Page 10 - Strategic Matter- Spring 2012 V1

An Opportunity in
Alternative Fee Arrangements
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.
While running the business of a law rm is not the game show
e Price is Right, price competition is here to stay.
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Mattern & Associates