LEGALSERVICESPRICING

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

AGENDA

• An overview of pricing today• A practical approach to pricing for in-house

counsel• Pricing international counsel

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

“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

Is the Billable Hour the right billing model?

"The billable hour is fundamentally about quantity over quality, repetition over creativity”

Robert HirshonPresident

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

Are the hourly rates the right rates?

‘In cost-plus pricing, cost is known before you set the

price. In value pricing, you start with the price the

customer is willing to pay and control your costs to live

within that price” Jim Hassett, LegalBizDev.com

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

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

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 FirmPROFITABILITY

71% of firms report clients are the primary driver of changes to pricing strategy – Altman Weil 2014 Survey

Who is the Counterpart to the Law Firm Pricing Director?

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 toENSURE VALUE

39% of in-house counsel are doing more with fewer resources

“Corporate Counsel Agenda 2013” ALM Legal

How Can the CLO Ensure Value?

KNOW YOUR OPTIONS

DEFINEVALUE

UN-BUNDLE right PEOPLE

right PRICEright PLACE

CLOProject

Manager

MANY LEGAL NEEDSMANY LEGAL OPTIONS

THE RIGHT PRICEContinuum of Fee Arrangements™

Patrick Johanssenwww.patrickonpricing.com

LEVEL OF COMMUNICATION/INTERACTION B/T CLIENT & FIRM

GREATERCLIENTRISK

GREATERFIRMRISK

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

Julia S. Shin DoiGeneral Counsel & Secretary of the Board of Governors, Ryerson

UniversityAugust, 2014

Legal Pricing: Perspectives &

Strategies

Standard Legal Pricing

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Hourly Rate of Lawyer x Time = Price

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

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Hourly Rate

Cap on Hourly RateMaximum (or Minimum) Hourly Rate for MatterCap on Hourly Rate until Matter concluded

Roster of Hourly RatesTrack and Compare Hourly Rates

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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

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3. Management of Time

Learning Time:Discount for Learning Time by Junior LawyerDiscount for Student TimeNon-billable Research TimeTime for Instructions

Overlapping or Duplicate Time:Activity billed once (e.g. review of decision, attendance at meeting)Inter-office meeting time

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Time

Travel TimeLocal travel time is non-billableDisbursements for local travel are non-billable

Reasonableness TestWhether time billed is warranted for the complexity, risk, outcome

Pro Bono TimeContribution of Time

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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

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5. Other Strategies

Detailed Docket Entries

Uniform Task Based Management System

Requests for Proposal

Project Management: Milestones and Estimates

Value Pricing – Incentives

Contingency

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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)

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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

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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

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?

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