Onit

May 19, 2011

The Dawn of Alternative Fee Standardization

Alternative fee arrangements bring about a couple of different (ahem) feelings, depending on who you are and where you work. General counsel applaud them as they reduce outside counsel spend. Agile (and often smaller) law firms consider them a nicely sharpened tool in the business development arsenal. Larger firms, which can have ingrained processes and a strong hierarchy, sometimes find themselves a bit behind the curve.

Regardless, alternative billing is pretty much becoming, well ‰Û_. the new standard for billing.

Not that I’m telling you anything new here, folks. We all know how the in-house perspective on alternative billing has evolved over the years. Let’s recap the highlights of the conversation over the past three decades:

    • 1981: Legal work costs what it costs. We can’t control how much we spend or what outside counsel will charge us.
    • 1991: Wait a second. Maybe we can. If only we had the technology to do so.
    • 2011: We’ve got the technology. We see alternative fee arrangements thriving with documented ROI from our own efforts and/or our peers’ efforts.

So what has sparked this blog post? We can thank The Economist for that.

It published an article on May 5 titled “A Less Gilded Future,” which lays out ongoing and growing challenges for law firms. What factors are attributing to these challenges now? Besides technology and outsourcing – which both force a deduction in billable hours – the other “evil beast” is alternative fee arrangements.

In support of this, the article cites feedback from Robert Ruyak on one of the main causes for the demise of the law firm he worked at, Howery:

Howrey had begun acceding to clients’ demands for flat, deferred or contingent fees, causing income to become clumpy and unpredictable.

With this example in mind, and with what you have seen yourself, does the growing strength of alternative fees present a mighty blow to the proliferation of law firms? Or does it just mean an end to the way law firms conceptualize, pitch and measure their billing structures?

And one more (even more thrilling) thought: Are we actually nearing a point where we can apply industry standards to alternative fee arrangements?

The adoption of alternative fees has accelerated these past 5 years alone. The fees have been in use by some pioneers for much longer than that. Thanks to technology (such as legal project management software), is there enough collective data to begin to consider the average fees associated with matters and general tasks from both an in-house and outside counsel point of view? Imagine the implications this could have on negotiations – a basic plateau to start negotiations on that is backed up by both corporate legal departments and law firms alike. Standards such as this could help law firms negotiate on a more level playing field while also affording the necessary cost controls for general counsel.

What do you think? Now that we have (and have had) the technology, do we have the data to begin building standards for alternative billing?

Stay tuned for the next blog where I will discuss how some firms are pushing alternative fee arrangements with their customers because they are finding higher margins there! Sounds counter-intuitive, right?

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