The large Philadelphia based firm, Pepper Hamilton, has just published a comprehensive survey of corporate counsel and their reaction to the alternative fee agreement experiences they have had to date. Pepper Hamilton is rated by the 2012 AmLaw listing as the 93rd largest law firm in the U.S. With almost 500 lawyers, the firm represents numerous Forbes 500 clients from its offices in eleven offices across the nation. The survey received responses from 54 corporate counsel of companies 2/3 of whom spend between $1 million and $5 million each year on legal services. Not all the respondents were firm clients.
The survey responses were instructive on many levels. Among some of the more expected results included the relatively uniform practice of using non-standard (not hourly) billing in corporate counsel engagements of outside law firms. 90% of the respondents are using alternative fee agreements (AFA’s) on a regular basis. The most common form of AFA’s were: fixed fees (56 percent report occasional use); caps or collars (44 percent); and volume discounts (38 percent).
Of those AFA’s currently in use, 68% were used for corporate matters and 54% were using them in litigation cases. Seventy per cent of the respondents indicated that they expect that AFA’s will increase steadily over time.
However, despite the prevalence of AFA’s and their anticipated increase over time, the respondents were only “moderately satisfied” with their results in achieving the goals of the client. Clients are expecting law firms to provide AFA’s in their legal matters, but are more focused on efficiency, predictability and proper allocation of risks in pricing and the outcomes of legal services. AFA’s alone are not enough to satisfy clients demands if they don’t also assure the client can be provided efficient legal services, price predictability and at least a shared risk of cost overruns.
After all the years that law firms have touted “partnering” with their business clients, clients are now are expecting a much more honest partnership with much less marketing hype. Partnering means negotiating and agreeing on shared risks.
Of all the innovations facing the legal services industry today, only legal project management offers the promise of negotiating a project price with the client to a significant degree of predictability, with achievable efficiency and an apportioned risk of cost overruns satisfactory to both client and law firm.
Maybe the “Family Feud” can be resolved after all. When game show host shouts “Survey Says”, speculation turns to certainty.
Let’s get in the game.