Archive for the ‘Alternative fees’ Category

Most clients don’t want the lowest price available

October 30th, 2013 by Altman Weil

Altman Weil released its 14th annual Chief Legal Officer Survey last week, with lots of interesting data for corporate law departments as well as the law firms that serve them.  One of the most surprising survey findings involves pricing.  When asked about preferred outside counsel pricing scenarios, the over 200 Chief Legal Officers who participated in the survey overwhelmingly indicated that their preference is not for the lowest price they can get.

The survey outlined four possible law firm pricing options.  Here are client preferences:
 

  • Transparent pricing:  We want to understand how/why the price is set and have the opportunity to discuss changes - 36.4%
  • Guaranteed pricing: We want to know in advance what it will cost - 33.7%
  • Value-based pricing:  We want to pay a variable price based on the results we get - 20.3%
  • Lowest pricing: We want the lowest price available - 9.6%  
     

“If a rate discount is the only thing offered, law departments will certainly take it, but Chief Legal Officers are saying what they really want is predictability and control. So far this is a challenge that most law firms have been slow to address,” according to Altman Weil principal and survey author Dan Dilucchio.

Read it at Altman Weil

AFAs as opportunities

June 11th, 2013 by Altman Weil

Alternative fee arrangements, like other elements of the changing law firm business model, can be viewed as threats  or opportunities.  There’s an excellent and quick read in ABA’s Law Practice Today online magazine that suggests six ways to think about AFAs in a positive light.  Among other things the author points out that AFAs are “mechanisms for relationships,” and they “breed creative service offerings.”  We agree.

Read it ABA Law Practice Today

Law firm and client perspectives on AFAs

July 16th, 2012 by Altman Weil

ALM Legal Intelligence has released a new survey, Speaking Different Languages: Alternative Fee Arrangements for Law Firms and Legal Departments.  Some of this is well-travelled ground:  almost all those surveyed use at least some alternative fees; AFA use is increasing, but slowly; law departments like AFAs because they help to control costs and make costs more predictable; law firms like them primarily because their clients like them.

But the survey also provides some interesting new insights, particularly in the comparison between the law firm and law department experiences:

  • Law departments initiate the discussion about AFAs 81% of the time; law firms initiate only 13% of AFA discussions
  • 39% of law departments routinely make specific suggestions on how to structure AFAs; only 18% of law firms do so
  • 54% of law firms and 51% of law departments believe that firms have ‘insufficient experience defining or managing work on an AFA basis.’  Only 26% of firms and 25% of departments believe that corporate law departments have insufficient experience.
  • However, law firms are trying to close the experieince gap - 60% report AFA training efforts for partners and/or associates, while only 22% of law deparments offer training.  
  • 90% of law firms have measures in place to assess the financial success of AFAs.  In marked contrast only 20% of law departments are measuring the value of AFAs to their organizations.
  • Law departments think law firms are making steps in the right direction:  55% say law firms are more cooperative in structuring and implementing AFAs than they were two years ago.  In addition, 19% say firms are making ‘a lot of progress’ on AFAs and 59% say that are making ‘a little progress.’

Read it at ALM Legal Intelligence

Law firm leaders are confident in face of changing marketplace

May 25th, 2011 by Altman Weil

The newly released Altman Weil Law Firms in Transition Survey 2011 finds confidence high among US law firm leaders in firms of all sizes.

Overall economic performance is rebounding, with two thirds of all firms surveyed reporting increases in gross revenue in 2010 and nearly three quarters reporting increases in revenue per lawyer and profits per equity partner.  Standard hourly billing rates are up significantly this year, with firms reporting or planning a median 4.0% increase in billing rates for 2011.  Continued reductions in overhead costs and the strategic shrinking of firms’ ownership ranks are contributing to profitability.

“If firms are finding their feet again post-recession, it is on new ground with a number of new factors in play,” said Altman Weil principal Tom Clay.  “And although most firm leaders seem to recognize the changes, it’s not yet clear whether they will be able to manage them effectively.”

Following are some selected highlights:

  • 67% of law firms reported an increase in gross revenue in 2010; revenue per lawyer was up in 73% of all firms; and profits per equity partner rose in 73% of firms.
  • Overhead costs were down in 53% of firms in 2010.
  • The amount of non-hourly billing in 2010, measured as a percentage of revenue, increased in 58% of all firms and in 81% of firms with 250 or more lawyers. 
  • Only 12% of firms report that alternative fee arrangements are more profitable than hourly billing. 
  • 27% of law firms de-equitized partners in 2010 and 16% will do so in 2011.  32% of firms made fewer partnership offers in 2010 and 18% will do so in 2011.  Larger firms are more likely to take these actions than smaller firms.  
  • 92% of all law firms plan to acquire laterals partners in 2011. 
  • 87% of law firms are planning to add associates to their ranks in 2011.   Only 18% of firms plan to remove associates this year, down from 42% in 2010.  
  • Only 18% of those surveyed think that reduced associate salaries will be a permanent trend, down from 32% who thought that last year.
  • 60% of firm leaders expect that the increased use of contract lawyers will be a permanent trend, up from 52% last year.
  • 41% of all firms believe that outsourcing legal work will be a permanent part of the new legal market. 
  • 47% of all firms are concerned that they are not prepared to deal with the retirement and succession of Baby Boom lawyers – the top concern identified.
  • 94% of law firms believe that the focus on practice efficiency is a permanent change in the profession - the number one trend identified.
  • Other top trends include more price competition (90%), fewer support staff (88%), more commoditized legal work (81%), more non-hourly billing (75%), and fewer equity partners (68%).
  • Only 16% of firm leaders expect permanently lower profits per partner.   
  • Leaders score their confidence as an “8” on a zero to ten scale when asked about their firms’ ability to keep pace with change.

Conducted in April and May 2011, the survey polled Managing Partners and Chairs at 805 US law firms with 50 or more lawyers.  Completed surveys were received from 240 firms (30%), including 38% of the 250 largest US law firms.

The full survey is available online to download at: www.altmanweil.com/LFiT2011.

Reinventing the inside-outside relationship

January 13th, 2011 by Altman Weil

There’s so much angst these days about the billable hour, the inside-outside relationship and the elusive search for”value” that it’s nice to read a success story:

“A year ago, as the client-to-law firm conversation had fully entered its give-me-a-discount or give-me-death phase, The American Lawyer put Amy Schulman, Pfizer Inc.’s general counsel, on our cover. Fresh from a stint as an enormously successful DLA Piper litigation partner, Schulman had a different idea about how customers and lawyers should relate to each other. Building on work done at DuPont, at United Technologies Corporation, and by her Pfizer predecessors, she abandoned the billable hour, created an alliance of 19 law firms that would get a disproportionate share of her half-billion-dollar budget, and insisted that the lawyers find new ways of assessing the value of the work they did. All that, and save 15 percent off the top.

A year later, she’s made a few midcourse corrections, but she says that she’s even more convinced that Pfizer’s choice was the right one, both for her company and for the profession. To get the prurient detail out of the way: Schulman says that she hit her budget target and is busy fashioning another one for 2011. But more important, she says, is the progress that the alliance has made toward being a relationship-driven operation. Bigger than cost savings, the real goals are better legal service and protection. And that, she says, grows out of client and firms investing in each other, in guaranteeing work, in setting priorities, and holding each other accountable.”

Read it at The AmLaw Daily

Tom Clay on the future of the profession

December 1st, 2010 by Altman Weil

Altman Weil’s Tom Clay has written a new article on the future of the profession:

“The Rock Center for Corporate Governance at Stanford University recently issued a report on the future of law firms in the new economy called “Big But Brittle: Economic Perspectives on the Future of the Law Firm in the New Economy.” It concluded with these words: “We must acknowledge and respect the forces that created [current market dynamics], and fashion remedies that swim with the tide of economic change rather than rail against it.”

The forces referred to by the authors are those that are exerting an inexorable pressure on the profession to change. I agree with this takeaway, which is, essentially: Deal with it.

Law firms of all sizes cannot escape the pressures for change and therefore must engage in new thinking and new approaches to remain viable, stable and competitive. “

The article identifies four critical areas law firms need to address now.

Read it at The Legal Intelligencer  

Matter-centric thinking

November 30th, 2010 by Altman Weil

“The billable hour may or may not be doomed but the debate on its fate misses one glaring point. Law firms are not in the hours business; they’re in the matters business. All companies differentiate themselves on the quality of the product and the relative value of the product versus its cost. Law firms in fact compete on the quality of their matters and, to a growing extent, the efficiency with which those matters are produced. Lawyers may not like to think this way, but the delivery of legal services is not immune to the same economic realities experienced by manufacturing. It has just taken their customers longer to wake up to the fact.”

Read it at the Law Firm Finance Blog

Post-recession law firm practice: Staffing, Fees, Competition

October 22nd, 2010 by Altman Weil

This month The Legal Intelligencer has been running an excellent series on how law firms fared during the recession and where they’re headed in the recovery. 

The first looked at law firm staffing models, use of associates and practice efficiency.

“Everywhere I go people are basically doing more with less and it’s OK,” Altman Weil’s Tom Clay said, adding later, “Now that lawyers found out they can do just fine, I don’t think you will see staffing levels return soon.”

Read it at The Legal Intelligencer

The second article offered the client perspective on alternative fees and the inside-outside relationship. 

“[Susan Hackett, general counsel of the Association of Corporate Counsel] likened the AFA discussion to a high school dance with boys lined on one side of the gym and girls on the other. Neither side wants to come into the middle to start the dance. Most clients are waiting for the firms to raise the AFA issue because the clients don’t have the metrics or knowledge in place to manage it. Frankly, Hackett said, it’s the firms’ business. Clients aren’t interested in driving how firms manage these projects, they just want to feel like, at the end of the matter, they got a fair, valuable price, she said.”

Read it at The Legal Intelligencer

The most recent entry in the series profiled several smaller Pennsylvania firms that have acquired new clients that once would have looked exclusively to megafirms for counsel.

“Last year, as the economy faltered, many midsized firms began to hear opportunity knocking and came to find more and more large corporate clients gathered on their doorsteps. The recession forced in-house counsel at even the biggest companies to find creative ways to stretch shrinking legal budgets and many of them turned their attention to midsized and small firms.”

Read it at The Legal Intelligencer

Law Departments Shift Money, Work In-House

October 21st, 2010 by Altman Weil

Altman Weil just released its eleventh annual Chief Legal Officer Survey, including responses from 174 CLOs surveyed in September and October 2010. 

“Corporate legal departments are apparently more and more telling law firms: Look, forget it, you’re too expensive — we’ll just do the work in-house.  Altman Weil’s Chief Legal Officer Survey, released Wednesday, showed that sixty-three percent of the officers surveyed reported that they had increased their internal budgets from 2009 to 2010, and 29 percent claimed that they would decrease their use of outside firms in the coming year.”

Read it at Corporate Counsel