November 2009

Richard Susskind uses a graph in his book, The End Of Lawyers?, and in his speeches that shows the pace of change as a "knee curve."  The graph shows that we have experience comparatively little change until now, but we stand on the cusp of a period of great change.  What does this mean?  Try

I woke up this morning thinking how very lucky I am.  Valorem is almost two years old, and my worst day in those two years is still significantly better than my best day in the previous 25 years, at least from the standpoint of practicing law.  So I want to take a moment to thank

As National Litigation Counsel for a number of clients, I receive emails from local counsel around the country.  A few, but enough that I have noticed, send me emails that contain nothing other than an attachment of their status letter.  So I have to click through the attachment, wait and then read a report on

Following up on my last post on how clients can determine whether the alternative fee quoted is a good one or not, I invite you to read this article from Corporate Counsel, United Technologies Takes a Stand, Puts Billable Hour ‘On Life Support.’  Here’s the punchline from the story:

These days it’s easy to find law firms willing to work for United Technologies under some kind of alternative fee arrangement. They’re a big customer; the Hartford-based global conglomerate raked in nearly $59 billion in revenue last year selling products like elevators and helicopters. But to truly impress United Technologies, firms now have to do more than propose working off the clock. They have to explain exactly how they came up with their flat fee, and how they’ll make money, something many can’t do. "Sometimes they tell me they have no idea," says associate general counsel Chester Paul Beach.

I know from experience that no lawyer can wake up one day and decide to quote alternative fees and be any good at it.  Being good is like any other estimator’s job–it takes experience and a detailed, nuanced understanding of your cost structure and your financial objectives for the engagement.  Kudos to United Technologies for asking precisely the right question.

 


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When giving a speech a few months ago, I was asked by an in-house lawyer how a client was supposed to distinguish a good alternative fee from a bad one. Great question.

My answer? Ask the firm to explain in detail how it came up with its number.

I recall the first time I quoted a fixed fee more than a decade ago. It was a very unpopular thing in my firm, and the “bosses” were heavily involved. I came up with number in a very granular way. How many motions? How many depositions? How much time reviewing documents? How long for summary judgment? It was an exercise designed to identify the number of hours we would spend on the matter. We then multiplied the hourly rates of the people who would be doing the tasks and came up with a total.

That was only the beginning of the process. Rates were likely to increase during the period the case was expected to be active, so we had to build in a “bump” for the fee increase. We had to build in another “bump” to protect us in case we were wrong about the hours. And finally, we had the self-congratulatory “aren’t we great for doing this for our client” bump. That was the number we gave to our client. As you can see, it had a huge amount of profit, indeed, a premium, built in.

These days, I’ve heard from a number of in-house lawyers that the alternative fee quotes they are getting appear to have gone through a similar design process. As I tell everyone who asks, any explanation that includes something to the effect that we calculated the hours we would spend and multiplied by hourly rates needs to be rejected immediately. The firm’s hourly rates are where their profit is located. Rates x hours = revenue. Revenue – expenses = profit. If the firm is not putting some of its profit at risk and altering the way it works, it is not using the alternative fee to client’s benefit.

So what’s a good answer? I’ll answer that question later.


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Sometimes, you see something that is just a wonderful poignant reminder that you cannot win a battle with a customer, whether the customer flies your airline or purchases services from you.  Here’s the story:

A musician named Dave Carroll recently had difficulty with United Airlines. United apparently damaged his treasured Taylor guitar ($3500) during a