Case Study – Alternative Fee Arrangements

When a law firm bills by the hour, they are essentially in the business of selling time. However, very few corporate clients actually are interested in buying time. Rather, they buy insight, analysis, risk management and results. We helped a corporate client create a program that aligned their strategic objectives with the financial incentives of their outside counsel that completely abandoned the billable hour.

Our client was spending significant sums of money annually on managing their labor and employment risks. The majority of this money was spent on handling disputes. In addition, outside counsel would provide training and general counseling support on employment and workplace issues. We helped our client identify a particular geographic region and analyzed the aggregate spending across both counseling and dispute resolution. Taking a three year average, we set a flat annual fee for both counseling and dispute resolution work and then designed an RFP process among the outside counsel providers the client identified as best-suited to provide these services. If the outside counsel managed to avert or expeditiously resolve disputes, they would spend less time on this arrangement overall yet still collect 100% realization on the agreed upon flat fee. Similarly, our client was now paying to have fewer disputes and to resolve the disputes it found itself involved in the most efficient way possible. Furthermore, our client was able to effectively accrue for its legal spend for this work with complete accuracy.

After the first annual review of this program, the number of disputes had decreased 6% year-overyear and the time to resolve disputes had been reduced by 20%. Satisfaction with the program was so high that the program was renewed for an additional year, decreasing the annual retainer to reflect the enhanced risk management achieved by the improved counseling.