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Law firms love AFAs. They love them because they make more money using them. Why else would a law firm actively bid on work using AFAs?

How are law firms profiting from AFAs? It’s simple. Strong AFA-oriented firms – regardless of size or specialty - have the data. They know how long projects take, how many personnel are required and the most efficient ways to execute. And they can mine that data across many matters and multiple industries. Additionally, because law firms are still capturing time entries from their staff, they can continually monitor the effectiveness of their AFAs and tweak their "input" costs accordingly if they are at risk of losing money.

Corporate legal departments are at a disadvantage because they likely don't have the data to inform structuring an AFA and they certainly don't get the "input" cost data from the law firms to monitor the effectiveness of the AFA from a cost perspective. From a purely cost-focused point of view, to enter into AFA negotiations without data and metrics around necessary resources and time is like going to a negotiation unprepared. The cards are stacked against the corporate legal department before the negotiations begin.

However, there is a way to help level the playing field and it’s pretty simple.

Request a shadow bill.

A shadow bill is exactly what it sounds like: A duplicate copy of the hours that the law firm staff spent on your project. I know that this is controversial, but making sure both parties have the data is the only fair way for AFAs to be entered into and maintained.

These bills are often circulated internally in a law firm so there may be an initial resistance to sharing them with a client. From a corporate perspective, requesting a shadow bill is the ONLY way you'll be able to analyze the true value you are getting from the AFA. Moreover, law firms have the technology and processes in place that make this a simple task on their side.

Clarity of Results

Now imagine the clarity that ensues when both parties come to the table with a shared understanding of AFA-related results and costs. It extends beyond cost-controlling measures to create stronger ties between in-house and outside counsel – ties that can be used to create mutually beneficial results. In fact, cost savings are only the beginning.

One of the key benefits from AFAs is being able to share in the financial risks. In some instances (depending on the type of AFA - see below), law firms reap the rewards when a certain goal is attained. When alternative fee arrangements focus on results with the emphasis away from the billable hour, lawyers are rewarded for efficiency.  AFAs also provide another important benefit to legal departments - clarity of future costs. Having the ability to mine data from other legal cases or matters is a huge incentive when trying to predict future legal spend. Shadow bills provide this transparency of legal spend.

Let's look at an example. A case settled in mediation might net a law firm a tidy profit under an AFA structure – one that would not be reflected in an hourly structure. But balance this against an AFA-billed case that might have unexpected turns and the arrangement may work in the corporate legal department’s favor.

Shadow bills are the only way to level the AFA-playing field for law firms and corporate legal departments. Get started today. Request a shadow bill from your law firm and start managing your legal department like a business.

Beyond the Billable Hour


Below are some of the common alternatives to hourly billing: 

• Fixed-fee or Flat Rate - An agreed-upon sum for handling a matter or a defined portion of a case.

• Capped Fee - An hourly rate, but the client is promised the total billing will not exceed a predetermined amount

• Discounted Hourly - A reduced hourly rate, often tied to a high volume or extended to major clients

• Blended Hourly - A uniform hourly rate averaged among the partner, associate and support staff rates

• Project Billing - A flat fee agreed upon in advance, for handing a specific project
  

• Incentive Billing - A fixed fee, established at the outset, with an incentive bonus if the law firm obtains specific results

• Modified Contingency - A reduce hourly rate with additional compensation depending on the outcome of a matter

• Defense Contingency or Negative Contingency - Defense attorney's compensation is totally or partially dependent upon the outcome of a matter

• Hybrid Arrangements - Any billing method that combines two or more alternatives

Want to Learn More?

Take a look at the articles and surveys below to see why alternative fee arrangements are becoming so popular.

Articles

• June 2, 2011 - Above the Law - Inside Straight: Alternative Fee Agreements For Beginners

• May 31, 2011 – The Globe and Mail - Lawyers Finding New Ways to Get Paid

• May 24, 2011 – Attorney at Work - Planning for Flat-Fee Billing

• March 22, 2011 – Adam Smith, Esq blog - A Modest Proposal for Alternative Fees

• March 21, 2011 –  3 Geeks & a Law Blog - The Value of Non-Lawyers in Client Fee Conversations

• Feb. 23, 2011 – FindLaw - Alternative Fee Agreements Gaining Popularity

• Feb. 14, 2011 – The National Law Journal -  Alternative Fees Are Not the Enemy

• January 19, 2011 – LegalBizDev – Why Alternative Fee Revenues Will Keep Going Up

ACC Value Challenge

• October 2010 - Elevator Pitch: How Can Value--‐Based Fee Structures Help Us

• February 2010 - ACC Value Challenge Brief

• July 2010 - ACC Value-Based Fee Primer

2010 Surveys

• BTI Premium Practices Forecast 2010: Survey of Corporate Legal Spending

• Fulbright’s 7^th Annual Litigation Trends Survey Report

• Inside Counsel Third Annual Law Department Operations Survey

• ALM Report : Law Firms and Alternative Fee Arrangements

Law firms are resilient – one of the most tenacious businesses that exist.

Never mind the (almost) static, partner-centric organizational structure. They’re slow to adopt new technology when compared to businesses in other industries. They often have the reputation of holding onto tradition and responding slowly to new experiences or trends.

What other profession is so well known for charging at an hourly rate – a set-up that essentially rewards lawyers for spending more time (as opposed to only necessary time) on cases?

However, as corporate legal departments strive to drive down costs and minimize risks, an opponent to the hourly bill is steadily growing in popularity and is now (ok, I’m just going to say it) a mainstream practice for many law firms. The common perception is that alternative fee arrangements (AFAs) (think flat-rates or project- or value-based fees) give corporate legal departments a distinct edge when it comes to saving money and puts law firms at a significant (monetary) disadvantage.

That might not be the case.

As billing models change, resilient law firms are adapting. They’re surviving and thriving when it comes to AFAs.

Why are law firms benefiting from AFAs? Because most of them have the experience and (most importantly) the data to reinforce their AFA negotiations. The result is that law firms make more money using AFAs; not less. Counterintuitive? Read our next post.

State of the Nation

That AFAs are gaining more ground in the bout of in-house vs. outside counsel is no surprise to anyone. And, as is usually the case, the battle to keep law department costs down is fueling the movement.

A survey from the BTI Consulting Group cites that corporate legal budgets were expected to decrease 4.3 percent in 2010. This means that corporate legal departments needed to get the same amount (or more) of work done with less money and resources.

According to Fulbright’s 7^th Annual Litigation Trends Survey Report, 52 percent of the U.S. corporate legal departments surveyed are using AFAs. One in six of the corporate counsel that responded estimate that AFAs account for 50 percent or more of their billings. Among all respondents using AFAs, fixed fees, conditional/contingent fees, blended rates and capped fees are the most widely used AFA variants.

And the practice is growing. The survey stated that four out of 10 U.S. respondents expect to increase their use of alternative fees and with large companies leading the way and that a majority of U.S. respondents see AFAs – and more stringent cost control measures - as becoming fixtures in the market.

To sum it all up, cost controls demand innovative thinking. As corporate legal embraces AFAs, law firms have to anticipate, adapt to and profit from these arrangements.

And they are.

Corporate legal departments are also embracing it. Read Mark Herrmann's article - Inside Straight: Alternative Fee Agreements for Beginners in Above the Law to see how your legal department can benefit from project or value-based billing arrangements. Mr. Herrmann is the Vice President and Chief Counsel - Litigation at Aon.

Preparing for a project today led me to an interesting article (thank you, Twitter): The Eight Most Secure Places in the World. Naturally, the article covered places such as the United States Bullion Depository (often referred to as Fort Knox), Colorado’s ADX Florence Supermax Prison and NORAD. Unexpectedly, it included a vault that protects more than 250 million seeds and a parking garage.

What unites these juggernauts is not necessarily the independent security measures each took to secure its premises, but the uniform thoughts that drove the creation of these processes.

For example: Battening down the hatches at Fort Knox includes resources such as gates, cameras, armed US Mint Police, artillery support from the nearby Army base, a 22-ton vault door and a combination split between 10 separate people who must all be present to unlock the vault.

Clearly, prior to building the depository and setting up these tactics, the government needed to create the plan and its desired outcome, agree on a project plan, resources, goals and deliverables, execute and monitor on these principles and then drive the project to completion.  This includes everything from site evaluations, budgets, building plans and a tight oversight to ensure a timely and exact execution. After all, they were building this to protect more than 4.6 thousand tons of gold bullion.

So how does this relate to legal project management?

Like the development of these fortresses, there are basic components for successful legal project management.

The Right People – The Project Management Institute blogged about what qualities good project managers have and these are definitely relevant in legal project management.  The best candidates have long-term vision balanced with an eye for detail and the drive to ensure projects stay on time and within budget. The project manager needs to have a strong commitment to see projects through to the end and the patience to methodically plot them out and assign deliverables.

And then there is communication. Yes, we hear this skill paired with almost every profession but in this case it rings especially true.  An individual who is handling a project that spans an entire corporate legal department – and often includes participants from multiple departments and outside counsel – requires the ability to alternate communication styles like a switch hitter.

Experience is important. Does your project manager know the processes that comprise the planning and execution of this particular project? Does the project manager know your unique needs as a corporate legal department that must be taken into account? Is your legal project manager credentialed (PMP, CAPM, etc)? Has your legal project manager handled projects such as this successfully? If there is no one that suits these requirements within your organization, consider hiring a consultant or outsourcing your project management needs. Another option is to identify your department’s budding project managers and arrange for professional development opportunities for them.

The Right Tools - Did they bore out the Cheyenne Mountain for NORAD HQ with spoons? Did they use paper mache to build fences for Area 51? Of course not! In order to ensure quality results, you must have the right tool to help you plan, collaborate, execute and measure your projects.  In this case, I’m talking project management software. First and foremost, ensure that the software you choose (and I have a recommendation) is specific to legal project management.

There are many tools out there that address the needs of project management in general but if they are not tailored specifically to legal project management then you’re starting out your project with an unnecessary deficit. What good is your software if you can’t use it to plan or track important elements of your project such as e-invoicing, alternative fee arrangements or matters, tasks and timekeeper management? It should also serve as a centralized repository of information for authorized participants – a home for your documents and conversations around the project that can easily establish processes, players, deliverables, next steps and reports.

Finally, consider cloud-based applications. Cloud-based software gives you the agility and collaboration capabilities of in-house applications without them being leashed to your computer or including expensive, department-wide implementations.

The Right Resources – Project management is an evolving discipline for the legal industry, one that requires corporate legal departments to learn the ropes while also adapting the process to meet their unique needs. If legal project management is a new concept for your department, then turn to the right resources to help you develop it successfully.  Here are a few ways to help you acclimate:

• Attend legal project management seminars such as these that can address the practice from a beginning to an advanced level.

• Look outside the legal industry to find inspiration of other project management success stories. Although the exact execution of a software development project may not speak to your legal projects, the vision and outcomes may provide helpful references.

• Go to professional organizations to catch up on the latest news and events within the industry. Great examples of project management organizations include the Project Management Institute and the International Project Management Association.

• Ask your peers how they are implementing project management in their corporate legal departments and what successes they are hearing of.

• Turn to industry experts to learn more about project management and its trends and applications in the legal industry. Want some references? Email me to start a conversation.

So build your own Fort Knox of legal project management by ensuring you have the right people, tools and resources. Your gold bullion will thank you.

The discipline of project management is not new – it is just becoming the latest buzzword in the legal industry  - and for good reason. As many of you know, traditional project management emerged out of the construction and engineering industries and has never been really suitable for the legal industry. The IT industry, however, has in the past 20 years taken to a modified project management process that is lighter and more suited to lawyers. Although legal has been somewhat slow to embrace this discipline, the landscape is changing and there has been a fundamental shift in how law is being practiced today and in the future. (Just look at all the articles about alternative fee arrangements).

Why Now?

Even before the recession, corporate legal departments were being asked to reduce their total legal spend, bring greater control and predictability to their legal budgets and demand greater efficiency from outside counsel. The recession escalated this mandate and there continues to be immense pressure to control and manage legal costs. Whether corporate legal departments like it or not, legal project management is here to stay.

3 Key Benefits of Legal Project Management

Change is difficult for any corporation or law firm but with it comes the possibility of great innovation. Implementing basic project management fundamentals in all of your legal projects will help you work more efficiently, increase your productivity and improve how you interact with your legal and business teams. Here are 3 key benefits of legal project management and why it’s necessary in the legal arena:

1. Managing Expectations

Or at least, you don't need it FIRST.

Legal departments: unless you have a mature, well-fed matter management system or currently deploy project management discipline to your legal matters, then you don't need e-invoicing. There would be no context for it. Don't get me wrong; you will need it eventually, it is just not where you start in the process of bettering your legal department. Rather, it is the capstone.

At least in companies smaller than $10 billion in revenue, we have found that there are greater needs.

I had some preconceived notions about budgeting for legal projects going into the design phase for the Onit legal budgeting set of features.

First, I believed that our primary market, corporate legal departments with $1 to $6 billion in revenue, would want their law firms to create and submit a budget. After all, that is what the Fortune 500 market wants. Second, I believed that our primary market would want detailed budgets, at least at the phase level. After all, Fortune 500 corporate legal departments want to budget at even a greater level of detail. Both of these preconceived notions were wrong. And not just a little, but 100% wrong.

For a market that does very little budgeting today, a little bit of functionality goes a long way. As a result, we will deliver life of project and annual budgeting capabilities and skip the detail for now. Budgets, while they can be informed by law firm input, will really be created by the corporation. It is clear the general counsel in these companies rely much more on the expertise and opinion of their own employees about project costs than they do their vendors.

We have learned a couple of other things that would be more helpful than more detail. In addition to providing budget to actual comparisons,  we will also be trying to extract some meta data about the invoice and the project at the time of invoice submission by the law firm and invoice approval by the inside project owner. Specifically, knowing what your spend is compared to your budget is not that meaningful unless you also know where your project is compared to its estimated completion. For instance, knowing that you are at 50% in a project is enhanced by the knowledge that you are 67% through with the legal work on the project. Your budget to actual comparison is now informed in a very meaningful way.

So in addition to collecting an invoice, we will also want to know whether there is a new estimate for project completion costs or date. These are relatively simple things to collect in our model with value that far exceeds the cost to collect.