A look at pricing models in the legal industry and the rise of the Law Firm Directors and their role.

1. LEGAL
SERVICES
PRICING
A New Discipline
that In-House
Counsel Need to
Understand
RUBSUN HO Cognition LLP
JULIA SHIN DOI General Counsel & Secretary of the Board of Governors, Ryerson University
TYLER LANGDON Cognition LLP

2. AGENDA
• An overview of pricing today
• A practical approach to pricing for in-house
counsel
• Pricing international counsel

3. THE BILLABLE HOUR – HOW DID WE GET HERE?
Early 20th Century
Set fees;
Annual retainers;
Eyeball method;
Contingency;
Value based
1930’s – 1940’s
Standard Fees;
Minimum Fee
Schedules
1960’s
Matters
became more
complex;
Billable hours as
proxy for value
1970’s
Straight billable
hours;
Billable Targets

4. “Law firms have been extraordinarily profitable over the last 50
years based on a model that has them charging by the hour, so
clients are rewarding effort, not results.”
Washington DC Partner in Washington Post

5. Is the Billable Hour the right billing model?
"The billable hour is
fundamentally about
quantity over quality,
repetition over
creativity”
Robert Hirshon
President
American Bar Association
“Now Vince has random people working
full time on random research projects in
standard ‘churn that bill, baby!’ mode….
That bill shall know no limits.”
Christopher Thomson, Former DLA Piper lawyer

6. BIGLAW UNDER PRESSURE
• Downward pricing pressure from corporate clients
• Slowdown in transaction dealflow
• Competition from global firms
• Competition for alternative providers
• Competition from offshore LPO’s
• Technology pressure
• Alternative fee push

7. As part of his blog, Johansen (www.patrickonpricing.com) has
assembled a current catalog of pricing professionals with their
respective firms and titles. While the list is not exhaustive, the
identified roles now exceed 50 in number. Surprisingly, more
than 40 of these roles did not exist just five years ago—a clear
indication of the discipline's rapid rise.
THE RISE OF LAW FIRM PRICING DIRECTORS
Steven Petrie, Chief Strategy Officer, Faegre Baker Daniels LLP

8. The Role of the Law Firm Pricing
Director
• Understand Firm Cost Structure (to maintain profitability)
• Implement Processes and Procedures (to maintain profitability)
• Implement Project Management (to maintain profitability)
• Understand what clients are willing to pay (to maintain profitability)
• Effectively price AFA’s (to maintain profitability)
Ensure Firm
PROFITABILITY
71% of firms report clients are the primary driver of changes
to pricing strategy – Altman Weil 2014 Survey

9. Who is the Counterpart to the Law
Firm Pricing Director?

10. The Pricing Role of In-house Counsel
• Set and Maintain Budgets (in the face of budget cuts)
• Resource Management of Legal Projects
• Manage Outside Counsel Relationships
• Target the optimal usage of the right resources at the
right price
• Ensure (some) firm profitability
Act as a Project Manger to
ENSURE VALUE
39% of in-house counsel are doing more with fewer resources
“Corporate Counsel Agenda 2013” ALM Legal

11. How Can the CLO Ensure Value?
KNOW YOUR
OPTIONS
DEFINE
VALUE
UN-
BUNDLE right PEOPLE
right PRICE
right PLACE

12. CLO
Project
Manager
MANY LEGAL NEEDS
MANY LEGAL OPTIONS

13. THE RIGHT PRICE
Continuum of Fee Arrangements™
Patrick Johanssen
www.patrickonpricing.com
LEVEL OF COMMUNICATION/INTERACTION B/T CLIENT & FIRM
GREATER
CLIENT
RISK
GREATER
FIRM
RISK

14. In 2009, 28 percent of law firm leaders
believed that non-hourly billing would be a
permanent change in the legal industry,
according to legal consulting firm Altman
Weil. By 2013, the figure had jumped to 80
percent. Since 2012, a handful of major
firms, including Holland & Knight and
McDermott Will & Emery, have even ditched
the billable hour model altogether for
entire teams of people.
Washington Post, April 2013

15. Julia S. Shin Doi
General Counsel & Secretary of the Board of Governors, Ryerson
University
August, 2014
Legal Pricing:
Perspectives &
Strategies

16. Standard Legal Pricing
16
Hourly Rate of Lawyer x Time = Price

17. 1. Management of Hourly Rate
Discounts to Hourly Rate:
10% - 15% - 20%
Freeze Hourly Rate:
No Annual Increase of Hourly Rate
Blended Hourly Rate:
Combined Average of Hourly Rate of Senior Lawyer
and Junior Lawyer
17

18. Hourly Rate
Cap on Hourly Rate
Maximum (or Minimum) Hourly Rate for Matter
Cap on Hourly Rate until Matter concluded
Roster of Hourly Rates
Track and Compare Hourly Rates
18

19. 2. Price
Fixed Fee:
Specific Fee for Matter or Deliverable
Best Price:
Best Price between Hourly Rate/Time and Fixed Fee
Flat Fee:
One Fee for all Matters for set period of Time
19

20. 3. Management of Time
Learning Time:
Discount for Learning Time by Junior Lawyer
Discount for Student Time
Non-billable Research Time
Time for Instructions
Overlapping or Duplicate Time:
Activity billed once (e.g. review of decision, attendance at
meeting)
Inter-office meeting time
20

21. Time
Travel Time
Local travel time is non-billable
Disbursements for local travel are non-billable
Reasonableness Test
Whether time billed is warranted for the complexity, risk,
outcome
Pro Bono Time
Contribution of Time
21

22. 4. External Counsel Guidelines
Reduces Total Legal Spend by a minimum of 10%
- Retainers of External Legal Counsel must be
approved in advance by In-House Legal Counsel
- No “General” Matters
- Monthly Billing, Forecasting every quarter
- Prompt closing and final billing of completed matters
22

23. 5. Other Strategies
Detailed Docket Entries
Uniform Task Based Management System
Requests for Proposal
Project Management: Milestones and Estimates
Value Pricing – Incentives
Contingency
23

24. 6. Staffing
• Internal Legal Counsel
• Part-time Legal Counsel (e.g. 1 day per week)
• Paralegals, Legal Assistants, Contractors
• Cognition
• External Legal Counsel (large firm, mid-sized firm,
boutique)
24

25. 7. Added Value
• Dupont Legal Model – Convergence
• Relationships and Support
• Service Excellence (Responsiveness, Timeliness, Saying “Yes” )
• Continuing Education for Legal and Non-Legal Staff
• Specialized Training
• Diverse and Inclusive Legal Team
• Reputation
25

26. HOW DO YOU MEASURE VALUE?
ACC VALUE INDEX – asked corporate counsel to rank law firms based
on following criteria
• Understands objectives/expectations
• Efficiency/process management
• Predictable cost/budgeting skills
• Legal expertise
• Responsiveness/communication
• Results delivered/execution

27. HOW DO YOU MEASURE VALUE?
Paul Lippe, Legal OnRamp on what criteria you might use to
measure law firm performance in delivering sales contracts:
• How quickly did the contract get done? • How favorable are
the terms to the company (opportunity gained and risk
avoided)? • How easy are the terms for other parts of the
company (finance, manufacturing, sales, etc.) to understand and
perform? • How satisfied were the true business clients? • How
satisfied was the counterparty? • How much did the contract
cost? • Did the contracting process improve?

28. HOW DO YOU MEASURE VALUE?
Lisa Damon of Seyfarth Shaw on law firm value metrics that may be used in measuring
work on a trademark portfolio
• “Success” rate, measured by things like first action
allowance, watch hit outcome
• Overall satisfaction
• Timeliness of communication
• Effectiveness of “lessons learned” sessions
• Strategic participation/understanding of Wolverine
business
• Proactive issue identification
• Budget variance
• Cost management effectiveness