Strategic Matter- Spring 2012 V1

An Opportunity in Alternative Fee Arrangements

While running the business of a law rm is not the game show e Price is Right, price competition is here to stay.

According to the recent Law Firm in Transition survey conducted by Altman Weil of 238 managers in rms with 50 or more attorneys, an overwhelming 91.6% of the survey respondents con rmed the continu- ance of price competition and, more- over, 80% of these managers indicated that more non-hourly billing will be the trend compared to only 27.9% in 2009. Certain AmLaw 100 rms such as Quinn Emanuel are posting consis- tently high pro ts per partner, not the least of which is attributed to its strategic use of alternative fee arrangements. Which is to say, alternative fee arrangements can be a key strategy in the era of price compe- tition and, so, are here to stay as well. Law rm clients are migrating towards the alternative fee arrange- ment to control the predictability of their costs. is axiom applies in its reciprocal: law rms, too, are migrating towards greater control over and transparency in their costs, and the most successful rms are foreseeing these changes as an opportunity. Decreasing pro t margins across the board are causing law rm leaders to press on all of the pressure points, protecting the rm’s pro tability, creating a ‘leave no stone unturned’ culture. And so, just as the alternative fee arrangement model requires a di erent form of matter manage- ment for the rm, the support services aspect of the engagement

and the billing of so cost recoveries may also require a di erent format. How your rm structures these recoverable and associated costs may be the di erence between winning and losing the engagement, or worse--winning an engagement and it not being pro table. Here are a few key considerations if your rm is maneuvering toward the strategic use of alternative fee arrangements: Know your history. One of the keys to functioning pro t- ably under an alternative fee arrange- ment is to know your hours/costs history during the negotiations of the xed cost or lump sum type of deal. e same can be said for every type of support cost that a matter may incur whether it is litigation support, legal research or plain old copying and printing. Another simple alternative is to know what percentage your support services costs are as a percentage of your labor costs and factor that percentage into your fees. Just as you are using a di er- ent fee model, make your vendors o er an alternative fee arrangement. Depending upon the services to be included, it may be possible to have the vendors supporting your matter provide lump sum, xed fee pricing that can be incorporated into your

proposal. e key for all parties involved is to have a clear de nition of the services to be o ered and a fair mechanism to address discrepancies and changes in scope. Keeping it simple: Hard costs all the way. Another methodology is to just make all recoverable costs a hard cost pass through or direct bill from your supporting vendors. If your on-site support organization can be struc- tured in the hard cost way (Mattern Plan B™), these costs can also be passed through directly to the matter at your cost. is greatly simpli es the recov- ery process and will actually increase the net realization of these costs. Maintain the traditional model as poor as that may be. If appropriate, you can always main- tain the use of the traditional so cost recovery model with the understand- ing that the net realization will be less than 50% on most items. e increasing use of alternative fee arrangements o ers an outstand- ing opportunity to take a di erent tact at the recovery of the support services costs associated with the di erent legal matters. Leave no stone unturned. e right type of vehicle, implemented and managed properly, can be a selling point to your clients and positively impact the pro tability of the matter and the rm.

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