I love this article. Not because it mentions my friend and client, Jeff Carr (it quotes him liberally). Not because it mentions Valorem (it does). Not even because it ends by quoting my tweet (it does). I love it because of this sentence:
"Alternative fee arrangements are like teenage sex. There’s a lot more people talking about it than doing it—and those that are doing it don’t really know what they’re doing," says one industry observer.
You need to analyze this teenage sex comment is the context of this point:
Law firms are certainly partly to blame for the slow pace of change. Michael Dillon, general counsel of Sun in Santa Clara, California, says that as recently as a year ago, virtually whenever he suggested an alternative fee structure to a law firm, he "would get blank stares, or a list of reasons they didn’t think it was possible." Lawyers being lawyers, even those that do agree to a flat fee in theory will sometimes build in so many caveats and exceptions that it’s no longer a flat fee, says Legalbill’s Mukerji.
Another major hurdle is the way law firms are structured. Since the 1960s, law firms have billed by the hour and lawyers—especially associates—are evaluated largely based on how many hours they bill. Billing a matter on a flat fee basis can create a disconnect between a firm’s earnings on that matter and how it values the associates that work on it. Most lawyers also are not schooled in putting together a budget except for the most routine of matters, and law firms have been slow to collect and analyze the needed data.
Firms have not been doing alternative fees, at least until recently, and are not properly structured or culturally aligned in order to generate the real savings alternative fees are capable of providing. Yet these alternative fee novices now claim to be offering alternative fees. Let’s put aside the teenage sex braggadocio and assume that firms really are offering alternative fees free from the caveats and exceptions that make them worthless. How can a firm that for decades has been culturally committed to maximizing hours suddenly be proficient at a model designed to minimize hours? Better yet, how can a firm where some people are supposed to bill the most hours possible culturally support a fee arrangement intended to minimize the number of hours spent?
It can’t be done. It’s that simple–it cannot be done. So how are these pretenders trying to get by? One of three ways only. One, the firm is so desperate for revenue that it is following the "any port in the storm" theory–take whatever work you can get now and sort it out later. Two, it is following the "figure-out-the-number-of-hours-and-multiply-by-our-rates-and-add-a-cushion" approach, which builds in all the expected profit and more, leaving inside lawyers wondering where the value is. Third, the client has data, has mined it and is telling its lawyers what the client will pay, a slight variation on the "take-it-or-leave-it" approach. But absent structural change, firms following theories one or two are wannabes at best and will bail on alternative fees at the earliest possible moment.
Jeff Carr says the industry can’t go back:
"We’re at a tipping point," Carr says, "As alternative fee arrangements become more mainstream, it will set the industry on a path that is, thankfully, irreversible."
There are a lot of large firms hoping he’s wrong. And I hope they keep thinking this change is a temporary blip.