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Legal Decoder Blog

A Growing Uneasiness Between Firms And Clients

Recently, there have been articles discussing the shift to alternative fee arrangements (AFAs) and whether law firms are too quick to comply with client demands regarding billing practices.  In an industry where firms have thrived on the billing hour this shift can be worrying to law firm leaders.  You can read about it here, here, and here.

The legal industry is changing with technology presenting new solutions to help law firms and corporate legal departments stay competitive.  Yes, clients are demanding more transparency and efficiency from their outside counsel.  There will be more AFAs but the billing hour isn't going away anytime soon.  We believe these market disruptions aren't problems but opportunities to add value and develop differentiation amongst the competition whether you are the law firm or client/company.

This quote best sums up how we think law firms and corporate legal organizations should tackle the changing market landscape:

"These leaders don’t shy away from market problems. They pursue the best solutions to better continue navigating their firms and law departments with fearlessness, confidence, and security."

Legal Decoder Will Be At The ACC Legal Operations Conference (June 4-6)

Legal Decoder will be attending and presenting at this year's Association of Corporate Counsel (ACC) Legal Operations Conference in Chicago from June 4-6.  Joe Tiano will be presenting Legal Decoder's technology at the "Shark Tank: External Spend Data Analytics" event.  Please stop by and say "hi" if you are at the conference.

For more information on the conference go here.

LEGAL SPEND COMPLIANCE PART 2

Understanding your legal spend data is a concept the legal industry has just begun to embrace.  The previous post in this 2-part primer on legal spend compliance discussed billing hygiene and what constitutes good billing hygiene.  This post will discuss Workflow Efficiency and Staffing

Workflow Efficiency means tasks are done in a manner that doesn’t add unnecessary steps and time.  Legal Decoder’s technology analyzes line items and uses benchmarks to determine if Workflow Efficiency can improve.

Office Communication

A Workflow Efficiency issue we often see is excessive Office Communication from timekeepers.  This can include phone calls, teleconferences, meetings, and conversations.  The main reason why excessive communication is a problem is that the true costs and time to complete a task are inflated making it difficult to assess the actual value of the work.

Here are some examples of excess Office Communication:

(For Matter XYZ)

“04/17/2016 – Update retention applications for counsel, administrative agent, and operational advisor re updated case information (0.7); review all current conflicts spreadsheets and related schedules in connection with counsel retention application (2.2)”; confer with M. Ellis re logistics(.1); revise motion (0.5)”

“04/19/2016 – Update motions for interim compensation and ordinary course professionals (0.8); and confer with M. Ellis re same (0.2).”

The narrative part in question is “confer with M. Ellis.”  If the timekeeper truly does require constant communication, why does the client have to take on the burden of those costs?  Without seeing the entire body of narratives, it seems innocuous but it can be a signal to the client AND law firm that work is not done efficiently or a timekeeper requires constant guidance to complete a task.

Chipping

Chipping means adding excessive, small increments of time to a task.  This can occur with senior and junior timekeepers.  An example of Chipping:

“8/31/2016 – Attention to RN plan settlement. (0.1)”

“9/1/2016 – Attention to RN plan settlement issues. (0.1)”

“9/2/2016 – Attention to RN plan settlement issues. (0.1)”

 It’s clear the timekeeper is just adding small increments of time to bill out.  The narrative doesn’t mention what actual work has been done, either.  We’ve seen cases of Chipping where phone calls were charged .1 hours across several matters once a week.  In cases like that there needs to be discussions between the client and law firm.

STAFFING

Finding the right mix of staff can complete tasks and move matters forward.  The incorrect mix of people can result on work being dragged out, high costs, or both.

First Year

Line items are flagged with First Year flags when recent law graduates work on tasks at a less efficient level compared to more senior lawyers.  

“Update and circulate updated draft of equity trading order (0.8).”

“Update Notice of Commencement per T. Young’s comments (0.5); review petition information (0.3)”

Both examples above are easy to gloss over but upon closer look it probably doesn’t take nearly an hour to update and send out a draft trading order.  Someone more senior may be able to do the work more efficiently over the course of a matter but the cost may be higher.  Being able to surface these insights from data can help you determine which option is appropriate.  

Skills Mismatch – Overqualified

When timekeepers work on tasks below their skill level their line items are flagged with Skills Mismatch – Overqualified.  The line item below was billed from a law partner:

“Review/revise discovery letter (1.0); confer with client re presentation and other miscellaneous issues (0.5)”

Revising a letter and providing comments to a draft might be better assigned to a junior timekeeper with a lower cost.  When senior-level lawyers are doing work well below their level it inflates the total legal costs and may keep the senior-level lawyers away from tasks requiring strategic direction or subject matter expertise.

Workflow Efficiency and Staffing are two drivers of cost in legal spend.  Both can seem subjective and difficult to quantify.   Legal Decoder’s technology uses benchmarks to determine whether work is done efficiently with the right people.  Corporate law departments and firms can use the data analysis to ensure billing guidelines are met and timekeepers are compliant which can help maintain the relationship with the client.

Jason Chi
LEGAL SPEND COMPLIANCE PART 1

Being able to understand your data is key to moving forward in a changing legal industry.  Corporate law departments want to know how analytics can be used to help with decision-making and finding value.  Law firms and bill examiners want a solution to ensure billing compliance and get paid faster.  Finding a place to start and make sense of it all can be a challenge by itself.   

Not to worry.  For those who aren’t familiar with Legal Decoder's Legal Spend Analysis technology we have put together a 2-part primer to help take the first step in understanding your data.  Legal Decoder’s Compliance Engine analyzes line items on billing hygiene, workflow efficiency, and staffing.  This post will discuss Billing Hygiene.  The next post will cover Workflow Efficiency and Staffing

Block Billing

Good Billing Hygiene isn’t just inputting time and a short (or very long) description of the work done.  It means line item narratives are descriptive yet succinct to maintain good Billing Hygiene.  One of the most common issues we see is Block Billing.  Here’s an example of Block Billing:

“Review and final comments to plan; disclosure statement and final revisions to approval motion and instructions regarding filing and service; numerous conversations with co-counsel regarding solicitation issues.”

Here is another example of Block Billing:

“Review, analyze case law re confirmation issues (2.3); review, revise summary of same (.4); draft analysis of same (.4); correspond with R. Miller, C. Person, R. Smits, re same (.4); review, analyze precedent re same (.4); review, analyze confirmation timeline issues (.1); review, revise pleading re same (.2); correspond with F. Gore, A. Luck, C. Pagano, re issues re same (.3); correspond and conference with R. Mathis re same (.2); correspond and conference with P. George, J. Teague, M. Turner, N. McMillan, Company re ERISA meetings (.3); review and analyze issues re same (.4); conferences with T. Hilton re plan issues (.3).”

It’s easy to see what makes up Block Billing.  Too many narratives combined into one narrative.  Each mini-narrative doesn’t fully describe the work or the context of the work.  As with the second example, there are 10 narratives crammed into one narrative which makes it difficult to understand the work done.

Here is an example of a well-written narrative:

“Review and analysis of discovery requests directed at debtors regarding events leading to the Ch. 11 and post-petition operation of the debtors.”

The description of the work is succinct and, on its own, the context of the work can be traced to the matter.  Well-written narratives provide a complete picture of the work that has been done for the client and allows firms to track/manage matters appropriately.

Vague Entries

Another common Billing Hygiene issue we see are Vague Entries and they are exactly what they sound like: Entries with vague descriptions of work.

Here are some examples of Vague Entries:

“Further email updates”

“Emails re same”

Vague Entries don’t provide description or traceability to the work.  A few Vague Entries might be acceptable but when it is habitual it becomes a problem for the timekeeper, law firm, and client.  The client doesn’t know what work has been completed and what it is paying for.  The law firm doesn’t have the ability to map the work performed to the matter.  And it looks bad for the firm and the client because neither party can justify the work that was done.

Communication Inspecificity

Lastly, we see a lot of issues regarding Communication Inspecificity which just means the timekeeper didn’t properly identify the party he/she was in communication with.  Here’s an example of Communication Inspecificity:

“Participate in committee conference call.”

Not only does the timekeeper not specify who she/he was in communication with but the entry is also vague.  A better narrative could’ve been “Participated in committee conference call regarding SmithCo appeal with General Counsel.”

The ability to analyze, quantify, and collect valuable information from your legal spend data can unlock untapped value.  New insights can lead to better decisions and strategies.  Both the client and firm can better manage work-related matters, budgets, and costs using information drawn from data.  The legal industry is moving towards a data-driven model where surfacing information from data is the difference between adapting to the changing times or staying the same and watching the competition move forward.

For part 2 of this primer click here

The New Legaldecoder.com!

Welcome to the new Legaldecoder.com!  We've redesigned the site from front to back and moved the site to a new system.  Check back regularly for blog posts and news updates on our blog "The In-House Insider."

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LEGAL DECODER CEO JOE TIANO DISCUSSES LEGAL OPS AND DATA-DRIVEN LAW WITH HIGH PERFORMANCE COUNSEL

https://highperformancecounsel.com/legal-decoder-ceo-joe-tiano-talks-legal-ops-data-driven-law-high-performance-counsel-fearlesslaw/

Who are you and what is your role?

I am the Founder and CEO of Legal Decoder.

After practicing law for nearly 20 years, I withdrew from the partnership at Pillsbury Winthrop Shaw Pittman LLP to take on a new challenge. Our mission at Legal Decoder is to help legal ops professionals and law firm leverage technology and data to drive better predictability, efficiency and value when it comes to legal services.   My role is to work with legal industry leaders to understand their challenges and goals and develop smart technology that helps to achieve their goals.

What do you think will be the single most defining feature of the next 1-5 years in law? And then, same question – but over the next decade?

The most defining feature will be the reaction of law firms whose lawyers are being asked by clients to change behaviors. Clients are looking to their law firms for more than legal services as they have been delivered over the past 70 years.   Clients expect law firms to utilize technology, leverage data, create new service delivery models and expand core competency to include things like project management and process mapping. Change is difficult but law firms must react with a sense of urgency to client demands and sell what clients want to buy.

In ten years, many of the baby boomers presumably will have retired so the industry is really going to be shaped by millennials. Millennials are a tech savvy generation so it’ll be interesting to see how they approach the rigors of the legal industry.

Artificial Intelligence (AI) is touted as a game-changer for law. What do you think?

AI will not replace lawyers but will augment how they practice.  Technology simply cannot do aspects of what lawyers do.  AI cannot reason by analogy like lawyers do.   Software cannot account for precedential value, from a business perspective, of taking one course of legal action as oppose to another.  Technology has its limitations.  Lawyers who embrace technology and data analytics to augment their practice and inform their advice will have a competitive advantage

Cybersecurity is often quoted as being both the next greatest risk and also the greatest revenue opportunity for legal services providers. What are your thoughts?

The risk of security and data breaches is undeniable. Notwithstanding, the levels and quality of protective measures, through encryption, password protection, network security monitor and so on continue to advance counteracting the threats. LegalTech solutions providers, legal ops experts and IT professionals are smart and take data security very seriously which means that security levels and preventative measures will become even more effective.

Is Automation a “silver bullet” for law – or is law more complicated than other sectors?

Automation is a silver bullet when it comes to standardization and processing speed. Technology can augment judgment and experience, but it’s not a viable substitute.   For example, our technology can help a lawyer develop a strategy around how many key witness depositions to take in a current case by evaluating how many key witness depositions have been taken in previous cases and correlating that data to outcome.   In some respects, historical data is a quasi-surrogate for a lawyer’s experience.  Someone needs to understand the data, however, and that’s where a lawyer fits in.   His or her judgment is not replaced by a machine.

There is much more data available for both lawyers and their clients? Is more better – or just more?

If data is recent and intelligently structured to align with how lawyers work, more data is better. The challenge faced by many legal operations professionals and law firms is that the data is inconsistently categorized, mis-tagged and poorly structured.  Our technology transforms raw data into refined information upon which legal industry leaders can make decisions.

We see a push for greater “value” and “innovation” in both legal products and price levels, structures? Is there more to value than the price tag these days?

To me, value has three components none of which considers the price tag.   The first component is outcome – clients want a favorable outcome or, at least, an acceptable outcome.   Second, clients want that outcome with a minimal amount of internal friction or burden.   Third, clients expect that outside counsel deliver the outcome with efficiency. If those components are present, law firms will get paid because they delivered value.

There’s a growing trend toward litigation funding and other forms of legal financing. What are your thoughts on that?

If litigation funding affords access to the justice system to people whose legitimate interests otherwise would not be represented, that advances the cause of justice. Given the financing and underwriting slant of litigation funding organizations, I suspect they’ll be early adopters when it comes to using data and metrics to assess litigation strategy and projected outcomes.

We see more pricing data and a push for greater transparency in legal procurement. What do you see as the implications of this?

This question goes to the heart of why Legal Decoder exists.   The biggest challenge in the legal industry is pricing uncertainty.  It’s a real problem and a real big problem.  Every year the legal industry is plagued by $60 BILLION of pricing uncertainty, waste and inefficiency.   $60 billion is up for grabs as between clients and their law firms.  Because of innovations in the legal industry and other competitive forces, clients don’t REALLY know what they should be paying outside counsel and law firms don’t REALLY know what they should be charging clients.   This is the problem Legal Decoder solves.   Our software analyzes legal spend data and granularly pinpoints precise tasks handled by legal professionals – like drafting a 10-K or reviewing a motion to quash or analyzing a Phase I environmental assessment – and identifies the level of legal professional who should handle the task and how long the task should take.   Some things can never be “priced” for lack of a better word, but 70% of what lawyers do falls into patterns that can be evaluated and statistically validated.  Our software helps legal industry leaders, both law firms and clients, more accurately and predictably price and economically evaluate legal services.   Both clients and law firms want better predictability, visibility, efficiency and value when it comes to legal services and Legal Decoder’s software provides the data and benchmarking capability to drive those results.

What’s the one shift or change you think will catch the industry un-prepared in the next decade – whether good, bad or downright ugly?

The best legal industry leaders, whether law firm leaders, CLOs or Legal Ops professionals, are already thinking ten years down the road.   These are ultra-smart people who are at the cutting edge of change and innovation in terms of technology, data analytics, alternative service delivery models and so forth.   While nobody has a crystal ball, change in the legal industry is usually not seismic but instead evolutionary so the best and brightest in the legal industry are unlikely to be caught unprepared.

Legal Decoder: Thought Leadership Articles (Indexed)

Many legal industry leaders have kindly expressed that they have enjoyed reading my/Legal Decoder’s thought leadership pieces which can be found on my LinkedIn page and on Legal Decoder’s Blog. Several colleagues in the industry also have asked for a categorical listing of my posts by subject matter with a hyperlink to help cull through the morass of thought leadership pieces available online today. If you click or ctrl + click on the title, you’ll arrive at the desired post:

LEGAL INDUSTRY PERSPECTIVES

LAW FIRM STRATEGY

 LAW DEPARTMENT OPERATIONS AND MANAGEMENT

LAW DEPARTMENT STRATEGIC GOALS AND INITIATIVES

DATA ANALYTICS AND LEGAL TECHNOLOGY

BILLING ARRANGEMENTS, RATES, BUDGETING AND OUTSIDE COUNSEL COST MANAGEMENT

OUTSIDE COUNSEL SELECTION AND EVALUATION

MANAGEMENT OF OUTSIDE COUNSEL

How Lawyers Demonstrate Their Value: A Proposed Analytic Framework

"Value" has been a recurring theme in the legal industry where lawyers, whether in law firms or in-house, are now asked to explain, differentiate and quantify the value of their advice and services.

Defining the “value” of legal services is complex. Indeed, when developing “value-based” fee arrangements, offering “value-added” services or creating incentive-based/outcome based engagements, the concept of value is nebulous, variable and amorphous, leaving clients and their lawyers with a moving target against which to assess the value of legal services. Asking any legal professional to explain, quantify or differentiate his or her value without context, metrics or even a baseline analytic framework is a fool’s errand and, basically, unfair.

Read the rest of the article:

https://www.linkedin.com/pulse/how-lawyers-demonstrate-value-proposed-analytic-framework-tiano

BlogJoe Tianovalue, analytics
Artificial intelligence disrupting the business of law

The Financial Times has a writeup on how technology, specifically AI, is beginning to change the legal industry.  The article talks about how routine work and high-value work will be replaced or aided by artificial intelligence.  It also discusses how outside players from startups to traditional consulting firms (i.e. PwC) are offering legal services.

We see the legal industry ready to take the first steps to embracing technology to help businesses and law firms.  Check out the article.  It's worth a read.

https://www.ft.com/content/5d96dd72-83eb-11e6-8897-2359a58ac7a5

How Legal Decoder Is Used - Argonne National Laboratory

Argonne National Laboratory is a non-profit, research laboratory operated by University of Chicago for the United States Department of Energy (DOE). Argonne’s mission is to develop and discover innovations in energy. An organization of Argonne’s scale and complexity requires the support of outside counsel. As a quasi-government entity, Argonne must be mindful of the public’s fiscal interest in executing its mission. Argonne’s business ethos is to consciously control expenses and the legal department is no exception. Reviewing outside counsel bills before approving them for accounts payable is a painstaking task for any legal department. Being a part of the DOE also requires compliance with federal regulations such as the Prompt Payment Act. Argonne needed to properly review bills and gain insights into their legal spend data while maintaining compliance so it turned to Legal Decoder’s technology for help.

Argonne’s main goals for using Legal Decoder’s technology were to identify bad billing practices, better predict legal spend and budgets, and drive efficiencies in workflow processes. Legal Decoder’s Compliance Engine, which uses natural language processing (NLP), analyzed line items for compliance with billing guidelines and issues with efficiency, staffing, and billing hygiene. The Compliance Engine aggregated the results to identify which invoices should be paid and which require further review. As a result, Argonne has seen its outside counsel improve billing practices and lower costs.

Argonne now compares firm versus firm and timekeeper versus timekeeper performing the same task at a granular level to assign work to the right firm. Argonne did not know how long or how much a task such as filing an application cost but is now able to compare between firms using Legal Decoder’s technology. For example, Firm A took 30 hours on average at $X to perform a filing, Firm B took 13 hours at $Y, and Firm C took 20 hours at $Z when data was analyzed. This information is powerful when pricing out work and predicting costs or budgets.

Since using Legal Decoder, Argonne has driven efficiencies and cost savings by making sure that work is correctly assigned, managed and completed. For FY16, Legal Decoder's Compliance Engine surfaced 16% in unrealized savings across all matters and Argonne is using this information to better control and manage costs. Argonne also has insights into areas where outside counsel is strong when it comes to staffing mix and workflow efficiencies. Using this newly discovered information has given Argonne an improved awareness of its outside counsel effectiveness.

If you think Legal Decoder can help you with your legal spend analysis, please email us and we will contact you shortly after.

Legal Decoder - Legal Spend Authentication (LSA) Technology Case Study

Legal Decoder’s Legal Spend Authentication (LSA) Technology analyzed nearly $11 million in actual law firm invoice and billing data from a large case involving multiple law firms. In less than five minutes, LSA Technology analyzed over fifty invoices (over 2,000 pages and nearly 12,000 line items) which had been submitted during the year for court approval against a set of proprietary algorithms that evaluate staffing and workflow efficiency and billing hygiene against industry-wide benchmarks. Over $2.4 million of individual line items were highlighted showing areas where improvement was merited.

Both clients and law firms are benefiting from these types of insights to "fine tune" their relationship and drive the best outcomes through a true partnership focused on optimized efficiency and value.

Download the study here.

BlogJason Chi
Are Outside Counsel Rate Freezes Translating to Cost Savings?

There are scant few industries where a vendor can unilaterally impose annual rate hikes upon customers without a market backlash.  Historically, law firms have been able to raise rates or, at least, avoid rate freezes due to price inelasticity in the legal industry.  In the legal industry’s new era, competitive challenges facing law firms are making firms more amenable to rate freezes and savvy clients will request them. Importantly, in-house legal departments should periodically calculate whether outside counsel rate freezes have translated into real cost savings.  If not, examine whether the staffing mix on frozen rate matters has trended towards higher rate billers.  On frozen rate matters, the natural tendency for law firms is to staff matters with higher priced attorneys who are typically more efficient, but also more costly and profitable than junior attorneys. This trend could negate any expected benefits from rate freezes.

Legal Departments: Critically Assess Your Use of Service Partners

At many law firms, partners wind up being economically classified as either “rainmakers” (i.e., business generators) or “service partners” (i.e., supporting cast members) depending on one’s relative economic contribution to the firm and personal productivity level.   Law departments that promote operational efficiency and cost consciousness as strategic goals should pinpoint service partners on their matters and evaluate whether they are adding value. Service partners usually fall into one of two categories (i) Specialists, or (ii) the Endangered.  Specialists are expert in a discrete, highly technical area of law, such as ERISA, export control, FOIA, FCPA, state and local tax, regulatory law, appellate work and a host of others.   As non-rainmakers, specialists survive and thrive because they have a differentiator – a unique skill set that meaningfully contributes to the success of other partners’ practices and assists clients on high value, nuanced legal issues.

Endangered service partners are typically generalists in a broad practice area, not specialists.  As attorneys, they lack a competitive differentiator and many attorneys can tout the same skill set, albeit at different experience levels.  Non-rainmaking, service partners who are general commercial litigators, real estate practitioners, business transactional lawyers or corporate attorneys squarely fit into the endangered class.  Endangered service partners usually align themselves with a handful of rainmakers to remain productive and assume administrative activities for a firm.  Because the primary economic contribution of the endangered service partner to a law firm cannot be measured by business generation or a unique skill set, his or her contribution is measured primarily by the billable hour.   In AmLaw 200 firms, service partners in the endangered class are now closely scrutinized by their more economically productive peers and in-house legal departments should follow suit.  The reason is fairly simple.

The endangered class of service partner is economically driven by billable hours (much like associates) and uniquely positioned and inclined to retain work and handle tasks that could be competently and efficiently performed by a more cost effective timekeeper.  Do you want the 15-year service partner or a 6th year associate drafting a credit agreement or a motion to dismiss or an employment agreement?    Your level of confidence in the service partner, his or her level of institutional knowledge or the risk/value analysis may ultimately steer you to the 15 year service partner, but it is critical to evaluate the nature of the service partner's contributions and whether you are receiving incremental value add.

Optimize Value from Outside Counsel's Junior Personnel

Invite a talented associate from one of your outside law firms to work out of your office for a month.  Almost invariably, outside counsel will embrace seconding a junior associate for a short time.  To outside counsel, this initiative feels like the solidification of your relationship and they’ll likely assign the associate at no incremental cost to you.   For your company, the costs are fairly small – a cubicle, internet connection, guest bathroom key and a little time interacting.  The benefits, however, can be enormous.   After a month, you’ll have a junior outside attorney with a stronger grasp of your company’s strategic goals, challenges, opportunities and culture and a cost effective point of contact for routine, day-to-day matters.  After working closely with your team for a month, the junior associate will develop interpersonal relationships, support your strategic goals and be disinclined to bill indiscriminately because she or he is now billing people, not an impersonal corporate entity.  As your department grows, you’ll have the inside track on recruitment – but don’t tell outside counsel.

Alternative Fee Arrangements Between Clients and Outside Counsel

Insightful article from Capital Business on alternative fee arrangements between clients and outside counsel. As a former AmLaw 100 Partner for a decade who architected and managed many AFA engagements, I am happy to share a few observations on AFAs and the perplexingly slow AFA adoption rate.   A more comprehensive white paper on AFAs is available.

Fundamentally, I share the view that Alternative Fee Arrangements will continue to increase because they are a logical, predictable commercial arrangement between a client and outside counsel.  Widespread adoption of AFAs may be slower than most clients prefer in my view mostly because law firms are not ideally equipped to price and manage AFAs .   Here are the primary factors hindering widespread adoption by law firms in my view and I’d be keen to hear other views:

[1]   A data incongruity perception.   Clients perceive that a law firm has better pricing insights based on its internal data and comparable experiences and matters.  Law firms perceive clients to have data from a broader spectrum of firms by which to price AFAs and measure performance.   Both perceptions are correct.   The reality is that clients are equipped to use this data to their advantage and law firms are only starting to follow suit.   Until law firms catch up, the pace of AFA adoption is unlikely to accelerate.

[2]  Analyzing AFAs against a legacy economic model.   When a law firm prices an AFA, assumptions on headcount and time commitment necessarily tie to historic billable hour matters where process management and efficiency was not a paramount concern as it must be in an AFA.  This poses an initial pricing dilemma for a law firm where, due to past inefficiencies on historic matters, AFA pricing might trend higher than other outside counsel competitors.   After matter completion, law firms have no choice to measure profitability by comparing the AFA fee against what would have been realized if the AFA was billed on an hourly basis.  When one of the primary metrics for individual attorney compensation depends on hours billed, it is any surprise that an hourly engagement generates usually more billable hours, a better realization rate and better profitability than an AFA?

[3]  Risk/Reward Mismatch.   AFA proponents correctly posit that outside counsel (as a “true business partner”) should absorb the downside of an AFA alongside a client and, conversely, share in the upside of an AFA alongside a client.   Theoretically and institutionally, that makes sense at the macro level.    On the micro level when taking into account the practical/operational realities of a law firm, only one or a very small group of partners will disproportionately bear the brunt of an economically unfavorable AFA.  If, however, an AFA is a massive economic windfall, the windfall is shared across tens, hundreds or thousands of partners.   At many big firms, there simply is a risk/reward mismatch where a bad AFA deal negatively affects only a few and a lucrative AFA deal is shared amongst the masses.

More thoughts on AFAs can be found in my whitepaper: download here

Outside Counsel Cost Management And A Transforming Attorney Client Relationship

Virtually any attorney who has practiced law for more than 15 or 20 years, particularly in large national or multi-national law firms, will confirm that the legal industry does not remotely resemble its former stature. Demand for legal services is shrinking amidst a glut of attorneys and disruptive technologies and alternative service offerings are making the legal industry’s landscape more competitive than ever. For an industry that historically has enjoyed price inelasticity, the cost of legal services has migrated to the forefront of attorney-client relationship. As the industry continues to be reshaped, the individual relationship between a client and outside counsel is likewise transforming. With increasingly frequency, outside counsel is losing the status of an irreplaceable, cost-insensitive and indispensable advisor. Clients are comparison shopping to ensure that outside counsel is competently delivering optimal value for each hour billed at competitive market rates. In an evolving relationship where the market influence of each party is becoming more balanced, unspoken protocols, the rules of engagement and even the fundamental underpinnings of the attorney-client relationship which once were inviolable are now points of discussion and negotiation between a client and outside counsel. In the redefined relationship with outside counsel, every value conscious client should assess the factors driving the transformed relationship with outside counsel. By doing so, a client will make great strides towards ensuring that optimal value is delivered by outside counsel for each hour billed at market rates.

If you would like to learn more about the intricacies of the attorney client relationship transformation, download Legal Decoder’s White Paper, Outside Counsel Cost Management and a Transforming Attorney Client Relationship.