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"Legal Services Pricing: A new Discipline that In-House Counsel Need to Understand "

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A look at pricing models in the legal industry and the rise of the Law Firm Directors and their role.

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"Legal Services Pricing: A new Discipline that In-House Counsel Need to Understand "

  1. 1. LEGAL SERVICES PRICING A New Discipline that In-House Counsel Need to Understand RUBSUN HO Cognition LLP JULIA SHIN DOI General Counsel & Secretary of the Board of Governors, Ryerson University TYLER LANGDON Cognition LLP
  2. 2. AGENDA • An overview of pricing today • A practical approach to pricing for in-house counsel • Pricing international counsel
  3. 3. THE BILLABLE HOUR – HOW DID WE GET HERE? Early 20th Century Set fees; Annual retainers; Eyeball method; Contingency; Value based 1930’s – 1940’s Standard Fees; Minimum Fee Schedules 1960’s Matters became more complex; Billable hours as proxy for value 1970’s Straight billable hours; Billable Targets
  4. 4. “Law firms have been extraordinarily profitable over the last 50 years based on a model that has them charging by the hour, so clients are rewarding effort, not results.” Washington DC Partner in Washington Post
  5. 5. Is the Billable Hour the right billing model? "The billable hour is fundamentally about quantity over quality, repetition over creativity” Robert Hirshon President American Bar Association “Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode…. That bill shall know no limits.” Christopher Thomson, Former DLA Piper lawyer
  6. 6. BIGLAW UNDER PRESSURE • Downward pricing pressure from corporate clients • Slowdown in transaction dealflow • Competition from global firms • Competition for alternative providers • Competition from offshore LPO’s • Technology pressure • Alternative fee push
  7. 7. As part of his blog, Johansen (www.patrickonpricing.com) has assembled a current catalog of pricing professionals with their respective firms and titles. While the list is not exhaustive, the identified roles now exceed 50 in number. Surprisingly, more than 40 of these roles did not exist just five years ago—a clear indication of the discipline's rapid rise. THE RISE OF LAW FIRM PRICING DIRECTORS Steven Petrie, Chief Strategy Officer, Faegre Baker Daniels LLP
  8. 8. The Role of the Law Firm Pricing Director • Understand Firm Cost Structure (to maintain profitability) • Implement Processes and Procedures (to maintain profitability) • Implement Project Management (to maintain profitability) • Understand what clients are willing to pay (to maintain profitability) • Effectively price AFA’s (to maintain profitability) Ensure Firm PROFITABILITY 71% of firms report clients are the primary driver of changes to pricing strategy – Altman Weil 2014 Survey
  9. 9. Who is the Counterpart to the Law Firm Pricing Director?
  10. 10. The Pricing Role of In-house Counsel • Set and Maintain Budgets (in the face of budget cuts) • Resource Management of Legal Projects • Manage Outside Counsel Relationships • Target the optimal usage of the right resources at the right price • Ensure (some) firm profitability Act as a Project Manger to ENSURE VALUE 39% of in-house counsel are doing more with fewer resources “Corporate Counsel Agenda 2013” ALM Legal
  11. 11. How Can the CLO Ensure Value? KNOW YOUR OPTIONS DEFINE VALUE UN- BUNDLE right PEOPLE right PRICE right PLACE
  12. 12. CLO Project Manager MANY LEGAL NEEDS MANY LEGAL OPTIONS
  13. 13. THE RIGHT PRICE Continuum of Fee Arrangements™ Patrick Johanssen www.patrickonpricing.com LEVEL OF COMMUNICATION/INTERACTION B/T CLIENT & FIRM GREATER CLIENT RISK GREATER FIRM RISK
  14. 14. In 2009, 28 percent of law firm leaders believed that non-hourly billing would be a permanent change in the legal industry, according to legal consulting firm Altman Weil. By 2013, the figure had jumped to 80 percent. Since 2012, a handful of major firms, including Holland & Knight and McDermott Will & Emery, have even ditched the billable hour model altogether for entire teams of people. Washington Post, April 2013
  15. 15. Julia S. Shin Doi General Counsel & Secretary of the Board of Governors, Ryerson University August, 2014 Legal Pricing: Perspectives & Strategies
  16. 16. Standard Legal Pricing 16 Hourly Rate of Lawyer x Time = Price
  17. 17. 1. Management of Hourly Rate Discounts to Hourly Rate: 10% - 15% - 20% Freeze Hourly Rate: No Annual Increase of Hourly Rate Blended Hourly Rate: Combined Average of Hourly Rate of Senior Lawyer and Junior Lawyer 17
  18. 18. Hourly Rate Cap on Hourly Rate Maximum (or Minimum) Hourly Rate for Matter Cap on Hourly Rate until Matter concluded Roster of Hourly Rates Track and Compare Hourly Rates 18
  19. 19. 2. Price Fixed Fee: Specific Fee for Matter or Deliverable Best Price: Best Price between Hourly Rate/Time and Fixed Fee Flat Fee: One Fee for all Matters for set period of Time 19
  20. 20. 3. Management of Time Learning Time: Discount for Learning Time by Junior Lawyer Discount for Student Time Non-billable Research Time Time for Instructions Overlapping or Duplicate Time: Activity billed once (e.g. review of decision, attendance at meeting) Inter-office meeting time 20
  21. 21. Time Travel Time Local travel time is non-billable Disbursements for local travel are non-billable Reasonableness Test Whether time billed is warranted for the complexity, risk, outcome Pro Bono Time Contribution of Time 21
  22. 22. 4. External Counsel Guidelines Reduces Total Legal Spend by a minimum of 10% - Retainers of External Legal Counsel must be approved in advance by In-House Legal Counsel - No “General” Matters - Monthly Billing, Forecasting every quarter - Prompt closing and final billing of completed matters 22
  23. 23. 5. Other Strategies Detailed Docket Entries Uniform Task Based Management System Requests for Proposal Project Management: Milestones and Estimates Value Pricing – Incentives Contingency 23
  24. 24. 6. Staffing • Internal Legal Counsel • Part-time Legal Counsel (e.g. 1 day per week) • Paralegals, Legal Assistants, Contractors • Cognition • External Legal Counsel (large firm, mid-sized firm, boutique) 24
  25. 25. 7. Added Value • Dupont Legal Model – Convergence • Relationships and Support • Service Excellence (Responsiveness, Timeliness, Saying “Yes” ) • Continuing Education for Legal and Non-Legal Staff • Specialized Training • Diverse and Inclusive Legal Team • Reputation 25
  26. 26. HOW DO YOU MEASURE VALUE? ACC VALUE INDEX – asked corporate counsel to rank law firms based on following criteria • Understands objectives/expectations • Efficiency/process management • Predictable cost/budgeting skills • Legal expertise • Responsiveness/communication • Results delivered/execution
  27. 27. HOW DO YOU MEASURE VALUE? Paul Lippe, Legal OnRamp on what criteria you might use to measure law firm performance in delivering sales contracts: • How quickly did the contract get done? • How favorable are the terms to the company (opportunity gained and risk avoided)? • How easy are the terms for other parts of the company (finance, manufacturing, sales, etc.) to understand and perform? • How satisfied were the true business clients? • How satisfied was the counterparty? • How much did the contract cost? • Did the contracting process improve?
  28. 28. HOW DO YOU MEASURE VALUE? Lisa Damon of Seyfarth Shaw on law firm value metrics that may be used in measuring work on a trademark portfolio • “Success” rate, measured by things like first action allowance, watch hit outcome • Overall satisfaction • Timeliness of communication • Effectiveness of “lessons learned” sessions • Strategic participation/understanding of Wolverine business • Proactive issue identification • Budget variance • Cost management effectiveness

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