16 Pro Te: Solutio
Pro Te: Solutio

dtAble discussi
le
n
rou on
A
AlternAtive Fee Tough — how can
Times are Tough — how can
Times are
AlternAtive Fee
arrangemenTs help solve The problem?
help solve The
Y
You cannot turn on the television or radio read any
You cannotturn on the television or radio or or readany must demonstrate value to the leadership of their companies, and in-
must demonstrate value to the leadership of their companies, and
in-
house counsel must show that they are actively managing costs.
house counsel must show that they are actively managing costs.
newspaper publication these days without hearing about the financial
newspaper publication these days without hearing about the
financial
Maintaining the status quo simply will not work anymore, and the
Maintaining the status quo simply will not work anymore, and the
crisis and recession that the United States currently faces. The S&P
crisis and recession that the United States currently faces. The
S&P
argument that “legal departments are different” just will not fly. Cor-
argument that “legal departments are different” just will not fly. Cor-
500, generally considered the benchmark for U.S. equities, under-
500, generally considered the benchmark for U.S. equities, under-
porate legal departments absolutely must reduce costs allocated to
porate legal departments absolutely must reduce costs allocated to
went an annual drop in 2008 unprecedented since 1937.1 In the cur-
went an annual drop in 2008 unprecedented since 1937.1 In the
cur-
outside counsel, increase the predictability of costs, ensure that out-
outside counsel, increase the predictability of costs, ensure that
rent economy, we must deal with issues such as the highest contraction
rent economy, we must deal with issues such as the highest
out-
contraction
side counsel’s objectives correspond toto the company’s objectives,
side counsel’s objectives correspond the company’s objectives, and
rates in manufacturing and the lowest consumer confidence levels
rates in manufacturing and the lowest consumer confidence levels
and
obtain better value of services from their outside counsel.
obtain better value of services from their outside
experiencedin 26 years.2 U.S. companies cut 250,000 private sector
experienced in 26 years.2 U.S. companies cut 250,000 private
counsel.
sector
So, how are you, as in-house counsel to “Company-X,” going to
So, how are you, as in-house counsel to “Company-X,” going to
jobs in November 2008, according to the ADP National Employ-
jobs in November 2008, according to the ADP National Employ-
achieve these goals and meet the demands of corporate leadership?
achieve these goals and meet the demands of corporate
ment Report,3 and profits for companies in the S&P 500 were down
ment Report,3 and profits for companies in the S&P 500 were
leadership?
down
You know that you must do something and that you must make
You know that you must do something and that you must make
7.4 percent in the third quarter of 2008.4 As you well know, the list
7.4 percent in the third quarter of 2008.4 As you well know, the list
changes,but what exactly should you do? What changes should you
changes, but what exactly should you do? What changes should
goeson and on.
goes on and
you
on.
make? In order to help you with these difficult issues and decisions,
make? In order to help you with these difficult issues and
As companies across the country are evaluating and implementing
As companies across the country are evaluating and
decisions,
implementing
we have assembled aaroundtable of individuals to discuss possible
we have assembled roundtable of individuals to discuss possible
various budgetary plans and cuts in order to stay afloat during this
various budgetary plans and cuts in order to stay afloat during this
solutions and ways to meet these goals. They will suggest that the
solutions and ways to meet these goals. They will suggest that the
crisis, corporate legal departments cannot avoid the crunch. Corpora-
crisis, corporate legal departments cannot avoid the crunch.
Corpora-
consideration of alternative fee arrangements and the use of re-
consideration of alternative fee arrangements and the use of re-
tions have always viewed their legal departments as cost centers, and
tions have always viewed their legal departments as cost centers,
and
gional and mid-size firms is a great starting point. In order to
gional and mid-size firms is a great starting point. In order to
in light of these tough economic times, 75 percent of corporations
in light of these tough economic times, 75 percent of corporations
provide several perspectives on the question, our panel consists of
provide several perspectives on the question, our panel consists of
have actually cut their legal department budgets for 2009.5 At the
have actually cut their legal department budgets for 2009.5 At the
two in-house attorneys, a consultant to both in-house and outside
two in-house attorneys, a consultant to both in-house and outside
sametime, 71 percent of the NLJ 250 law firms have raised their
same time, 71 percent of the NLJ 250 law firms have raised their
counsel, and one attorney with our firm.
counsel, and one attorney with our firm.
hourly billable ratesfor 2009.6 Therefore, corporate legal departments
hourly billable rates for 2009.6 Therefore, corporate legal
departments
Pro Te: Solutio
Pro Te: 17
17
Solutio

Roundtable Participants:
Roundtable Participants: working at Baxter Healthcare, Butler Snow tegic partnerships with our key firms, imple-
tegic partnerships with our key firms, imple-
working at Baxter Healthcare, Butler Snow
and Baxter established a fixed fee arrange-
and Baxter established a fixed fee arrange- menting preferred pricing with our discovery
menting preferred pricing with our discovery
Marla Persky is the General Counsel of
Marla Persky is the General Counsel of
ment whereby the firm loaned Charles to
ment whereby the firm loaned Charles to vendors, and promoting proactive negotia-
vendors, and promoting proactive negotia-
Boehringer Ingelheim, the largest privately
Boehringer Ingelheim, the largest privately Baxter’s legal department to serve as the in-
Baxter’s legal department to serve as the
held pharmaceutical company
held pharmaceutical company tions with both. In order to manage firm
tions with both. In order to manage firm
in-
terim-counsel for one of its subsidiaries for a
terim-counsel for one of its subsidiaries for
in the world. Boehringer In-
in the world. Boehringer In- a fees, our team has implemented a compo-
fees, our team has implemented a compo-
four-month period during 2000 and 2001.
four-month period during 2000 and 2001.
gelheim ranks fifteenth in rev-
gelheim ranks fifteenth in rev-
nent-based alternative fee model that assigns
nent-based alternative fee model that
enues among the world’s
enues among the world’s assigns
unit costs to the bulk of pre-trial work on a
unit costs to the bulk of pre-trial work on a
leading pharmaceutical com-
leading pharmaceutical com-
panies and has seen year-over-year growth far matter-by-matter basis.We provide the firms
matter-by-matter basis. We provide the
panies and has seen year-over-year growth
far firms
exceedingthe pharmaceutical industry in
exceeding the pharmaceutical industry in an incentive to come in under budget, and a
an incentive to come in under budget, and
Elizabeth Saxton: What actions, if any, has
Elizabeth Saxton: What actions, if any, has
general. Boehringer focuses on branded and
general. Boehringer focuses on branded a
reconciliation process insures that the pro-
reconciliation process insures that the pro-
your legal department or law firm taken in
your legal department or law firm taken in
and
generic prescription medicines, consumer
generic prescription medicines, consumer
posalsare not artificially inflated to “game”
posals are not artificially inflated to “game”
the past to attempt to reduce costs and/or in-
the past to attempt to reduce costs and/or
healthcare, chemicals, biopharmaceuticals
healthcare, chemicals, biopharmaceuticals
in- the outcome. We also use an annual rate ap-
the outcome. We also use an annual rate
and animal health products.
and animal health creasethe value of services provided? Have
crease the value of services provided?
ap-
products. Have proval process, which allows us to negotiate
proval process, which allows us to
thesesteps been successful?
these steps been
Lisa Warren is an Assistant General Counsel
Lisa Warren is an Assistant General negotiate
successful? rates and tiered discounting arrangements
rates and tiered discounting arrangements
Counsel
of Johnson & Johnson. The Johnson & John-
of Johnson & Johnson. The Johnson &
John- son companies offer the world’s
son companies offer the spanning all work completed by a firm in a
spanning all work completed by a firm in a
Persky: Any in-house department has con-
Persky: Any in-house department has con-
world’s range of healthcare
broadest range of healthcare
broadest calendar year.
calendar
trollable and uncontrollable costs. Employees
trollable and uncontrollable costs.
products, ranging from face
products, ranging from face year.
Employees Discovery projects can be very substantial
Discovery projects can be very
are a fixed cost. We control the fixed costs by
are a fixed cost. We control the fixed costs
wash to orthopedic products
wash to orthopedic products substantial
by for a given matter, and thus, each project in-
for a given matter, and thus, each project
holding headcount flat, ruthlessly prioritiz-
holding headcount flat, ruthlessly prioritiz-
aswell as a a wide array of
as well as wide array of medi- in-
medi- volving fees in excess of $50,000 requires a
volving fees in excess of $50,000 requires
cal devices to over-the-counter and prescrip-
cal devices to over-the-counter and ing what we do and do not manage so as to
ing what we do and do not manage so as to
a
prescrip-
tion drugs.
tion drugs. Statement of Work (SOW). When possible,
Statement of Work (SOW). When possible,
focus our limited resourceson the most stra-
focus our limited resources on the most
stra- we issue competitive bidding events for the
we issue competitive bidding events for the
Pam Woldow is a principal of Altman Weil
Pam Woldow is a principal of Altman Weil tegic and value-added work for the organiza-
tegic and value-added work for the
organiza-
Inc. Her international practice focuses on entire breadth of discovery services associated
entire breadth of discovery services
Inc. Her international practice focuses on tion. Outside counsel fees are often not
tion. Outside counsel fees are often not
associated
areas of strategic and opera-
areas of strategic and opera- with the project to gain efficiencies of scale.
with the project to gain efficiencies of scale.
controllable — we cannot prevent people
controllable — we cannot prevent people
tional importance to both le-
tional importance to both le- The SOW gives visibility to costsup-front to
The SOW gives visibility to costs up-front to
from suing us. Therefore,in working with
from suing us. Therefore, in working with
gal departments and law
gal departments and law
verify that the scope and cost of the discovery
verify that the scope and cost of the
outside counsel, we have sought to obtain
outside counsel, we have sought to obtain
firms, focusing on improving
firms, focusing on improving discovery
project are warranted for favorable resolution
project are warranted for favorable
the delivery of high-quality preferential billing rates through a conver-
preferential billing rates through a conver-
the delivery of high-quality
resolution
and cost-effective legal services, selecting
and cost-effective legal services, selecting of the matter and also implements an ap-
of the matter and also implements an ap-
gence program that increasesthe volume of
gence program that increases the volume
and managing outside counsel, convergence
and managing outside counsel, of proval process to approve increases.
proval process to approve
work we give a smaller number of firms. This
work we give a smaller number of firms.
convergence
programs, litigation management, and all
programs, litigation management, and all increases.
This
concept has been successful to aa point. We
concept has been successful to point. We
aspectsof the counsel-client relationship.
aspects of the counsel-client relationship.
Johnson:We have offered many different
Johnson: We have offered many different
are reducing the number of firms with which
are reducing the number of firms with which
Altman Weil Inc. provides management
Altman Weil Inc. provides management
cost-savingmechanisms to our clients in the
cost-saving mechanisms to our clients in
consulting services exclusively to legal orga-
consulting services exclusively to legal we deal even further and looking for ways to
we deal even further and looking for ways
the
orga- to
nizations.
nizations. past, some of which Marla and Lisa just al-
past, some of which Marla and Lisa just al-
better align risks with rewards so that our
better align risks with rewards so that our
luded to. For example, we have entered into
luded to. For example, we have entered
Charles Johnson isis member of of Butler,
Charles Johnson a a member Butler, Snow, preferred provider firms share in the upsides
preferred provider firms share in the
into
Snow, Stevens & Cannada PLLC and is upsides
O’Mara, Stevens & Cannada PLLC and is
O’Mara, volume discount arrangements on an hourly
volume discount arrangements on an
of our business while standing beside us to
of our business while standing beside us to
hourly
the Co-Chair the firm’s
the Co-Chair of the firm’s rate basis, fixed fee, and flat fee arrangements
rate basis, fixed fee, and flat fee
endure the downsides as well. Alternative
endure the downsides as well. Alternative
Pharmaceutical, Medical De-
Pharmaceutical, Medical De- arrangements
in connection with transactions, corporate,
in connection with transactions, corporate,
billing arrangements will become the norm
billing arrangements will become the norm
vice, and Healthcare Industry
vice, and Healthcare Industry
and general contract work.
and general contract
for us, rather than the exception.
for us, rather than the
practice group. His practice
practice group. His practice work.
exception.
We have also entered into arrangements
consistsprimarily of the repre-
consists primarily of the We have also entered into arrangements
repre-
sentation of pharmaceutical companies,
sentation of pharmaceutical companies, whereby we receive aa flat fee per litigated
whereby we receive flat fee per litigated
Warren: The primary areas of external legal
Warren: The primary areas of external legal
medical device companies, physician prac-
medical device companies, physician prac-
matter for the first 120 days after the client
matter for the first 120 days after the client
expense are outside counsel and discovery
expense are outside counsel and discovery
tices, hospitals, and other healthcare provid-
tices, hospitals, and other healthcare
tenders the matter to us. Our services under
tenders the matter to us. Our services
fees and expenses. Our strategies to reduce
fees and expenses. Our strategies to
provid-
ers in various types of transactional and
ers in various types of transactional and under
reduce this flat fee include those services normally
this flat fee include those services normally
compliance matters. When Marla Persky was
compliance matters. When Marla Persky thesespend-centers focus on developing stra-
these spend-centers focus on developing
was stra-
18 Pro Te: Solutio
Pro Te: Solutio

performed at the outset of litigation, and if ply don’t buy these arguments. Any business
ply don’t buy these arguments. Any that trust us as their business partner and are
that trust us as their business partner and
performed at the outset of litigation, and if
business are
we resolve aamatter in the first 120 days of
we resolve matter in the first 120 days of person will tell you that they manage to a
person will tell you that they manage to a willing to explore new ways to handle their
willing to explore new ways to handle their
representation, then the client will pay us an
representation, then the client will pay us budget despite the fact that business is rife
budget despite the fact that business is rife billing structure will become our long-term
billing structure will become our long-term
an
early resolution bonus. Upon the termina-
early resolution bonus. Upon the termina- with unknowns — that is why you list upside
with unknowns — that is why you list partners. There are aalot of firms out there
partners. There are lot of firms out there
upside
tion of the initial 120 day period, the billing
tion of the initial 120 day period, the billing and downside potentials. We are insisting on
and downside potentials. We are insisting and thousands of good lawyers — one way to
and thousands of good lawyers — one way
on to
arrangementtransitions to our ordinary
arrangement transitions to our ordinary budgets for all matters — this requirement
budgets for all matters — this requirement differentiate a law firm from the masses is
differentiate a law firm from the masses is
hourly billing rates, but this preliminary flat
hourly billing rates, but this preliminary flat helps drive billing arrangements towards creativity and fairness.
creativity and
helps drive billing arrangements towards
fairness.
rate provides clients with the ability to con-
rate provides clients with the ability to con-
the
t
trol costs and accurately budget during the
trol costs and accurately budget during the
early stages of aalawsuit. After this 120 day
early stages of lawsuit. After this 120 day
he primaryareas of external legal expense are
primary areas of external legal expense are
period, the client usually has a better under-
period, the client usually has a better
under-
standing of its exposure in the particular law-
standing of its exposure in the particular
outside counsel and discovery fees and expenses.
outside counsel and discovery fees and
law-
suit and can then assess the pluses and
suit and can then assess the pluses and expenses.
Our strategies to reduce these spend-centers
Our strategies to reduce these spend-centers
minuses of settlement. The early resolution
minuses of settlement. The early resolution
focus on developing strategic partnerships with
focus on developing strategic partnerships with
bonus provides us with a reward for reaching
bonus provides us with a reward for
reaching
a speedy resolution and at the same time still our key firms, implementing preferred pricing
a speedy resolution and at the same time our key firms, implementing preferred pricing
still
provides the client with great cost-savings
provides the client with aagreat cost-savings
with our discovery vendors, and
with our discovery vendors, and
in the long run.
in the long run.
promoting proactive
promoting proactive
negotiations
negotiations
Saxton: What have been the primary impedi-
Saxton: What have been the primary
impedi-
ments, if any, that you have seen or experi-
ments, if any, that you have seen or experi-
with both.
with both.
encedwhen trying to implement new legal
enced when trying to implement new legal
— Warren
— Warren
billing methods and concepts? Have you
billing methods and concepts? Have you been
been
able to overcome these impediments, and if
able to overcome these impediments, and if
so, how?
so,
how?
Warren: We use electronic billing to track
Warren: We use electronic billing to track
our alternative fees. The UTBMS codes
our alternative fees. The UTBMS codes used
used
for e-billing are a close-fit but do not match
for e-billing are a close-fit but do not match
our version of the pre-trial work breakdown
our version of the pre-trial work breakdown
structure. After mapping the codes to our
structure. After mapping the codes to our
template, we were able to use the current
template, we were able to use the current
UTBMS code set. However, we invested
UTBMScode set. However, we invested sig-
sig-
nificant effort to redefine the codes to match
nificant effort to redefine the codes to
match
the components we innumerate in our alter-
the components we innumerate in our alter-
native fee template.
native fee
template.
Persky:II hear the “it won’t work” excuse —
Persky: hear the “it won’t work” excuse — fixed fees, flat fees, and retainer agreements
fixed fees, flat fees, and retainer Johnson:When we first began implementing
Johnson: When we first began
agreements implementing
litigation isn’t controllable; we don’t know
litigation isn’t controllable; we don’t know for certain matters and categoriesof work. I
for certain matters and categories of work. I new billing methods, many members of the
new billing methods, many members of the
how difficult the negotiation will be with the
how difficult the negotiation will be with the am still pushing the greater use of contin-
am still pushing the greater use of contin- firm were concerned that these arrangements
firm were concerned that these
arrangements
other side; who knows how extensive the
other side; who knows how extensive the gency fees and modified contingency rela-
gency fees and modified contingency rela- would not work, and many of the excuses
would not work, and many of the excuses
government investigation will become. II sim-
government investigation will become. tionships. At the end of the day, the law firms
tionships. At the end of the day, the law that Marla just mentioned were used to try to
that Marla just mentioned were used to try
sim- firms to
Pro Te: Solutio 19
Pro Te: 19
Solutio

stall the implementation process. However,
stall the implementation process. However, steady number of matters year over year or
steady number of matters year over year or for the greatest possibilities for reduced costs
for the greatest possibilities for reduced
costs
once we took the plunge and began using
once we took the plunge and began using elsedefines the number of matters that will
else defines the number of matters that will and increasedpredictability.
and increased
predictability.
them, both the firm and our clients have
them, both the firm and our clients have be covered by the fixed fee.
be covered by the fixed
fee.
been pleased with the results. Flat fees are set fees for given types tasks
Flat fees are set fees for given types of of Warren: Negotiating costs at a unit level al-
Warren: Negotiating costs at a unit level al-
been pleased with the
results. tasks
or matters. For example, an organization lows for greater granularity when formulat-
lows for greater granularity when formulat-
or matters. For example, an organization
might pay $2,500 for arbitrating a warranty
Saxton: Pam, what alternative fee arrange-
Saxton: Pam, what alternative fee arrange- ing budgets. The ability to control and
ing budgets. The ability to control and
might pay $2,500 for arbitrating a warranty
claim. Whether there are 10 or 10,000, the
claim. Whether there are 10 or 10,000, the
ments are you seeing law firms and corporate
ments are you seeing law firms and monitor these costs requires time-relevant
monitor these costs requires time-relevant
corporate
cost will be based on a per matter basis, and
cost will be based on a per matter basis,
legal departments use and for what type of
legal departments use and for what type of data and analysis resources. In-house deci-
data and analysis resources. In-house deci-
and
the company will know exactly how much
the company will know exactly how much
work are they using these alternative fee
work are they using these alternative fee ar- sion makers are more empowered to adjust
sion makers are more empowered to adjust
ar-
each matter will cost when it arises. Flat fees
each matter will cost when it arises. Flat
rangements? detailed assumptions rather than conglomer-
detailed assumptions rather than
rangements?
fees conglomer-
are often used for discrete or finite matters
are often used for discrete or finite matters ated amounts, which may be inflated to pro-
ated amounts, which may be inflated to pro-
Woldow: The term “alternative fee” is some- or tasks, such as filing a complaint. They
or tasks, such as filing a complaint. They
Woldow: The term “alternative fee” is some- tect against overspending.
tect against
overspending.
times used rather loosely to refer to any fee
times used rather loosely to refer to any fee work well where the organization is not
work well where the organization is not
arrangement other than a firm’s standard
arrangement other than a firm’s standard able to predict the number of matters it
able to predict the number of matters it Persky:As Pam just mentioned, I Ithink that
Persky: As Pam just mentioned, think that
hourly rate. Alternative feesare generally de-
hourly rate. Alternative fees are generally will face. fixed fees and flat fees are the easiest to imple-
fixed fees and flat fees are the easiest to
will face.
de- imple-
fined as fees that are not based in any way
fined as fees that are not based in any way Contingency fees are used most typically
Contingency fees are used most typically ment. They guarantee a cash flow to the law
ment. They guarantee a cash flow to the
law
on hourly billing. So, discounted hourly
on hourly billing. So, discounted hourly in the form ofof a base feeplus a a success fee
in the form a base fee plus success fee firm and give the client cost predictability.
firm and give the client cost predictability.
rates and blended hourly rates are not alter-
rates and blended hourly rates are not determined by the outcome of the matter. In
determined by the outcome of the matter. In Contingency fees are aa way to assure that
Contingency fees are way to assure that the
alter- the
native fees because they are still based onon
native fees because they are still based the the defense setting, this arrangement requires
the defense setting, this arrangement risk-reward ratio between a law firm and a
risk-reward ratio between a law firm and a
the requires
billable hour.
billable hour. the lawyer and the client to assess the
the lawyer and the client to assess the poten- client is in sync. The key to effectively using
client is in sync. The key to effectively using
poten-
What alternative fee arrangements (AFAs)
What alternative fee arrangements tial legal exposure as part of the initial case
tial legal exposure as part of the initial case contingency fees in the corporate setting,
contingency fees in the corporate setting,
(AFAs)
accomplish are: 1) predictability of cost; 2)
accomplish are: 1) predictability of cost; 2) planning. They determine a specific dollar however,is to clearly define the meaning of a
however, is to clearly define the meaning of
planning. They determine a specific dollar
a
budgeting and planning certainty; 3) billing
budgeting and planning certainty; 3) billing amount that would represent a satisfactory “win.” It strikes me as odd that while clients
“win.” It strikes me as odd that while clients
amount that would represent a satisfactory
that reflects an assessment of the value of
that reflects an assessmentof the value of a result. If the lawyer resolves the matter for
result. If the lawyer resolves the matter for are downsizing, revising earnings estimates,
are downsizing, revising earnings
a estimates,
matter; and 4) more efficient
matter; and 4) more efficient lawyering. lessthan that number, the lawyer profits by
less than that number, the lawyer profits by and looking for ways to reduce costs, law
and looking for ways to reduce costs, law
lawyering.
There are many creative billing solutions,
There are many creative billing solutions, sharing in the savings. FMC uses this AFA
sharing in the savings. FMC uses this AFA firms are increasing their hourly rates. This
firms are increasing their hourly rates. This
but I’m seeing three types most often. These
but I’m seeing three types most often. for its mass tort matters. Holdbacks are a approach is not a sustainable business model
approach is not a sustainable business
for its mass tort matters. Holdbacks are a
These model
are good places to start ififan organization has variation of this approach, where the legal for law firms.
for law firms.
are good places to start an organization variation of this approach, where the legal
has
not used AFAs
not used AFAs before. department defers payment of some portion
department defers payment of some portion
before.
Fixed fees are set fees for for a groupmatters
Fixed fees are set fees a group of of of the fee until the matter is resolvedand the
of the fee until the matter is resolved and Saxton: In addition to alternative fee ar-
Saxton: In addition to alternative fee ar-
matters the
or tasks for a fixed period of time. For exam-
or tasks for a fixed period of time. For results are known. The St. Joe Company and
results are known. The St. Joe Company rangements, what other suggestions and
rangements, what other suggestions and
exam- and
ple, Pfizer pays fixed fee to law firm to
ple, Pfizer pays aafixed fee to aalaw firm to CSX Corporation use the holdback method solutions do you have for corporate legal
solutions do you have for corporate legal
CSX Corporation use the holdback method
handle all of its employment matters nation-
handle all of its employment matters nation- and, depending on the performance of the
and, depending on the performance of the departments that are attempting to reduce
departments that are attempting to reduce
wide. No billable hours, no per-matter fees; law firm, will pay the holdback or a multi-
law firm, will pay the holdback or a multi- costs?
costs?
wide. No billable hours, no per-matter fees;
just one sum paid out monthly over the
just one sum paid out monthly over the plier of it depending on whether the law firm
plier of it depending on whether the law firm
course of the year. Cisco is now in the third met certain performance standards.
met certain performance Woldow: Altman Weil recently conducted a
Woldow: Altman Weil recently conducted a
course of the year. Cisco is now in the third
standards.
year of paying fixed fee one firm for all its
year of paying aafixed fee toto one firm for all Flash Survey of in-house corporate counsel
Flash Survey of in-house corporate counsel
its
U.S. litigation. And, Goodyear is in the pro-
U.S. litigation. And, Goodyear is in the pro- in November 2008 to determine how they
Saxton: Moving into 2009, it is apparent
Saxton: Moving into 2009, it is apparent in November 2008 to determine how they
cess of selecting firm to handle its U.S.
cess of selecting aafirm to handle its U.S. were addressing legal department budget
were addressing legal department budget
that changes must be made in terms of how
that changes must be made in terms of how
products liability disputes on a fixed fee
products liability disputes on a fixed fee basis. changesfor 2009. From corporations of all
changes for 2009. From corporations of all
corporate legal departments receive and pay
corporate legal departments receive and
basis. pay
Fixed fees are useful when the organization
Fixed fees are useful when the organization sizesand industries, we learned that 75% of
sizes and industries, we learned that 75%
for legal services. Please discuss some alterna-
for legal services. Please discuss some
alterna- of
knows it will have a relatively predictable and
knows it will have a relatively predictable corporate legal departments will have their
corporate legal departments will have their
tive fee arrangements that you believe provide
tive fee arrangements that you believe
and provide
20 Pro Te: Solutio
Pro Te: Solutio

budgets cut in 2009. We then asked: If you
budgets cut in 2009. We then asked: If you legal services such as legal research, due
legal services such as legal research, due Warren: Our outside attorneys are hired for
Warren: Our outside attorneys are hired for
are facing a budget cut, or a smaller increase,
are facing a budget cut, or a smaller diligence, patent prosecution, patent illus-
diligence, patent prosecution, patent illus- their legal talents and their skills in favorably
their legal talents and their skills in
increase, favorably
where/howwill you make reductions? Corpo-
where/how will you make reductions? tration, discovery document review, and managing and resolving matters, not for their
managing and resolving matters, not for
tration, discovery document review, and
Corpo- their
rate counsel rated their intended solutions
rate counsel rated their intended solutions contract review. We also see companies call-
contract review. We also see companies fiscal acumen. For clients who are struggling
fiscal acumen. For clients who are
call- struggling
as follows: ing on their law firms to unbundle certain with a strategy, the first management step
as ing on their law firms to unbundle certain with a strategy, the first management step
follows:
may be to dedicate all or part of aaresource
may be to dedicate all or part of resource
Corporate Counsel Budget Cut Solutions for 2009
Corporate Counsel for 2009 with experience in negotiating discounts/rate
with experience in negotiating
discounts/rate
increases,managing discovery scope, finan-
increases, managing discovery scope,
12.6%
12.6%
OutsOurcing/Off-shOring
finan-
cially analyzing RFPs, and building a metrics
cially analyzing RFPs, and building a
staff cOmp 19.4%
19.4%
staff cOmp
metrics
architecture for monitoring ongoing costs.
architecture for monitoring ongoing costs.
paralegalhead-cOunt 21.4%
21.4%
paralegal head-cOunt
We have found that to be an invaluable tool
We have found that to be an invaluable tool
Year-end staff bOnuses 22.3%
Year-end staffbOnuses 22.3%
lawYercOmp 29.1%
lawYer cOmp 29.1% in architecting cost reduction strategies.
in architecting cost reduction
strategies.
Year-end lawYer bOnuses 31.1%
31.1%
Year-end lawYer bOnuses
Implement a rate change request process.
Implement a rate change request
process.
staffhead-cOunt 31.1%
31.1%
staff head-cOunt
Many firms increase rates without notifica-
Many firms increase rates without notifica-
lawYer head-cOunt 31.1%
31.1%
lawYer head-cOunt
tion resulting in spend which could be avoid-
tion resulting in spend which could be
delaY tech purchase 35.0%
delaY tech purchase 35.0% avoid-
ed through an up-front negotiation. Having
ed through an up-front negotiation. Having
mOre afas 50.5%
50.5%
mOre afas
a negotiation insures that the firm will not
a negotiation insures that the firm will not
lOwerpriced cOunsel fOr sOme wOrk 53.4%
lOwer priced cOunsel fOr sOme wOrk 53.4%
try to implement unfairly high rates because
try to implement unfairly high rates because
reduced training/events 61.2%
61.2%
reduced training/events
they will likely police themselvesas a a result
they will likely police themselves as result of
bring mOre wOrk in-hOuse 65.0%
bring mOre wOrk in-hOuse 65.0%
of
the client’s scrutiny.
the client’s
scrutiny.
One of the top three cost-saversidentified
One of the top three cost-savers tasks and send them offshore rather than
tasks and send them offshore rather than
identified
was to engage lower-priced counsel. Increas-
was to engage lower-priced counsel. paying U.S. associaterates for the work.
paying U.S. associate rates for the work. Saxton: Is it possible to intertwine these
Saxton: Is it possible to intertwine these
Increas-
ingly, we are seeing companies consider small
ingly, we are seeing companies consider Many companies have a greater comfort different solutions, or is it best to implement
different solutions, or is it best to implement
Many companies have a greater comfort
small
or mid-size regional firms for many impor-
or mid-size regional firms for many impor- level using U.S. trained and U.S. based at-
level using U.S. trained and U.S. based at- just one solution at a time?
just one solution at a
time?
tant matters. Altman Weil’s clients tell us
tant matters. Altman Weil’s clients tell us that torneys and find that they can achieve simi-
torneys and find that they can achieve simi-
that
they can achieve a 20 percent saving just by
they can achieve a 20 percent saving just lar cost savings by moving large blocks of
lar cost savings by moving large blocks of Woldow: As corporate counsel become more
Woldow: As corporate counsel become
by more
moving matters to appropriate regional firms
moving matters to appropriate regional matters to regional firms. There can be chal-
matters to regional firms. There can be comfortable with AFAs, they can and do
comfortable with AFAs, they can and do
firms chal-
with demonstrated expertise but lower
with demonstrated expertise but lower rates. lengesto off-shoring work, such as the time
lenges to off-shoring work, such as the time craft them to meet their specific needs. We
craft them to meet their specific needs. We
rates.
If they then negotiate alternative fees, they
If they then negotiate alternative fees, they differences, the need to assureconfidential-
differences, the need to assure confidential- have seen numerous variations and combina-
have seen numerous variations and
combina-
achieveeven greater savings.
achieve even greater ity, and the markedly different way in which
ity, and the markedly different way in which tions. For example, if a company is just start-
tions. For example, if a company is just
savings. start-
Offshoring legal services has moved into
Offshoring legal services has moved into work is accomplished. ing to use AFAs, it is advisable to try them in
ing to use AFAs, it is advisable to try them
work is accomplished.
in
the mainstream and is another way to
the mainstream and is another way to Finally, if a legal department has not al-
Finally, if a legal department has not al- lower risk matters and use one of the three
lower risk matters and use one of the three
achieve cost savings. Although so far it has
achieve cost savings. Although so far it has ready done so, it can undertake a “conver-
ready done so, it can undertake a “conver- principal approaches I mentioned earlier.
principal approaches I mentioned earlier.
not been widely used, we see that changing.
not been widely used, we see that gence” program to reduce the number of
gence” program to reduce the number of The effective use of AFAs is is predicated on
The effective use of AFAs predicated on the
changing. the
In August of 2008, the ABA issued a signifi-
In August of 2008, the ABA issued a signifi- outside firms it uses and leverage its outside
outside firms it uses and leverage its level of historical information a department
level of historical information a department
outside
cant ethics opinion ratifying the use of off-
cant ethics opinion ratifying the use of off- spending by concentrating it in fewer firms.
spending by concentrating it in fewer firms. has on its legal spending, for example, what
has on its legal spending, for example,
what
shore resources for legal services.7 The Wall Convergences is a well-proven cost-saver: It
Convergences is a well-proven cost-saver: types of matters, geographical span. The
shore resources for legal services.7 The types of matters, geographical span. The
It
Wall
Street Journal reported recently that off-
Street Journal reported recently that off- costs more to manage many firms, both in
costs more to manage many firms, both in more detailed that information, the better
more detailed that information, the better
shoring legal work is a major and growing
shoring legal work is a major and growing terms of internal resources and time, and a
terms of internal resources and time, and a the department will be able to know how
the department will be able to know how
Some
solution to controlling legal costs. Some
solution to controlling legal smaller cohort of preferred providers allows
smaller cohort of preferred providers allows much it has spent previously on specific types
much it has spent previously on specific
8
costs.8
types
companies are using these services directly,
companies are using these services better control and greater bargaining lever- of matters. Armed with this historical per-
of matters. Armed with this historical per-
better control and greater bargaining lever-
directly,
such as Sun Microsystems, for a variety of
such as Sun Microsystems, for a variety of age as well.
age as spective, it can negotiate fees that maintain
spective, it can negotiate fees that maintain
well.
Pro Te: Solutio 21
Pro Te: 21
Solutio

or reduce previous spending. But lack of
or reduce previous spending. But lack of ev- helps to have both parties invested inin
helps to have both parties invested preserv- We recommend that the parties establish
We recommend that the parties establish
ev- preserv-
ery data bit should not prevent a department
ery data bit should not prevent a ing a positive relationship. For both parties, it
ing a positive relationship. For both parties, “look back windows”— set times for assess-
“look back windows”— set times for
department it assess-
from using this powerful tool. We have seen helps to define parameters for the engage-
helps to define parameters for the engage- ing how the arrangement isis working —
ing how the arrangement working — always
from using this powerful tool. We have seen
always
departments who maintained information in ment, for example, number of anticipated understanding that they can open that dis-
understanding that they can open that dis-
departments who maintained information in ment, for example, number of anticipated
paper spreadsheets achieve major savings. matters, time frame, and dollar amount
matters, time frame, and dollar amount cussion sooner if there is aaneed. Sometimes,
cussion sooner if there is need.
paper spreadsheets achieve major
savings. Sometimes,
ranges involved in disputes. If the parame-
ranges involved in disputes. If the parame- it behooves the parties to let six months to a
it behooves the parties to let six months to
a
Warren: Parallel path cost reduction experi-
Warren: Parallel path cost reduction experi- ters are exceeded or not met, the parties can
ters are exceeded or not met, the parties year elapse to allow sufficient time for the en-
year elapse to allow sufficient time for the
can en-
ments using different strategies such as
ments using different strategies such as
one
o
capped fees or alternative fees are fine. How-
capped fees or alternative fees are fine.
How-
ever,because not much can be done without
ever, because not much can be done
ne of the top three cost-savers identified was to
of the top three cost-savers identified was to
without
a matter management and e-billing infra-
a matter management and e-billing infra-
engage lower-priced counsel. Increasingly, we are
engage lower-priced counsel. Increasingly, we are
structure, this implementation should be
structure, this implementation should be
seeing companies consider small or mid-size region-
seeing companies consider small or mid-size region-
first priority.
first priority.
al firms for many important matters. Altman Weil’s
al firms for many important matters. Altman Weil’s
Persky: II believe that a controlled, measur-
Persky: believe that a controlled, measur-
clients tell us that they can achieve a 20 percent sav-
clients tell us that they can achieve a 20 percent sav-
able, multifaceted approach will net the
able, multifaceted approach will net the
ing just by moving matters toto appropriate regional
ing just by moving matters appropriate regional
greatestreturns in the shortest period of
greatest returns in the shortest period of
firms with demonstrated expertise but lower
firms with demonstrated expertise but lower
time.
time.
rates. If they then negotiate
rates. If they then negotiate
alternative fees, they achieve
alternative fees, they
Johnson:We have implemented more than
Johnson: We have implemented more than
achieve
one alternative fee arrangement at once with
one alternative fee arrangement at once even greater savings.
even greater
with
certain clients, depending on the types of
certain clients, depending on the types of savings.
— Woldow
— Woldow
matters for which they seekour counsel, and
matters for which they seek our counsel,
and
in all cases this multi-faceted approach has
in all cases this multi-faceted approach has
been successful. In addition to the interest in
been successful. In addition to the interest
in
various AFA, we have also seen a trend to-
various AFA, we have also seen a trend to-
ward hiring mid-size and regional firms in
ward hiring mid-size and regional firms in
order to achieveeven greater savings.
order to achieve even greater
savings.
Saxton: Because alternative fee arrange-
Saxton: Because alternative fee arrange-
ments and other cost-cutting solutions can
ments and other cost-cutting solutions can
be a bit intimidating and difficult to grasp
be a bit intimidating and difficult to grasp
for those who have never used them, please
for those who have never used them,
please
discusspotential safeguards in alternative
discuss potential safeguards in alternative
fee arrangements.
fee
arrangements.
Woldow: When using AFAs, it is important
Woldow: When using AFAs, it is important
to work with a law firm with which you en-
to work with a law firm with which you en-
joy a trusting relationship and/or has used have a productive discussion about adjusting
have a productive discussion about tire book of business to develop. For example,
tire book of business to develop. For
joy a trusting relationship and/or has used
adjusting example,
AFAs successfullywith other clients. AFAs
AFAs successfully with other clients. AFAs the fee. The parameters also might carve out
the fee. The parameters also might carve in the first year of Cisco’s fixed fee arrange-
in the first year of Cisco’s fixed fee arrange-
out
may require some tweaks or adjustments to
may require some tweaks or adjustments to unusual events that would remove the mat-
unusual events that would remove the mat- ment for litigation, new matters were slow to
ment for litigation, new matters were slow
to
achievethe most workable solution, and it
achieve the most workable solution, and it ter from the AFA.
ter from the AFA. be filed and Cisco began to worry that it was
be filed and Cisco began to worry that it
was
22 Pro Te: Solutio
Pro Te: Solutio

paying too much. However, by the end of the StageGate Reviews: Outside and in-house
Stage Gate Reviews: Outside and arrangements and cost-saving mechanisms
arrangements and cost-saving mechanisms
paying too much. However, by the end of
the in-house
third quarter, the filings had reached the an- counselsmeet after the resolution of major
counsels meet after the resolution of major available.We understand the evolving nature
available. We understand the evolving
third quarter, the filings had reached the an-
nature
ticipated point, and its outside firm was han-
ticipated point, and its outside firm was events,namely early case assessment, filing of
events, namely early case assessment, and importance of this topic and do expect,
and importance of this topic and do expect,
han- filing of
dling exactly what the arrangement
dling exactly what the arrangement covered. pleadings, filing and argument of dispositive
pleadings, filing and argument of dispositive if appropriate and useful, to produce subse-
if appropriate and useful, to produce subse-
covered.
Both parties have been very
Both parties have been very pleased. motions, and substantive discovery. These quent articles on the subject. Thus, we wel-
quent articles on the subject. Thus, we wel-
motions, and substantive discovery. These
pleased.
In addition, it can help to build in “col-
In addition, it can help to build in “col- meetings act as stage gate reviews to deter-
meetings act as stage gate reviews to come our readers to submit questions to us
come our readers to submit questions to us
deter-
lars.” A collar is an understanding between
lars.” A collar is an understanding between mine if spending is tracking in step with the
mine if spending is tracking in step with the or tell us about the mechanisms that they
or tell us about the mechanisms that they
the legal department and the law firm that if alternative fee. Many progressive firms have
alternative fee. Many progressive firms have implemented and found useful, helpful,
have implemented and found useful,
the legal department and the law firm that if
have helpful,
actual costs exceed certain amount or
actual costs exceed a a certain amountor per- taken the onus on themselves to provide cus-
taken the onus on themselves to provide successful,or unsuccessful, and we will share
successful, or unsuccessful, and we will
per- cus- share
centageor fall short by that same amount,
centage or fall short by that same amount, tomized spend and projection reports for re-
tomized spend and projection reports for re- this information anonymously with our oth-
this information anonymously with our oth-
then the parties agree to make a correction.
then the parties agree to make a correction. view during thesemeetings. In all other cases,
view during these meetings. In all other er readers if the submitting reader so desires.
er readers if the submitting reader so
cases, desires.
For example, if the number of matters cov-
For example, if the number of matters cov- our procurement resources are able to pull
our procurement resources are able to pull The billable hour may not be dead, but alter-
The billable hour may not be dead, but
alter-
ered by the AFA is 10% more than the de-
ered by the AFA is 10% more than the de- real time billing data at any point during the
real time billing data at any point during the native billing arrangements are definitely go-
native billing arrangements are definitely
go-
fined parameter,the firm would be entitled
fined parameter, the firm would be entitled matter to match actuals with budget. This
matter to match actuals with budget. This ing to continue to receive much attention in
ing to continue to receive much attention in
to additional payment. Conversely, if there
to additional payment. Conversely, if there provides the firm a progress report and high-
provides the firm a progress report and the year to come.
the year to
high- come.
are 10% fewer matters, the legal department lights any critical areas that need review to
lights any critical areas that need review to
are 10% fewer matters, the legal
department 1 Stanton, Elizabeth, “U.S. Stocks Post Biggest
is due a refund or credit. 1Stanton, Elizabeth, “U.S. Stocks Post Biggest Post-
ensure the budgetary commitments accu-
ensure the budgetary commitments accu-
is due a refund or credit.
Post-
Election Drop on Economic Concern,” November 5,
Election Drop on Economic Concern,” November 5,
rately reflect the work needed on the case.
rately reflect the work needed on the 2008, available at <http://www.bloomberg.com/apps/ne
2008, available at <http://www.bloomberg.com/apps/ne
case. ws?pid=newsarchive&sid=ahxDxARQcLBc>.
ws?pid=newsarchive&sid=ahxDxARQcLBc>.
Johnson:IIagree that the key toto making
Johnson: agree that the key making AFAs Capping Liability: Many alternative fee ar-
Capping Liability: Many alternative fee ar- 2 Id.
2Id.
AFAs
work for both the client and the law firm lies
work for both the client and the law firm lies rangements for long-range matters involve a
rangements for long-range matters involve 3 Hill, Catey, New York Daily News, “ADP National Em-
3Hill, Catey, New York Daily News, “ADP National Em-
a ployment Report: Private Sector Loses 250,000 Jobs,
ployment Report: Private Sector Loses 250,000
in a strong working relationship between
in a strong working relationship between the large peak of work that eventually settles into
large peak of work that eventually settles Jobs, Worse Than Expected,” December 3, 2008,
Outlook Worse Than Expected,” December 3,
Outlook
the into 2008, at <http://www.nydailynews.com/mon-
available
two parties — they must work together as a
two parties — they must work together as a available at <http://www.nydailynews.com/mon-
a monthly repetitive set of tasks. Where war-
a monthly repetitive set of tasks. Where
ey/2008/12/03/2008-12-03_adp_national_employ-
ey/2008/12/03/2008-12-03_adp_national_employ-
war-
team and be willing to look back and evalu-
team and be willing to look back and evalu- ranted, we cap fees for the firm to a monthly
ranted, we cap fees for the firm to a ment_report_private_s.html>.
ment_report_private_s.html>.
monthly 4 See Stanton, supra note
4 See Stanton, supra note 1.
ate the situation in order to determine if the
ate the situation in order to determine if the or quarterly amount. This method provides
or quarterly amount. This method provides 1.
5 The “Altman Weil Flash Survey on Law
5The “Altman Weil Flash Survey on Law Department
arrangement is beneficial to both parties.
arrangement is beneficial to both parties. predictability to the businessin terms of bud-
predictability to the business in terms of Department
Cost Control,” conducted in November 2008, reports
Cost Control,” conducted in November 2008, reports
bud- that 75% of law departments surveyed are facing budget
that 75% of law departments surveyed are facing
We have entered into risk sharing and ad-
We have entered into risk sharing and ad- geting, and firms have the flexibility to allo-
geting, and firms have the flexibility to allo- budget
cuts averaging 11.5% for 2009. The full survey is
cuts averaging 11.5% for 2009. The full survey
is
availableat <http://www.altmanweil.com/index.cfm/
available at <http://www.altmanweil.com/index.cfm/
justment mechanisms similar to those that
justment mechanisms similar to those that cate funds as necessary to get the base work
cate funds as necessary to get the base
fa/r.resource_detail/oid/d664b2c6-9978-4327-a66e-
fa/r.resource_detail/oid/d664b2c6-9978-4327-a66e-
work
Pam just discussed, and our clients have
Pam just discussed,and our clients have re- complete. Any unforeseen work reverts to
complete. Any unforeseen work reverts to 757972ebd091/resource/Altman_Weil_Flash_Survey_
757972ebd091/resource/Altman_Weil_Flash_Survey_
Law_Department_Cost_Control.cfm>.
Law_Department_Cost_Control.cfm>.
re-
sponded well as these arrangements allow us pre-negotiated billable rates.
pre-negotiated billable
sponded well as these arrangements allow 6 Jones, Leigh, The National Law Journal, “Law
6Jones, Leigh, The National Law Journal, “Law Firm
us rates. Firm
FeesDefy Gravity, Annual Survey Shows,” December 8,
Fees Defy Gravity, Annual Survey Shows,” December
and the client to share both the risk and the
and the client to share both the risk and the 8,
2008, available at <http://www.law.com/jsp/article.jsp?id
2008, available at
reward of budgeting and performing the
reward of budgeting and performing the <http://www.law.com/jsp/article.jsp?id
Persky: The goal is cost savings and predict-
Persky: The goal is cost savings and =1202426547201&rss=newswire>.
=1202426547201&rss=newswire>.
predict- 7 ABA Comm. on Ethics and Prof ’l Responsibility, For-
7ABA Comm. on Ethics and Prof ’l Responsibility, For-
work efficiently.
work efficiently. ability. It is not putting the outside counsel
ability. It is not putting the outside counsel mal Opinion 08-451 (Aug. 5, 2008).
mal Opinion 08-451 (Aug. 5, 2008).
out of business. For a partnership to work, it
out of business. For a partnership to work, 8 See Sheth, Nirah and Nathan Koppel, “When
8See Sheth, Nirah and Nathan Koppel, “When Times
it Times
Get Tight, Even Lawyers Get Outsourced,” Wall Street
Get Tight, Even Lawyers Get Outsourced,” Wall
Warren: Training: We partner with our pro- needsto work for both parties. The ability to
needs to work for both parties. The ability to
Warren: Training: We partner with our pro- Street November 26, 2008, available at <http://online.
Journal,
Journal, November 26, 2008, available at <http://online.
wsj.com/article/SB122765161306957779.html>.
wsj.com/article/SB122765161306957779.html>.
curement resources to train our outside
curement resources to train our outside make midterm adjustments to alternative fee
make midterm adjustments to alternative
fee
counsel on our alternative fee management
counsel on our alternative fee management arrangementswhen the truly unexpected oc-
arrangements when the truly unexpected
oc-
process.This training can be anything
process. This training can be anything curs is a good “safety net.”
curs is a good “safety
net.”
from a one-on-one phone call to a WebEx.
from a one-on-one phone call to a WebEx.
Along with our alternative fee template,
Along with our alternative fee template,
we distribute a quick reference sheet to our
we distribute a quick reference sheet to our
outside counsel, which outlines our recon-
outside counsel, which outlines our recon- Becauseof space limitations, we recognize
Because of space limitations, we recognize Moderated by
Moderated
by
ciliation process. elizabeth Saxton
that we have not addressed all alternative fee
that we have not addressed all alternative elizabeth Saxton
ciliation process.
fee
Pro Te: Solutio 23
Pro Te: 23
Solutio