Many in the legal services industry seem to think that companies are only interested in alternative fee arrangements as a mechanism for cost-cutting. This narrow view of alternative legal fees misses the boat by ignoring other major benefits – for clients and attorneys alike – that innovative billing arrangements bring to the table.
I recently asked a large group of claims professionals and in-house counsel whether alternative fee arrangements made their jobs easier or more difficult. The benefits of alternative fee arrangements cited by the group went well beyond simply reducing the cost of litigation for their company and included factors that actually allow attorneys to perform their job better.
A senior manager of the litigation management group of one of the nation’s largest property and casualty insurance companies put it bluntly, saying that “the primary benefit of alternative fee arrangements is that they place the burden of providing an efficient defense where it belongs – with the law firm.” But the group was clear; both attorneys and clients stand to benefit from such arrangements.
One Senior Vice President and General Counsel for Claims at a major insurance company laid out some of the significant benefits that he has realized over the years of implementing many different alternative fee arrangements as follows:
• Provides enhanced predictability in legal spend;
• Allows the budgeting process for individual cases to be simpler and more reliable;
• Provides claims litigation adjusters with new tools to allow them to better understand the mechanics of the litigation process, thereby allowing them to be a more integral partner with the firm in the litigation;
• Reduces the average cycle time (age) of litigation resulting in potentially significant time savings for attorneys and expense savings for companies;
• Enhances the working relationship with outside counsel by eliminating the number one source of friction — the billable hour – and thereby promotes healthier professional relationships by allowing both sides to interact more casually without concern over billable time;
• Allows litigators to focus exclusively on the strategy of litigation and on what is really needed to successfully defend a case without worrying about considerations associated with billing;
• Incentivizes attorneys to be more efficient and give advanced thought and consideration to planning the defense strategy for new cases, which is beneficial to all parties.
This SVP/GC went on to note that the quantifiable benefits of alternative fee arrangements for him were significant reductions in total pending cases and in the average age of cases – to the tune of a 20% reduction in pending cases after three years, a 25% reduction in the average age of cases, and a reduction in legal expenses by nearly 17%.
One senior claims manager forecasted that those law firms that understand that alternative fee arrangements are where the legal services industry are headed will find themselves with a competitive advantage in the near future. To quote, “These firms will not only have a better understanding of how much it actually costs to defend a portfolio of cases, but more importantly, they will be able to do it more efficiently and will offer more competitive prices to their clients.”
These comments underscore that while cost-savings is an important consideration for clients, it doesn’t have to come at the expense of high-quality, efficient legal representation that most attorneys want to provide. Clients are recognizing that hourly billing incentivizes “process thinking” by lawyers, who are forced to view everything through the lens of the billable hour. Alternative billing arrangements, on the other hand, free attorneys to engage in “results-oriented thinking” to the benefit of the client and professional satisfaction of the lawyer.
The claims professionals I heard from viewed successful alternative fee arrangements as true partnerships between the client and the attorney, where both parties are satisfied with the agreed upon fee structure and enjoy a working relationship free from the constraints of the billable hour, allowing them to focus on getting the high quality results they both want to achieve. Sounds like more than just cost-cutting to me.
