Jim Hassett of LegalBizDev was kind enough to send me a preview edition of his AmLaw 100 survey of alternative fees. Very interesting reading, and Jim is to be commended for his work in this area. This most recent report includes the results of surveys and meetings with C-suite executives from 37 of the the AmLaw 100. I was intrigued by a comment Jim made about defining alternative fees:
Unfortunately, different experts use the term “alternative fees” in different ways. Many agree with the narrow definition used in this survey: alternative fees are fixed or contingent billing arrangements that are partly or totally non-hourly.
However, many lawyers prefer a broader definition that also includes discounted arrangements that are strictly hourly, such as blended rates.
The fact that two conflicting definitions are in wide use can add considerable confusion to an area that is already confusing enough. These days, it is becoming commonplace to hear both in-house lawyers and outside counsel say that 10% or 20% or 30% or more of their work is performed on an alternative basis. But it is often unclear whether they mean that they are getting away from the billable hour, or simply lowering the hourly cost.
Lawyers manipulating numbers? Imagine that. Students of diversity numbers or PEP numbers will be shocked, I tell you.
But let’s cut to the chase. Fees based on the calculation of time rather than the result obtained are not alternatives. Such fee structures–discounts and blended rates being two prime examples–are simply more of the same with a word other than "straight" serving the adjective to describe hourly rates.
It’s easy to see why firms want to use this definition. Under this view, most firms have been using "alternative fees" forever and it is a great marketing ploy to tell clients and prospects that "50% of our revenue comes from alternative fees." That sure sounds a lot better than "clients accounting for 50% of our work get steep discounts because otherwise they will move their work to another firm."
Lost in the ruckus of what constitutes an alternative fee is the real point of alternatives–to shift risk from the client to the firm, creating a structure that pays for results not time, and places squarely on the firm the profit motive to do work cheaper. Hourly work with whatever adjective is used is still cost-plus work, and it is marketing "happy talk" firms are starting to use with more frequency to avoid any critical analysis of the firm’s business model and to justify to themselves and their clients why nothing has really changed.
For firm leaders that want to argue in favor of including blended hourly rates, discounted hourly rates or some other version that leaves in place the structural incentives for your people to charge your clients more rather than not, I encourage you go to www.amazon.com and purchase the book, Who moved my cheese? You need to read it more than you know.