Monday, October 13, 2008

Days Away

It's October 13th, and the first 2008 Annual Meeting sessions will begin in one week. Here at ACC headquarters, we're working hard to ensure that this meeting is as great as every other. The education and events staff leaves for Seattle this week to make sure that all logistics are covered. Months of preparation are coming together as we get down to the final days before the big show.

I, along with a few others, will be blogging live from the meeting- making sure to bring you the most exciting news and pictures for the days we're in Seattle. There is lots to cover! Sessions, the exhibit hall floor, the evening social gatherings, the list goes on . . .

Don't forget to sign up for the rss feed, and stay up to the minute with what's going on at Annual Meeting.

If you haven't had the chance, check out the exhibit hall floor and see who will be showcasing their products and services in Seattle.

And if you find yourself with some free time between October 19th- 22nd, register to attend Annual Meeting!

-Nichole Opkins

Wednesday, October 08, 2008

Different Methods of Billing: Fixed Rate

The NEO ACCA presenters offered a number of examples of new arrangements for billing. I have categorized them into three categories, none of which should be surprising. They are fixed rate, contingency and fixed rate-contingency. Another hybrid is the addition of hourly billing as a part of the models.

One of the fixed rate models was an agreement to handle all the cases that rose in a certain geographic area in a particular category, such as product liability for a given period.

Like any contract one had to define whether the geographic area meant where the case was filled, the location of facility where the product was made, the headquarters of the operational group or where the injury occurred. Similar issues arise in multiple causes of action cases. None of these issues were discussed and presumably had been addressed so that no controversy occurred.

The law firm covered all out of pocket expenses, such a deposition fees, travel etc. except trial was handled on an hourly basis and expert fees were billed directly to the client. The rationale for the distinction in the trial and expert fees was that inability to accurately predict these expenses. The trial exception makes some sense to me because they would be rare. I am not that sure why expert fees were excluded particularly if the product claims involved the same of similar products, but the issue was never fully explored.

The presenters claimed that this arrangement resulted in constant legal fees over a 5 year period while product input costs went up 178% and the number of cases rose as well. The constant nature of the legal fees is attractive if for no other than budgeting reasons. Because of extreme commodity inflation, the apparent savings would seem exaggerated. Comparison of legal fee inflation in the industry using data complied by a legal consulting firm survey might be a better reference.

One note they made, apparently thinking it was another indicator of success was that during the same period the litigation rate increased. It was an alarm bell to me because the one problem with fixed fee arrangements is that it creates an incentive for firms to under lawyer a case; nothing is perfect. When I raised this question they said that there was method of measuring the company’s liability, or somehow sharing the risk of that liability in the agreement. I am sorry but my notes don’t contain a description of what they said. It does, appear however, that the increase in the litigation rate was also attributed to some acquisitions, but I wonder why that would not have resulted in a revision to the contract price.

Bottom line, this is not a new idea and the prior renditions of this form of legal structure, some quite grand in nature involving all the legal work of a very large company, do not have appeared to stand the test of time.

That does not mean it won’t work. Success, however, seems to require that the purchaser must focus clearly on what their prime objective is—for this arrangement budgetary consistency may be worth other trade offs. What are they? One is probably less active control of the case since it is a lot of their dollars being spent. An incentive of the firm is to under lawyer a case—that may result in more costly future litigation exposure, not merely to save money under the present contract, but to create demand under the next.

And there is always that potential that you may under up over paying—a fixed price is not often the least expensive. In economic terms this looks a lot like buying legal services in an insurance agreement without the indemnification and, at least at present without a liquid market for price reference. If savings is the objective a better method of gauging that needs to be developed, and will likely have to be adapted to unique circumstances of every buyer.

Developing a method and data base, sort of a market approximation, might be one project to evolve from the ACC Value Challenge. Sorry Fred, I hate to suggest more projects for you.

-Larry Salibra
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Tuesday, October 07, 2008

Who Supports The Billable Hour?

I attended a NEO ACCA conference on alternatives to the billable hour a few days ago. In the next few blogs I will share some impressions, observations and thoughts.

First, let me make an observation.—it was fortunate I went because I contributed to making the audience slightly larger than the presenters. You would have thought there would have been far more interest.

There appeared to be a number of people who signed up for the program from the names at the welcome table, and the room was clearly prepared to accommodate many more participants, not mention the array of free food for breakfast.

I found the program quite interesting; and I tend to be skeptical of various schemes designed to reduce legal costs. So why was there no more interest? I have no idea, but I would like to hear from others who might have an explanation.

There was one explanation that arose from comments from the firm that was the focal point of the presentation—consumer resistance to change. The forum was not the typical situation where a series of in-house attorneys complained about the absence of alternative billing formats and representatives from firms resisted change or reluctantly expressed a willingness to consider alternatives after listing all the obstacles to change. It was a presentation where the law firm was actively promoting its willingness to participate in alternatives to the billable hour legal market. What they noted was the resistance of the market place to accept it. The lack luster attendance at the presentation certainly suggests market apathy.

In later blogs I will attempt to explain this anomaly.

-Larry Sailbra
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Wednesday, October 01, 2008

Flawed Business Models?

In the last week or so, we discovered that an entire banking model, the investment bank was a flawed business model. The last of the two investment banks, Goldman Sachs and Morgan Stanley reconstituted themselves into regulated bank holding companies.

In my last blog I suggested ,based on what was happening in the financial community, that traditional surrogates for competence, fees and office location, may not be particularly good indicators of competence in the practice of law as well.

The traditional law firm model has been subjected to scrutiny for many years, and it has persisted. But there has been a significant change, at least since WWII, and that is the growth of law firms that do not have intimate relationships with their clients. They look more like detached business organizations, whose success is not intimately tied to the fortunes of their individual clients.

Perhaps one of the biggest recent reformations in legal practice was the emergence of in-house practice, of which ACC is a direct reflection, but there has remained beneath the surface a continuing concern about the law firm model. NEO ACCA is sponsoring a session, which I hope to attend which is reexamining the validity of hourly billing. The notion is not new. Prior attempts to address this issue of which I am familiar have not been successful. Nor have any of the modifications to hourly rates revealed any model that seems clearly superior.

I read a summary of ACC’s Value Challenge in Legal BIZNOW in which the author noted that this issue of hourly billing had been raised before but “something felt different at the Reagan Building ….” Excuse me for being skeptical, but I have been there, done that.

I will let you know what I think over the next few blogs, but my gut tells me that the issue of cost control, hourly rate notwithstanding, is well within the control house counsel if they really wanted to control it. This is one big reason why as a guest lecturer at the University of Akron Graduate School of Business in October I will be describing how and why businessmen must assume control in managing lawyers and legal issues, because lawyers have not demonstrated a capability of managing either themselves or legal issues very efficiently.

- Larry Salibra
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