A Value-based Client-Firm Relationship: Part II
Post 2
Alternative Fee Arrangements, Time Well Spent
Week 2. Each week via the In-house ACCess blog, follow the promise and pitfalls of forming a new value-based client-firm relationship. This blog pairing explores how to improve the value returned using a different approach to managing litigation work. As General Counsel of Kayak, Karen Klein provides legal counsel to senior management and oversight of all legal matters. Karen’s co-blogger is Nicole Nehama Auerbach, a co-founder the Valorem Law Group, The voice, views and stories expressed by the authors below are their own and not ACC’s. To catch up on the story so far, click here.
The client view
From Karen:
Last week, we discussed how a lot of things needed to be aligned for me to be willing to use an alternative fee arrangement for litigation. One of my greatest concerns, because it touches upon the one critical resource that I have the least of, was how much time it would take to work out a fee arrangement. As I mentioned, in a small legal department, when everything that hits my radar is something that needs to be resolved yesterday, it takes no time at all to agree on the billable hour model. Typically, if we are the defendant, the time it involves is the five minutes it takes me to pick up the phone, call my lawyer of choice and say, "We just got sued in this court by this party about this thing. Can you handle it?" Assuming no conflict, the answer is typically, "yes," to which I say, "I'll send you the complaint." Done deal. It may take a few minutes longer if we are plaintiff, but not much.
When it came time for me to consider an alternative fee arrangement, I worried about the time on the front-end, as I suspected the negotiation would be time-consuming. While I'm sure the front-end aspect was much more time-intensive for Nicole, as it turns out, for me, it simply entailed answering some questions about our goals for the case, how many witnesses both sides would likely each have, the universe of documents we possessed and in what format, and the value of a win so that she could then put a proposal together with options for fee arrangements. I then got a detailed fee proposal with more than one option so we could decide which arrangement best fit our needs. The proposal was specific in terms of the phases of the case and the assumptions that it took into account. It was in simple enough form for me to forward to our VP Finance and to recommend one of two options offered. Done deal.
In retrospect, the discussions we had at the onset, and the consideration I had to give to what our goals were and what the scope of the matter appeared to be, were a valuable investment that is often missing in the initiation of a case under the billable hour model. The expenditure of time spent thinking through the case helped me focus on what I wanted to accomplish in the litigation. That benefit was well worth the expenditure of a little more up-front time.
One other by-product that I underestimated, but truly appreciate from the time standpoint is the elimination of monthly invoices that I have to pour through in order to approve. That is one less administrative task that I am quite thrilled to have off my plate. And, because the arrangements that we've entered into typically involved some fixed aspect as well as an incentive bonus, I don't have to worry about whether the firm's interests are aligned with mine. More on that structure in a future post.
The firm view
From Nicole:
Karen raises a common concern that many clients seem to have about entering into alternative fee arrangements. Because the details of alternative fee arrangements, particularly customized ones like we create at Valorem, can be made quite complex, there is a concern that the alternative fee is more difficult to grasp than billing by the hour. Busy clients tend to shy away from an alternative fee because, like Karen, they are reticent to spend precious time at the beginning of the matter. While there is certainly more time involved than simply picking up the phone and saying, "You're hired," the expenditure of time for the client is far from extensive. In fact, our experience is that clients who try the alternative fee and focus on the key questions about the litigation at the onset generally prefer this method because it puts them on the same page as their outside lawyers from the get go. And, as Karen has experienced, the net investment (including bill review) over the life of the case is frequently less.
Some of the questions we ask that might never be expressly discussed under the billable hour method are: what does a victory look like (i.e., is it -- just settle the case quickly, or might it be, settle within this fiscal year, but for no more than x); who in your company is going to be involved (or inconvenienced?) as a witness; are there any internal political or external public relations issues we need to be aware of; what do you think the motive of the opposing side is; are there non-cash ways to resolve this (extend a contract's term, commit to order x amount of product); who owns the problem from a business standpoint, and what are their views and expectations, etc.
What most clients don't know is that any firm well-versed in doing alternative fee work is then going to spend a fair amount of time vetting the case on its own so it can determine whether it wants the case, and if so, a fair way to price it given the perceived risks and rewards. This behind the scenes vetting process does not require any additional time by the client, and is merely the due diligence that comes along with understanding the scope of the matter in order to set a reasonable price.
Once the background work is completed, a written proposal setting out the key assumptions and one or more fee arrangements is then given to the client so they can choose which arrangement might best serve its purpose. It is extremely helpful if the client has data on how much similar cases have cost in the past. Similarly, if the firm has this type of data as well, it can lead to a more informed decision on both parts. In the end, agreeing on an alternative fee arrangement is not so time consuming for the client, and the additional expenditure of time at the front end can frequently lead to better outcomes for the case and more satisfied clients.
My Kayak choice trip of the week is from Chicago to Dallas for the Superbowl. That shows amazing client service on my part since Karen is a Green Bay fan and they beat the Bears for the NFC Championship.
