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from the Chicago Tribune:

Fixed-fee arrangements between lawyers and their corporate clients are gaining popularity, but are they economical for both sides?

For Lake Forest-based Brunswick Corp., its flat-fee contract for national litigation has exceeded expectations, said Kristin Coleman, general counsel. The maker of boats, billiard tables, and fitness and bowling equipment cut the amount it spent on outside lawyers working on litigation by 30 percent in 2009.

On the flip side, David Rammelt, a partner at K&L Gates, said the volume of work he did for Brunswick last year quadrupled, a positive outcome in a year that was slow for many lawyers. But Rammelt had to switch law firms to make the arrangement more profitable.

Coleman and Rammelt's flat-fee contract is in its second year and includes product-liability and breach-of-warranty cases. Their experience provides some lessons to other lawyers and companies considering alternatives to the industry standard of billing clients at an hourly rate.

They debunked several myths regarding fixed-fee arrangements, including the notion that lawyers working under fixed fees will not work as hard."The lawyers who provided the service did a great job," Coleman said. "There were some skeptics among my team."

The contract also forced Rammelt and his team of five lawyers to be efficient, an anomaly to the law-firm business model that incentivizes attorneys to rack up hours.

"Brunswick said, 'This is your all-in pot of money. You be efficient now,'" Rammelt said.

Cost savings also came via technology. Kelley Drye built Web-based case management software for Brunswick. The database contained every document for every case Rammelt's team worked on, eliminating the need to ship documents overnight. Brunswick lawyers could access the system at any time, eliminating the need for quarterly status reports from Rammelt. When Rammelt left for K&L Gates, the firm bought the software from Kelley Drye.

On the downside, using metrics based on the traditional hourly-fee model, Rammelt's realization rate — the rate of collection versus hours billed — is not as high as he would like. He and his team still keep track of the time they spend on Brunswick matters to have a benchmark to compare to the fixed-fee contract.

The two sides tweaked the contract in its second year to provide some protections for the law firm. For example, if a case hits a ceiling on fees then it gets removed from the fixed-fee program and gets billed by the hour.

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Art Block, the general counsel top in-house lawyer at Comcast Corp., froze its legal spending in 2009 after years of annual law-firm increases of 5 percent or more. Block says the freeze was partly in response to the recession, but also was triggered by the belief that hourly rates, particularly for first-year associates, had gotten out of hand, according to Philly.com.

Now the company increasingly wants its outside lawyers to jettison the traditional hourly billing rate. It is pressing for flat fees or other alternative-billing arrangements that emphasize efficiency and expose firms to financial risk if matters drag on too long or conclude unsuccessfully.

Comcast, based in Philadelphia, has approved a 2.5 percent increase in hourly rates for 2010. But the law firm marketing message to law firms is unmistakable: The balance of power has shifted, and outside lawyers will have to scramble to keep the company's business.

"The objective is to get a sense that the law firm is managing its own business more efficiently for our mutual benefit so they have some skin in the game," Block said. "We are not looking to be punitive; we are looking to be more businesslike."

A decision by Comcast managers to push back against rate increases or to accelerate changes in the way law firms are compensated has ripple effects far beyond Comcast, the nation's largest cable company, with 24 million customers.

One reason is the size of Comcast's legal budget, typically between $75 million and $100 million a year but likely more than that in 2010 as the company moves to complete its acquisition of a controlling interest in NBC Universal Inc., a $30 billion transaction announced Dec. 3.

The law firms themselves say the push for greater efficiency and alternative-billing arrangements can work for both sides, provided there is a good working relationship.

"You have to have a good strong relationship for these things to be effective, and I think they can be very effective," said Robert Heim, chairman of the litigation department at Dechert L.L.P. who represents Comcast on some matters.

Comcast has 75 lawyers on staff. It will have many more once it completes its transaction with NBCU, which has 250 in-house lawyers.

The bulk of Comcast's legal work is done by about 25 firms; it is represented by seven in Philadelphia, including Morgan, Lewis & Bockius L.L.P., Dechert, Cozen O'Connor and Davis, Polk & Wardwell, and Freshfields of London.

Though the size and complexity of the NBCU deal likely means that Comcast's legal budget this year will grow significantly, the overall trend is toward clamping down on costs, Block said.

"We want to feel that the firms have a commitment to be businesslike and won't rely on asking us for annual increases without regard to facts and circumstances," he said. "We can be creative. We want them to be creative."

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Far and away the biggest development of the last 12 months is the prevalence of alternative fees.  Dan Currell, Senior Member of the General Counsel Roundtable, told me that law firms that offer alternate fees are "eating the other law firms' lunch."  Roughly half of all clients are using alternative fees, according to the new Fulbright & Jaworski survey of in-house lawyers (see the chart) -- and see the article  http://bit.ly/44wrJD

I went to the Association of Corporate Counsel meeting in October, and GCs are talking about buying "litigation by the bucket" and seeking "concierge services" from law firms. For an article on the topic, see http://bit.ly/238jPV

The National Law Journal recently published a list of the "Hot Mid-Sized Law Firms" and Alternative Fees Put Tucker Ellis & West on Hot List 

The most popular alternative fee arrangements are, in order:
 

1. Contingency fees
2. Fixed or flat fees
3. Discounted hourly billing
4. Blended hourly rates
5. Hybrid Fees
6. Retainer Agreement
7. Capped fees
8. Capped hourly rates
9. Task-based fees
10. Annual fixed fee

(This is according to the Incisive legal Intelligence 2009 Bill Rates and Practices Survey.)

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The recession in the legal profession appears to have bottomed out, according to a new Hildebrandt Peer Monitor Report for the second quarter of 2009.

The bright spot is that demand growth, defined as growth in billable hours, for bankruptcy is up 22% compared to a year ago. Business bankruptcy filings increased from 14,319 nationwide in Q1 2009 to 16,014 in Q2, according to the American Bankruptcy Institute.

However, hours billed to litigation, patents, IP litigation, labor & employment, M&A, tax, corporate and real estate are all down.

"However, litigation appeared to be strengthening, especially for more premium matters. If this trend continues into the second half of the year, it will help mitigate – though not completely make up for – the shortfall in other practice areas,” the report states.  “Demand growth, should show signs of recovery in the second half of the year if the general economy continues to improve. However, any such improvement, if it occurs, will be modest at best.”

For more on this story, visit the LawMarketing Portal at www.lawmarketing.com

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According to Susan Van Dyke, American lawyers and firms are now undeniably called upon to introduce more creative approaches to billing by in-house legal departments. A few firms have jumped aboard and, further yet, some will be paid bonuses on positive outcomes, rewarding the creative and efficient.

"After many years of mumbling by lawyers and clients alike, one must wonder: will we look beyond the billable hour in light of the current economic bellyaching and slashed budgets of virtually every U.S. corporate legal department and many Canadian clients?" Van Dyke asks.

Ironically, the biggest push for alternatives must come from clients who  want increased value for fees,  although clients want their lawyers to initiate this conversation. But law firms require incentive to offer creative solutions that place them at greater risk.

Visit the LawMarketing Portal to read her description of billing models such as blended rates, capped fees, contingency fees, fixed fees, retainers and success fees.

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More economic indicators for the legal profession show that the recession is ending and that a recovery is beginning.

Law firm marketing professionals point to several positive indicators:

· Fed Views Recession as Near an End. On August 12, 2009, the Federal Reserve said that the recession is ending and that it would take a step back toward normal policy.

· Unemployment rate does NOT increase.  Despite widespread predictions that the unemployment rate would crest over 10%, it held steady at 9.4% as of August 7, according to the federal government.

· U.S. jobless claims fall sharply. The number of U.S. workers submitting new claims for jobless benefits fell sharply in early August, fanning hopes the fragile labor market was on the mend and that the broader economy was stabilizing. Initial claims for state unemployment insurance fell 38,000 to a seasonally adjusted 550,000 in the week ended August 1, the Labor Department said on Thursday, beating market expectations for a drop to 580,000.

· Housing prices increase. Houses have finally become cheap enough to lure buyers, according to a new report released on July 28. That, in turn, is stabilizing prices, generating hope that the real estate market is beginning to recover. For the first time since early 2007, a composite index of 20 major cities was virtually flat, instead of down. “We’ve found the bottom,” Mark Fleming, chief economist for First American CoreLogic, told the New York Times.

· Stock Markets are Up. The Dow Jones Industrial has closed above 9,000 by the end of July, its highest point for 2009. The broader Standard & Poor's index is up 11% for the year.

· Pent up consumer demand. The cash-for-clunkers program brought 120,000 new-car buyers into car dealerships from July 1 to early August. According to the New York Times, this reveals pent-up consumer demand, which is a sign of economic recovery.

· 3% growth in 2010. An industry forecast by First Research Inc. (a service of Hoover's Inc. online database) shows that growth in the legal sector stabilizes in 2009 and turns into 3% growth in 2010.  For the full story see the LawMarketing Portal at www.lawmarketing.com.

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Clients are inquiring about alternative fees, which leave most law firms flummoxed.  Hourly billing is all that many law firms are familiar with. Now Susan Van Dyke, the president of the Vancouver Chapter of the Legal Marketing Association, demystifies several alternative billing models:

• Blended rates
• Capped fees
• Contingency fees
• Fixed fees
• Retainers
• Success fee

"American lawyers and firms are now undeniably called upon to introduce more creative approaches to billing by in-house legal departments," she writes on the LawMarketing Portal. "A few firms have jumped aboard and, further yet, some will be paid bonuses on positive outcomes, rewarding the creative and efficient."

Alternative fees are the bugaboo of law firm economics. Research by ACC/Serengeti and by Incisive Legal Intelligence show that the billable hour is firmly entrenched – not just by law firms, but by corporate clients as well. The research shows that clients may rattle their sabers about alternative fees, but they ultimately are satisfied with a discount on hourly fees.

"After many years of mumbling by lawyers and clients alike, one must wonder: will we look beyond the billable hour in light of the current economic bellyaching and slashed budgets of virtually every U.S. corporate legal department and many Canadian clients?"

Get the whole story on the LawMarketing Portal at www.lawmarketing.com 

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Lawyers USA has a great article on the effects of billing clients for certain costs. In the case of a major New York law firm it led to a class action lawsuit. The plaintiff argues that the firm violated California’s ethics laws as well as the state’s unfair business practices statute by overcharging him for computerized legal research.

It's also really bad for law firm marketing.

Granted, the bonehead who filed suit is in my opinion pursuing a nuisance lawsuit that he deserves to lose.  He's claiming that the firm buys its Westlaw and Lexis service in an annual contract but didn't pass along the savings to him.  When they throw his case out, I hope they hit him with attorney fees too.

By my point is, when you got to the UPS store and they mark up the cost of US Postal mail, you feel like you're getting gypped.  The same thing when they charge you $5 a page to send a fax to Europe.

Hotels have been charging $7 for a tiny bottle of scotch in the mini-refrigerators for years.  Airlines now charge $5 for a mediocre box lunch when you used to get a hot meal served for free.  Customers don't like it when a business passes on its own cost of doing business.

The best practice for attorneys is to build computerized legal research costs into their overhead costs and not break them out separately in the bill. Clients hate seeing charges for copying or postage. If you break out every charge, it makes you look like you are trying to milk every nickel and dime possible out of the client.

Instead, build the cost of the research into your hourly time , but be sure to explain it to the client. 

And in the current economy, it might be worth simply not charging the client for the cost of research. Just eat the cost. Charge for your time doing legal research, but don’t charge the client for the cost of the service. Just be sure to say … on the invoice that you didn’t charge them and let them know that’s something you do for valued clients.”

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An 85-lawyer firm is the first recipient of RainMaker Software’s $1 million Economic Assistance Package for law firms. So far RainMaker has awarded $228,164 in economic assistance, as much as $30,000 per firm. 

Law firms get the funds in the form of a discount on the company’s software and must agree to “pay it forward” by devoting the benefits of the bail-out to their local community, for example, identifying new pro-bono work initiatives for laid-off workers, or assisting families dealing with potential mortgage foreclosures. The amount of the bailout package for each firm is based on their size and the commitment they make to “pay forward” these benefits.

Wood, Smith, Henning & Berman, headquartered in Los Angeles, was the first to receive the bailout money. The firm has offices across California, Arizona, Las Vegas and Denver. “As our firm continues to grow and open new offices, we see this as a great opportunity to help our communities,” said Kelli Moorehead, IT Manager of Wood Smith. The firm has agreed to pay it forward by contributing volunteer time and resources such as Adopt-A-Family for the Holidays, Race for the Cure, Children’s Foundation Career Fair, Juvenile Diabetes Research Foundation, and Habitat for Humanity and VIP Mentors.

RainMaker says it is committed to helping law firms become financially healthy, no matter what the state of the economy, by offering the $1 million package. "We all need to look for ways to pull out of this economic slump together," said Jim Hammond, President of RainMaker Software.

Law firms can apply for the funds at http://www.rainmakerlegal.com/assistance.htm

“You may ask if this isn’t just a publicity stunt. My response is that there is no free lunch,” Hammond said. Most legal market vendors and law firms are being impacted by the current economic crisis. We all read the headlines where firms are laying off both attorneys and staff. The Economic Assistance package will provide firms an additional incentive to invest money today to improve their infrastructure tomorrow. We’ll be able to keep our people busy, and while we’ll make less money in the short term, in the long run we’ll all be better off, as will the communities that benefit from the ‘pay forward.’ It is that simple.”

Rainmaker Software sells financial and practice software for mid-to-large sized law firms. Founded 40 years ago, RainMaker also offers a business intelligence toolset with no custom programming needed.

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