I just read an article in Law360 discussing Microsoft’s commitment to shift 90% of its work to alternative fee arrangements. Michael Rynowecer of BTI Consulting is quoted as saying the move is “one of the most aggressive” adoptions of AFAs he knew of. “Ninety percent is on the leading edge. It’s an enormous step; it’s making a bold statement to all the law firms with whom they work, saying this isn’t an effort du jour.” If Microsoft is serious, and if it truly seeks the real value of alternative fee arrangement, the Microsoft law firms are in for a wild ride.
We’ve been a non-hourly fee firm for almost 10 years. Our practice is complex commercial litigation and related areas of litigation. It was a wild ride for the first several years of our transformation. When hourly billing is part of your DNA, you need to undergo surgery to alter your DNA. It is hard to overstate how hard it is for billable hour lawyers to make the transformation to being alternative fee lawyers. There are so many areas where your view of the world needs to change. Dramatically change. If the firms want to get the maximum profit out of fixed fee engagements, they will need to change the way they handle matters, account for matters, determine value of lawyers and others, compensate partners and associates, and more. They need to learn how to litigate “skinny.” How to assess outcomes with less than perfect information. To advise clients when less is more. These things reduce the path to output. Clients, in turn, need to push firms to make these changes so they get more than billable hour fees using a different name.
It will be interesting to see if firms and clients go to school to learn the changes and create systems to be sure they are making these dramatic changes, or if they adopt a learn as they go approach. The latter is a path to needless pain and waste. But the payoff can be great. For firms, high profit margins are a great thing. For clients, the financial benefits and predictability are great, but the real payoff is in results. As the Law 360 article noted,
“Most large companies are reporting that they’re getting better outcomes,” Rynowecer said. “They’re finding that one of the big benefits of AFAs is that it requires more discipline and planning than [billable hours], and it requires highlighting strategic goals earlier for clients.”
Better outcomes are a wonderful thing. But the investment in them is a wild ride. Here’s hoping clients and firms take advantage of the the lessons painfully learned by others who carved the trail.