Frederick J. Esposito Jr. presented on alternative fee arrangements to the Richmond Chapter of the Association of Legal Administrators. He discussed the economic climate facing law firms, clients' increasing demands for alternative fees and non-hourly billing, and examples of alternative fee arrangements used by other law firms. Esposito emphasized the tools, training, resources, and personnel management needed for law firms to successfully implement alternative fees and highlighted predictions that alternative fees will continue growing and transforming the legal profession.

1. Richmond Chapter
Association of Legal Administrators
Initiating Alternative Fee Arrangements
Due Diligence, Implementation & Communication
Presented by:
Frederick J. Esposito, Jr., CLM
Director of Administration/Chief Financial Officer
Meyer, Suozzi, English & Klein, P.C.
The Boathouse, Rocketts Landing
May 22, 2013

2. Legal Profession Economics/Climate
2013 Predictions?
• Roller Coaster Economy
• Cautious Optimism
• Law Firm Self-Examination
• Regrouping and Adapting to Change
• Expense Control
• Revenue Building –Profits!
• Paradigm Shift -New Rules!
• Project Management!

3. “Paradigm Shift”
Legal Profession Climate
• Billable Hour Dead? More Client Resistance!
• Client Dissatisfaction Over Outdated Valuing of Legal
Services
• Global Financial Crisis Acted as Catalyst to Change
• ACC Value Challenge – September 2008!
• Enormous Pressures to Cut Costs
• Do More with Less = Gain Greater Certainty of Costs
• Clients are More Assertive in their Fee Discussions
• Clients Demand Alternatives to the Billable Hour

4. Legal Profession Economics/Climate
Post Recession Changes
Source: Altman Weil Flash Survey

5. Problems for Law Firms
Legal Profession Climate
• Pricing by alternative arrangement is not in most
partners’ comfort zone
• Lack of project management skills
• Lack of pricing experience
• Lack of historical information to refer back to
• Inexact science, cant completely reduce risk
• Shift in demand curve; leverage is with clients
• Increased competition for clients
• Rage against the billable hour (?!)

6. Economic Climate is Somber
Client Response?
Clients are Pushing Back More on Fees
Clients Want More Predictability
Clients Want Creative Pricing
Alternative Fee Arrangements (AFAs)
Perceptions/Pros/Cons
• Temporary?
• Pricing Evolution?
• Seller’s Market?
• Billable Hours?
• Communication?
• Bottom Line?

7. Questions Law Firms Face
a. What kind of AFA fee structures are law firms using,
and how do you make them work?
b. How do you put a face value on a piece of work,
and how do you ensure continuing profitability?

8. Paradigm Shift
Law Firms Need To Change Business Models
Need to Move Away from the Idea that More Time
Spent on a Matter Means More Money for the Firm
Efficiency!
Value Fees; Relationship Between Fee Structures and
the Behaviors They Encourage
Avoiding AFAs is not a strategy!

9. What Clients Want
• Efficiency
• Cost Predictability
• Transparency
• Targeted Advice
• Increased use of Alternative Fee Arrangements
• Value!

10. Perspective
Post Recession Changes
Alternative Fee Arrangements in Large Firms
Source: Citi 2011 Managing Partner Survey

11. It IS Not All About Price….
Do Clients only care about price?
Client Concerns About Pricing
• Lack of Predictability
• Perceived Value
• Overall Price
• Simplicity

12. Client Concerns About Pricing
Lack of Predictability
• Communication Issues/Client Expectations
• Surprise Factor
• Highly Budgeted Corporate Environments
Perceived Value
• Increases in Billing Rates and Leverage
• Widening Gaps –Rates/Value of Services or Outcome
• Widespread Segmentation
Overall Price
• Magnitude of Total Legal Spend
• Repetitive, High Volume Work
• Long Running Matters
• Intense Scrutiny of Legal Fees
Simplicity
• AFA Pricing- Highly Complex?
• Clients Lose Interest

13. Broad Categories of Pricing Systems
Remember! There is NO perfect arrangement.
• Blended Hourly Rates
• Volume Discounts
• Fixed or Flat Fees
• Fixed Fee /Pre-Agreed Budget with “Collar”
• Retainers/Fee Caps
• Fee Hold Backs
• Success Fees
• Phase-Based Fees/Hybrids
• Contingency Fees
• “Frequent Flyer” Credits

14. “Deliver Legal Services in a Profitable Manner”
Understanding YOUR Firm’s Economics
How much does it cost the firm to produce a billable
hour for:
• Each Attorney?
• Each Task?
Interesting statistic to share!

15. “Where To Start?????”
Which Practice Groups Should Be Considered
for Alternative Fee Arrangements???
• Identify Practice Groups Where the Firm Has the Most
Financial Intelligence.
• Efficiency and Cost- Effectiveness
– Methods for Producing or Managing the Work to be
Performed

16. Practice Groups Prime for Alternative Fee Arrangements?
• Litigation
• Corporate/Transactional
• Trust/Wills/Estates
• “Take Your Pick”
Best Approach to Pricing?
• Maximize Value for the Client
– Incentivize Particular Types of Success
– Predict Legal Spend
– Reduce Overall Level of Fees
– Encourage Particular Staffing Models

17. Litigation
“AFAs Cannot Work With Litigation Matters?”
YES, THEY CAN!
• Ingenuity & Creativity
• Suits Particular Needs of a Specific Client or Matter
• Flexibility/Change Orders –Engagement Letters!
– Propose separate fee arrangement for each phase of
litigation?
• Motion to Dismiss
• Discovery
• Trial Preparation
• Trial

18. Corporate –Transactional
• Ingenuity & Creativity
• Suits Particular Needs of a Specific Client or Matter
• Flexibility/Combination of Pricing Systems
• Due Diligence
• Drafting Specific Agreements
• Negotiating Terms and Amount of Purchase/Sale

19. Trust/Wills/Estates
• Ingenuity & Creativity –Common Denominator!
• Suits Particular Needs of a Specific Client or Matter
• Flexibility/Combination of Pricing Systems
• Pricing Standard Estate Plans with Rewrites
• Document Generation/Automation
• Position for profit!

20. Propose Suitable Alternative Fee Arrangements
• Create an arrangement that reflects and supports the
long-term, broad scope of the client relationship AND
provides a chance to grow the client relationship further
or into new areas. –Trust Me!
• Clients prefer a mix of Standard Hourly Rates and
Alternative Fee Arrangements depending on their varying
goals for individual matters.

21. Suitable Alternative Fee Arrangement ?
Standard Hourly Rates & Fixed Fees?
Fixed Fees & Retainer Structures?
Menu/Portfolio Pricing?
Getting to the Price is Right?
Litigation Examples……..

22. Examples of Risk-Sharing
Alternative Fee Arrangements
• Client retains firm to pursue arbitration against its partner in a
$500M development project. Under the arrangement, client
paid 50% of standard rates and firm received a percentage of
the value the client received upon liquidation or sale of the
venture.
• Client retains firm to pursue litigation against numerous
former officers and directors for fraud. Client requested firm
pay all expenses including expert costs. In return, firm
received full reimbursement of expenses, from “first dollar
out” and a percentage of the recoveries from the litigation.
• Several clients retained a firm to handle individual or groups
of commonly litigated claims on a fixed or flat fee basis.

23. Examples of Risk-Sharing
Alternative Fee Arrangements
• Client and firm negotiated an agreement, whereby firm
handled a fixed group of defense cases for a 30% reduction
in its normal fees in exchange for the right of first refusal for
all plaintiff contingent fee cases the client has for a three year
period.
• Several clients asked one firm to “hold back” 20% to 30% of
its normal fees in return for payment of the “hold back” and
multiples thereof depending on the outcome of the litigation.

24. Examples of Risk-Sharing
Alternative Fee Arrangements
• Client retained firm on a tiered contingency fee basis to
handle an insurance recovery action, paying an upfront
multi-million dollar fee. The firm then took on all additional
fee risk and received a percentage of the recoveries from
litigation.

25. Know Your Goals!
• What is the client looking for?
• What are you willing to accept regarding the profitability of
this work?
• Is this core to our business?
• Learn to say no
• Play to win!
• Are the clients’ expectations realistic?
• Look at historical matters with common characteristics
• What is the cost of delivering the service?
• What will the volume be?

26. How Many Other Law Firms are Using AFAs
AND
Achieving Profitability?

27. How Many Other Law Firms are Using AFAs
and
Achieving Profitability?
• Some Law Firms are Generating Profit
• Some Law Firms Continue to Make the Same Mistakes!
– Learning from the mistakes?

28. Profitability 101 – The Basics
• How Much Can We Charge?
• How Much Does it Cost Us?
• How Can We Maximize the Spread?
Profitability 101 – AFA World
• Estimation, Efficiency, and Project Management
• Risk Model has changed
• Control the drivers that CAN be controlled
– Limit risk where you can
– Learn from previous experience
– Learn to say no….quickly!

29. ALTERNATIVE FEE ARRANGEMENT
SUCCESS STORIES
• Bartlit Beck
– “Bet The Company Litigation”
– “Pure Value Shop –Hold Backs”
– “Refused Hourly Clients”
• Seyfarth Shaw
– “Six Sigma Concept”
• Exemplar Law Group
– “Value Billing”
– “26 Non-Attorney Professionals”
– “Fuselage Pricing Model”
• Valorem Law Group
– “Billable Hour is Dead!”
– “Value Adjustment Line”
– “Customer Satisfaction”

30. Profitability Metrics
“Success & Mistakes”
“Make or Break”
• Fee Collections!
• Accounts Receivable Fee Write Offs
• Attorney Time Write Downs/Write Offs
• Contemporaneous Timekeeping

31. Important!
Keeping Contemporaneous Time
Importance of Timekeeping
•Firm Productivity
•Powerful Planning Tool
•Critical Role in Profitability
Better Timekeeping Practices
•Improved Estimates for Legal Spend
•Better Handle on Firm Investment
•Generating Profit

32. Marketing Alternative Fee Arrangements
2012 Altman Weil Survey/Law Firms in Transition
• AFAs are used by 95% of all large and mid-sized firms
• 81% of large firms reported an increase in AFA since 2010
• 66% Reactive to Client Requests
• 33% Proactive/Competitive Advantage
Marketing Strategy –Planning and Implementation
• Efficiency and appropriate allocation of resources
• Alignment with client risk
• Cost of legal services relative to matter results
• Go To Your Best Clients First –”Cherry Pick”

33. Framing the Marketing Message
• Message v. Method
“Fee Options that Provide Value to Clients”
• What Works for your firm and your Practice Areas?
• Can matters be broken down within practice groups into
distinct parts that systems can be developed around?
• Are documents or pleadings standard or capable of being
customized through automation?
• Are there reasons for fee variances for roughly the same
type of work?
• Are these types of matters rare or frequent and how do our
competitors charge for the same services?

34. Framing the Marketing Message
Basic Action/Communication Game Plan
• Start small and decide what type of fee arrangement works
for the matter –Conservative or Aggressive?
• Once a matter has been identified as suitable for an AFA,
market it!
• Web-based and Print-based mediums mentioning
that AFAs are offered by the firm
• Clients that have used your firm for AFAs should be
encouraged to refer others
• Internally educate and market AFAs within the firm
• Premise - “Strategic Decision Not a Sales Gimmick”
• Comprehend Business Implications of AFAs for the Client
and Firm.

35. Strategic Marketing Advantage
Frame the Message
Law Firms with AFA Pages on their Websites
1. Wilmerhale
www.wilmerhale.com
2. Kirkland & Ellis
www.kirkland.com
3. Haynes Boone
www.haynesboone.com

36. Strategic Marketing Advantage/Frame the Message
• CMS Cameron McKenna
– 13th largest UK firm with 800+ lawyers
– Launched a marketing campaign around its unique
fee structure.
– Invited 3500 clients to consider AFAs
– Introduced a Pay what you think it’s worth option
– Provided discounts for clients placing majority of
work with the firm
– Monthly retainers
– Fixed Fee agreements
• Law Firm Brochure “The Future of Fees”

37. Strategic Marketing Advantage/Frame the Message
www.summitlaw.com
Summit Law Group rejected the traditional law firm model and
started from scratch to design a modern law firm founded on a
single principle: customer service.
– Client are called “Customers”
– AFAs -Introduced a Pay What You Think it’s Worth Option
• Value Adjustment Line
• VERY Successful!

38. What AFA Firms Need To Be Successful?
• System Tools
• Training
• Resources
• Personnel Management

39. What AFA Firms Need To Be Successful?
System Tools
• Historical Time Investment Analysis
• Matter Budgeting
• Monitor and Manage
• Measure What Can Be Measured
• Gauge Performance
• Initiate Corrective Action

40. What AFA Firms Need To Be Successful?
Training
• Attorneys
• Budgeting Tools
• Pricing Negotiations
• Renegotiations
• Manage Matter Budgets and Staffing

41. What AFA Firms Need To Be Successful?
Resources
• Non-Lawyer Management Professionals
• Marketing & Business Development
Professionals/Teams
• Project Managers
• Senior Attorneys/Paralegals

42. What AFA Firms Need To Be Successful?
Personnel Management
Utilizing the Different Ways To Approaching Legal
Work
• Improve Communication
• Adopt/Enhance Team Initiatives
• Ensure Clear Ongoing Oversight of Matters
• Establish Accountability
• Continue Learning About AFAs

43. PREDICTIONS & TRENDS
Billable Hour Will NOT Disappear
• Valuable Pricing Mechanism
• Productivity Tracking/Profitability
Segmented Legal Market Will Continue to Produce a Variety
of Pricing Mechanisms
The Dominant Emerging Pricing Mechanism will be Fixed or
Project Pricing
Best Compromise
Price
Value
Predictability

44. PREDICTIONS & TRENDS
AFAs Will Change the Legal Profession
• AFAs will Replace Billable Hour as the Billing Standard
• Handled Properly, Potential Revenues are Compelling
– AFAs Brought in a Reported $16.1 Billion in 2011
New Law Firm Roles/Tasks Will Emerge
• Ascertaining Economic Feasibility of Fixed Fees and
AFAs
• Managing Teams Doing Work Under AFA
Structures/Pricing
• Monitoring Internal and External Resources
• Monitoring Cost-Efficient Strategies
• Ensuring Profitability

45. PREDICTIONS & TRENDS
Shift in the Marketplace
• Law Firms That See Opportunity Rather Than Hardship
Will Reap the Benefits
• Law Firms That Recognize AFAs as a Means to
Differentiate itself will Outdistance the Competition

46. ”There Are Three Kinds of Baseball Players:
Those Who Make It Happen, Those Who Watch It Happen
and Those Who Wonder What Happened.”
-Tommy Lasorda
Which Are You?????
Next Steps?

47. Questions

48. Special Thanks To Our
Luncheon Sponsors!

49. Thank you!

50. Contact Information
Frederick J. Esposito, Jr., CLM
Director of Administration/CFO
Meyer, Suozzi, English & Klein, P.C.
990 Stewart Avenue, Suite 300
Garden City, NY 11530
Email Address: FJE@msek.com
Phone Number: 516-741-6565
www.msek.com
LinkedIn: www.linkedin.com/in/fjesposito
Twitter: Lawmgtguru