Alternative Fee Arrangements – The Search for Reliable Methods of Controlling Legal Cost

Posted on December 10th, 2014 by Legal Fee Advisors

A recent survey by HBR Consulting LLC showed corporate legal spending growth slowing and more legal work being moved in-house over the past year[1]. Lauren Chung, senior director of HBR’s law consulting practice suggested that in an effort to control costs corporate consumers continue to pressure their law firms for alternative fee arrangements, including outcome-dependent fees or tiered discounts rather than pure hourly compensation[2]. But while this solution sounds attractive in the abstract – as a way to reduce legal expenditure and incentivize law firms to produce faster, more efficient results – there is less enthusiasm when general counsels are asked about specifics of such alternative fee arrangements.

A recent panel of general counsels speaking at the Legal Marketing Association Southeast Chapter expressed doubt over the value proposition that such AFAs pose. Dean Kim, GC of North American Business Units at Bridgestone Americas Inc. noted that legal expenditure is viewed as any other expense within the business, i.e. how much did the department spend, for what level of service, and how does that compare historically[3]. Alternative fee arrangements are thus only attractive if they are proven to save money over the long-term. Other general counsel expressed skepticism about whether such AFAs save money.

“The flat-fee thing normally doesn’t work for a law firm. A 10 percent discount doesn’t really work either,” said Christopher Kelly, general counsel of AmSurg Corp., an outpatient surgery company. “I haven’t seen anything innovative enough to replace the traditional model.” Additionally Christopher Javillonar, general counsel of power wheelchair maker Permobil Inc., concurred, voicing similar sentiment and opting to stay with hourly rate model until someone develops a new paradigm[4].

What is clear in both HBR’s survey and the LMASC panel discussion; there is a strong appetite for controlling costs and reducing legal spend. Legal expenditure is being brought in line with other corporate expenditures – made efficient through outsourcing services (document review and repetitive transactions) and technology (e-billing platforms). Furthermore, corporations are hiring staff lawyers to take on work previously sent to outside firms. Inside legal spending has risen by 5% and more than half of corporations surveyed by HBR have increased staffing levels in the past year[5].

We at Legal Fee Advisors have a proven solution for any institutional consumer of legal services seeking to control the legal costs that are incurred through hourly billing.  We create billing guidelines from an amalgam of state and federal case law and statutes, ethical rules, and industry standards and subsequently audit bills for compliance with the developed guidelines.   For more information on how Legal Fee Advisors can help your company reduce legal costs, please contact David Paige at dpaige@legalfeeadvisors.com.

G. Gotimer

Legal Fee Advisors © 2014

[1] Jennifer Smith, Survey: Client Efforts to Tamp Down Legal Costs Are Gaining Steam, Wall Street Journal, http://blogs.wsj.com/law/2014/10/09/survey-client-efforts-to-tamp-down-legal-costs-are-gaining-steam/ (October 9, 2014).

[2] Id.

[3] Christian Lewis, 3 In-House Views of Alternative Fee Arrangements, Law360, http://www.law360.com/articles/588270/3-in-house-views-of-alternative-fee-arrangements (October 17, 2014).

[4] Id.

[5] Smith, supra.