Issues and challenges around pricing, alternative fee arrangements and value understandably still get plenty of air-time. They received top billing at the recent COLPM (College of Law Practice Management) Futures Conference in Chicago. I read through my notes from talks by two senior in-house counsel – there are strong words and some important messages and tips for law firm leaders, particularly in non-USA jurisdictions:
Mark Ohringer, General Counsel of Jones Lang LaSalle (invented outsourcing of real estate management; top two property managers globally; 40 000 staff in 62 countries) didn’t pull any punches:
- We have tried fixed fee deals and hourly billing with law firms – ‘in our experience it all sucks and the law firms simply don’t manage this well. I am flummoxed by how to deal with this – if I could have 100% of my legal work done in-house, I would – unfortunately for me, reality dictates otherwise’.
- We minimise work we send to law firms as fees are not managed and are sky-high. ‘I choke when I see the bills that come through’.
- In some areas we effectively cover ourselves with insurance to avoid using law firms.
- As soon as we get enough work in an area to justify it, we employ our own lawyer – have taken on 60 in recent times.
- We spend an enormous amount on training to prevent things ever getting to law firms – that is how strongly we feel about it. For instance in the industrial relations arena we work with human resource to keep it away from outside lawyers.
- Where we don’t have expertise and there is big risk we use outside lawyers and are prepared to pay accordingly. But, we ensure this is tightly managed and it is limited. ‘We watch them like a hawk’.
- Even in the litigation area where we have to brief outside – we have lawyers ‘whose job it is to watch the lawyers’.
- 75% of what we do spend on external legal is on non-lawyers – we readily go to non-lawyer providers ‘like an Axiom’ when we can ‘at a price point higher than our in-house team but still far better than lawyers’.
- We have used LPOs out of India but our experience has not been great.
- We take full advantage of IT and automation.
- When we do use an outside lawyer we only want one guy, not a team.
Ellen Rosenthal, Chief Counsel, Pfizer Legal Alliance (PLA) outlined a collaborative approach, but one that is clearly structured to meet Pfizer’s needs:
- We don’t have a specific way of setting price. We simply agree to pay a certain annual sum to one of our panel firms for an agreed tranche of work.
- Lawyers in the past measured work in terms of hours, we measure it in terms of value. ‘We forbid our firms to talk about hours when discussing assignments’. Fees are not to be calculated based on hours. They talk about activities and what outcomes are desired. ‘This is difficult for lawyers – a bit like being told in your first Spanish class that you cannot speak a word of English!’
- We focus on value but the price is the metric of exchange.
- ‘The billable hour model is broken – it encourages inefficiency’, it breeds mistrust, incentives are not aligned to produce pro-active lawyering and task-based billing is an obstacle to team-work and collaboration.
- 70% of our legal work globally is now done on a non-hourly billing basis and it is working.
- The key for Pfizer has been creating a special partnership with our 17 external law firms – based on collaboration, training and development within the group, a long term partnership and a new mindset around sharing with all firms integrated into the business and one another!
- The aim is to achieve value for the client but also for the firms – this mutuality of value is the basis of the relationship. It is based on developing prosperous relationships and information sharing.
- It could be said Pfizer is simply asking/looking for discounts – but we feel that by changing the economics we are also providing real value to our firms.
- Benefits Pfizer have noted:
- promotes sufficiencies which lead to greater efficiencies
- predictable income for law firms (paid fees in equal monthly amounts), predictable expenditure for client (regardless of actual work volumes – usually 70% is known and 30% unknown)
- access to knowledge & sharing
- regular information exchange meetings with our lawyers which are attended by some of our senior executives
- good relationships have developed between our law firms and our in-house counsel – people relationships have been fostered.
- feedback is provided both ways each year – everyone evaluates one another.
- feedback we have had is that it has taken member firms back to the old values of lawyering – as competition has diminished.
- due to the predictability firms can staff up or down as needs change.
- we have learned to work out scopes of work without thinking how long something will take to do. Individual matters and trial days are not priced.
- it is a case of constant learning – we get feedback – where did you spend most of your effort and resources (not time!) – where did our outside firm feel it provided most value.
- it has led to an alignment of views.
- there is no settling up at the end of the year apart from a ‘bonus’ system for extraordinary outcomes.
What is this all telling us?
- post-2008 (the GFC – Global Financial Crisis) everything changed for law firms and their dealings with clients. Many would say it started before then, as predicted by Richard Susskind in ‘The End of Lawyers? Rethinking the Nature of Legal Services’ who predicted in 2008 significant new pressures on the legal marketplace and, in turn, great change in the world of legal services.
- the fixed fee initiative, and other alternatives, is rolling, due to the economics and being facilitated by much stronger IT systems, but mainly because clients are insisting they do. This hasn’t quite struck home in some non-USA jurisdictions but I predict is set to change soon.
- LPOs (legal process outsourcing (or in some cases ‘insourcing’) are a reality every law firm has to understand.
- for those firms who have not grasped this nettle, it is time to start the conversation with clients – to raise these issues up-front and build trust and communication channels in the process. This was the important point made at the Futures Conference by Toby Brown of Vinson & Elkins who probably has more experience than most working with clients to develop alternative fee arrangements. (also see his comments on his blog)