X” and “Y” chart, where the “Y” axis represents the depth and experience in a firm or in-house counsel from “low” at the bottom to “high” at the top. On the “X” axis is the level of credibility for performing the work and the return on the investment of time. The work goes from low at the left to high at the right. See bottom chart, below. The model is divided into four parts. The lower left quadrant is the area needed to be investigated as to whether the lawyers and staff have the capability to handle the matter on a value billing basis. The upper left quadrant is where the law firm or general counsel has the personnel but does not have the experience or credibility to get a return on the investment of resources and may have to outsource the capabilities to those who can manage a value billing matter effectively. The upper right quadrant is where the lawyers have the capabilities and the experience to perform the mapping and budgeting process. The lower right is where the firm or in-house counsel have the credibility and the experience to budget and create the map, but do not have the depth to do so. People who appear in the upper left need to be trained. People in the lower right need additional training.

Making It Work

What must happen to make the change work? Statements from “Leading in Uncertain Times,” by McKinsey Quarterly from December 2008 shed some light. Paraphrasing Peter Drucker: One cannot project the future but can see the implication of current events. According to McKinsey, “Uncertainty surrounds this downturns' depth and duration ' . The task of business leaders must be to overcome the paralysis that dooms any organization and to begin shaping the future ' . Strengthening these organizational muscles will not only allow companies to survive, but also to seize the extraordinary opportunities that arise during periods of vast uncertainty.” Law firms are professional service firms and businesses and must find a new business model for providing legal services. The no-risk, hourly billing model is going to be gone very soon in this market. Lawyers must see the change that is here in value billing and respond to this new era. As clients are asking for more efficiencies that will force law firms and in-house counsel to do more with fewer human resources, lawyers will have to leverage human resources less and move to maps and processes that will enable the use of substantive and expert systems and fewer lawyers. The end of leveraging of law firms and counsel will continue with the request for more efficiency and lawyers can only respond with value billing systems.

Outside and inside counsel must confront the reality of the coming changes. Value billing using blended rates and fixed fees is here. A project team that is committed to making change happen must buy into the change of the hourly billing business model. Debriefing after matters or phases of matters must be the norm and not the accident. There is no use in celebrating a success with a big dinner or a failure with a client meeting. There must be a formal and organized debriefing session on the matter with the client. The focus will be “how can we do this more efficiently and effectively?” Then the map can be adjusted to make it more efficient the next time. Clients and the lawyers must trust one another that things are going to improve.

Conclusion

This effort will call for the experimentation of approaches and non-billable time. The Linklaters law firm of London did not create Blue Flag with the oppression of billable time. Lawyers must make the investment. Leadership must stand up and lead the effort, hold firm members accountable and reinforce the vision.

[IMGCAP(1)]

[IMGCAP(2)]

William C. Cobb, a member of this newsletter's Board of Editors, is the President of the Cobb Consulting – WCCI Inc., based in Houston. Mr. Cobb has been a national consultant in strategic issues affecting professional service organizations since January 1978. That counseling includes the assessment of the impact of trends in the market; pricing services and alternative billing; practice management; firm governance and structure; partner review, evaluation, and compensation; and similar subjects of critical importance to law firm and legal department leadership. He can be reached at 713-227-2300 or [email protected]. His Web site is www.Cobb-Consulting.com.

In my past articles in various publications I have discussed the options in alternative billing. The article herein takes that discussion a step further with information from Association of Corporate Counsel (ACC). How does a law firm or in-house counsel do it and what steps can taken to create a competitive advantage with alternative billing?

Up through 1992, as a member of the Alternative Billing Task Force of the ABA Law Practice Management Section, I had written many chapters and articles on the various approaches to alternative billing. We were intent on moving the legal profession off of hourly billing to value billing, which included blended rate, contingency, or fixed-price billing. We have seen changes occur, but slowly. It took the current economic situation to make clients finally get fed-up enough with high-cost leverage and partner compensation to say “no more.” Referring matters to high-cost, highly leveraged law firms, where the model was based on hourly rates, has become obsolete. Clients are no longer satisfied with the old business model of law firms (hours times rate equals value added).

Approaches need to be functional to make the transition to value billing. There are two approaches that have worked for law firms and in-house counsel.

Fixed Fee or Blended Rate

The first approach is to “just do it” by offering a fixed fee or blended rate and then to debrief after each matter to find the efficiencies the law should have found. In many cases this is not the law firms' choice. It may be forced upon them by a client. The risk is that there will be losses until firms figure out how to make their work more profitable and deliver the services in a more effective and efficient way. The driving force is to satisfy the firm on matter profitability and the accountability to perform at the level expected by the firm. But it would be much better for profitability to prepare ahead of time for the coming events.

Creating an Internal Process

The second approach has much less risk, but needs a much higher level of accountability and leadership. In this scenario, the firm creates a map of the process. This map creates a picture of the tasks, and names those who should perform them within the firm or outside counsel. It outlines what must be done by phases of litigation, or a transaction for each billing level within in the firm and outside counsel. The map is a flow chart of all the tasks required during initial discovery, discovery, pre-trial or pre-negotiations, and final negotiations or trial.

Creating a Process Map

The Association of Corporate Counsel (ACC) provided some comments in their “Value Challenge Tool Kit Resource.” Their first focus was on the teams working collaboratively with outside counsel. “These teams jointly develop and pool legal research, motion briefs, checklists, trial materials and settlement concepts, and then test and refine them.” Let's look at this by subset. A pool of legal research is a set of standards that belong to a particular type of case or transaction. The standars must be referenced by a process to allow access to them by both the in-house and outside counsel that identifies each task and document. Let's define a process. If anyone has seen a map produced by accounting firms for their professional services in an audit, that is similar to a law firm's process map. It includes all phases of the effort and details each task and substantive system involved in each phase. Therefore, the map developed by an inside or outside counsel will require a set of phases, tasks, and substantive or expert systems. All lawyers and para-professionals must have access to the map in preparation and in debriefings. The statement to test and refine the checklist, or process, means that there must first be a budget and then a debriefing process to test the efficiency of the effort that was used by the in-house counsel and the outside counsel. This debriefing is a rigorous affair going through each phase of effort on a task by task basis.

An example from the Tool Kit: “At another company, the teams handling employment cases around the country have completed a year-long effort to re-engineer the way that they manage their cases and found many ways to streamline their planning, improve their briefs and motions, and anticipate the tactics of the opposing counsel ' . Where practical, the lead lawyers should integrate “actual” data into the budgeting process (or map) so that the budget (or map) can be reviewed and updated on a realistic basis.”

Re-engineering

Re-engineering requires looking at an entire process map on a board (even post-it notes) and then deciding what can be done by various billing rate people, systems, and expert systems. By going through each task, the lawyer can determine who should be doing what and what systems or expert systems need to be employed. This map must be reviewed and critiqued by a group of lawyers who know what should be done on a more efficient approach.

Identify a Client's Goals

One of the ACC's Value Challenge Tool Kit statements is to “identify a client's goals and desired results for the case or matter.” There needs to be a model for what drives these decisions. That is the perceived value of the work to be done, which can be demonstrated by the “Cobb Value Curve,” below. The Value Curve compares the value of the work to the client with the volume of work available or the perceived repetitive nature of the work. The higher the perceived value added, the less price sensitive the client will be and more the client will be willing to invest. The more the client sees the work as repetitive and a commodity that any lawyer can do, the more price-sensitive the client will be and the more the client will demand in effectiveness, efficiency, and a map. Legal work at the higher end of the curve will be much more dynamic and much less programable. Work at the lower end will be much more programable or subject to mapping.

Service Investment

There is an issue of the approval process for value pricing matters and for the training of the teams that will have to implement the process maps. There is a model for that effort as well, called the Services Investment Grid. Look at this as an “X” and “Y” chart, where the “Y” axis represents the depth and experience in a firm or in-house counsel from “low” at the bottom to “high” at the top. On the “X” axis is the level of credibility for performing the work and the return on the investment of time. The work goes from low at the left to high at the right. See bottom chart, below. The model is divided into four parts. The lower left quadrant is the area needed to be investigated as to whether the lawyers and staff have the capability to handle the matter on a value billing basis. The upper left quadrant is where the law firm or general counsel has the personnel but does not have the experience or credibility to get a return on the investment of resources and may have to outsource the capabilities to those who can manage a value billing matter effectively. The upper right quadrant is where the lawyers have the capabilities and the experience to perform the mapping and budgeting process. The lower right is where the firm or in-house counsel have the credibility and the experience to budget and create the map, but do not have the depth to do so. People who appear in the upper left need to be trained. People in the lower right need additional training.

Making It Work

What must happen to make the change work? Statements from “Leading in Uncertain Times,” by McKinsey Quarterly from December 2008 shed some light. Paraphrasing Peter Drucker: One cannot project the future but can see the implication of current events. According to McKinsey, “Uncertainty surrounds this downturns' depth and duration ' . The task of business leaders must be to overcome the paralysis that dooms any organization and to begin shaping the future ' . Strengthening these organizational muscles will not only allow companies to survive, but also to seize the extraordinary opportunities that arise during periods of vast uncertainty.” Law firms are professional service firms and businesses and must find a new business model for providing legal services. The no-risk, hourly billing model is going to be gone very soon in this market. Lawyers must see the change that is here in value billing and respond to this new era. As clients are asking for more efficiencies that will force law firms and in-house counsel to do more with fewer human resources, lawyers will have to leverage human resources less and move to maps and processes that will enable the use of substantive and expert systems and fewer lawyers. The end of leveraging of law firms and counsel will continue with the request for more efficiency and lawyers can only respond with value billing systems.

Outside and inside counsel must confront the reality of the coming changes. Value billing using blended rates and fixed fees is here. A project team that is committed to making change happen must buy into the change of the hourly billing business model. Debriefing after matters or phases of matters must be the norm and not the accident. There is no use in celebrating a success with a big dinner or a failure with a client meeting. There must be a formal and organized debriefing session on the matter with the client. The focus will be “how can we do this more efficiently and effectively?” Then the map can be adjusted to make it more efficient the next time. Clients and the lawyers must trust one another that things are going to improve.

Conclusion

This effort will call for the experimentation of approaches and non-billable time. The Linklaters law firm of London did not create Blue Flag with the oppression of billable time. Lawyers must make the investment. Leadership must stand up and lead the effort, hold firm members accountable and reinforce the vision.

[IMGCAP(1)]

[IMGCAP(2)]

William C. Cobb, a member of this newsletter's Board of Editors, is the President of the Cobb Consulting – WCCI Inc., based in Houston. Mr. Cobb has been a national consultant in strategic issues affecting professional service organizations since January 1978. That counseling includes the assessment of the impact of trends in the market; pricing services and alternative billing; practice management; firm governance and structure; partner review, evaluation, and compensation; and similar subjects of critical importance to law firm and legal department leadership. He can be reached at 713-227-2300 or [email protected]. His Web site is www.Cobb-Consulting.com.