There is a move afoot in the legal industry to get serious about a topic that’s been batted around again and again with no real change in behavior. The topic? Alternative billing, moving away from the billable hour, flat-fee services — whatever you want to call it, it is the move to reconnect value to legal services fees. The Association of Corporate Counsel (ACC) is leading the movement, called the ACC Value Challenge. And its best friend has been the growing economic crisis. Susan Hackett, ACC senior vice president and general counsel, introduced attendees to the concept at the New England Chapter of the Legal Marketing Association‘s annual conference last week in Boston. Here’s my report.
The ACC Challenge started taking shape over the last year or so, said Hackett and the economy has certainly created the “perfect storm” effect. “It’s not that we are operating out of fear because of what the marketplace brings us,” said Hackett, “but it is certainly an opportunity — a perfect time to meet the value challenge head on.”
“There has been a disconnect between firms and clients for years,” said Hackett. “What we are trying to do is reconnect value and cost.”
In-house departments have had significant success lowering their costs, while outside costs continue to rise 6- to 7-percent per year, sometimes more.” With all the talk about alternative billing arrangements,” said Hackett, “the amount of work billed not on an hourly basis is less than 5 percent.”
The work of the ACC Value Challenge is bringing together the two sides in very structured environments to work out a solution that serves both sides. She shared some of the comments from sessions to date that help to illustrate the disconnect.
An in-house opinion:
“As a manager of my client’s legal spend, I can no longer authorize work from $350/hour associates who are stunningly inexperienced and unsupervised, and who are looking to meet their firm’s unrealistic billing targets by rotating in and out of our work. If you gave me an associate who’d stay with my work, become expert in my matters, and develop into a leading lawyer for us, I’d gladly authorize that; but I’m not paying a legion of associates whose primary contributions are to other clients’ work and the firm’s outrageous profits per partner ratings.”
A outside counsel opinion:
“In-house counsel talk a big game about wanting alternative fees and arrangements when they bid out work, but whenever we propose an innovative way to staff or bill their project, they either select the legacy firm that proposed the same old hourly rate any way, or they come back to us and say they like the idea, but how about we just give them a 10% fee cut instead.”
One of the big sticking points is the cost of associates. As an aside, Hackett explained that a first-year associate can cost a firm $450,000 before they start their first day of work. The ACC Value Challenge concentrates a lot on the associate class. Hackett has been working on getting the word out about The ACC Challenge which she sees as a 10-year project. She sees it playing out practice group by practice group, where certain commodity-type legal services, such as single-matter employment litigation matters, can be subjected to closer historical cost analysis by the firm and the client to determine the actual costs of the average job — and then those in the market can move to charge that price (fixed fee) or better it.
Clients generally express no problems with a $1,000-an-hour partner who is worth it and who can answer the question in 20 minutes, but they do have a problem with a $350-an-hour associate who has no experience and spends hour after hour reinventing work that’s been done countless times in the firm or elsewhere.
“The in-house community is electrified on this issue,” said Hackett who has been working with corporate counsel for 20 years. She also made it clear that in-house can blame only themselves. “The client owns this problem,” said Hackett, “the billable hour was created by the client.” She further declared, “Clients are now ready to fix the problem…” and asked the Boston legal marketers, “where is your firm going to be?”
Small firm reaction
It is interesting to note that after the presentation at the cocktail reception, I spoke with several colleagues who are marketing directors from small and mid-sized firms who said (roughly paraphrased),
“We are already doing these things (respective to alternative billing and value billing, and eliminating entry-level associates), but clients continue to hire the legacy firms and opt for the familiar.”
Just more evidence of the disconnect.