My last post outlined observations about how corporate law departments and law firms negotiate and find ways to work better together, as captured and crystalized during a recent Law Firm Pricing conference we hosted in Washington, D.C.
There is more commonality than you might initially expect. Some of the remarks also reinforce a very valid and important point to remember: understanding occurs when you share and discuss information openly. Within that environment, compromises and opportunities for both parties to win are usually the result. It’s a good place to be.
Law Firm Pricing Perspectives and Pointers: 2013
- Outstanding customer service and communication, part 1. Experts agree — firms should talk with clients about their matters and fee agreements at least quarterly. You can differentiate your firm by providing routine client updates on matter status and material changes, and also proactively soliciting feedback on how the agreement is going. Are bills in line with fee agreements; and if not, what’s happening? Is the client happy with the work? Ask: “How are we doing, and how can we do better?” You are better off identifying areas for improvement now, instead of at the end of the year when a new competitive RFP is put out to bid.
- Outstanding customer service and communication, part 2. It’s important to understand your client’s tolerance for risk. First, you need to be aware how much your client knows about the particular area of law pertaining to a matter. Second, educate them about tradeoffs in handling the matter and related costs. Discuss every scenario – what’s likely, and what’s less likely but still possible – and the cost tradeoffs, especially if it’s a matter where “failure is not an option.” Educated clients make better legal service consumers, and gain a new appreciation for your unique expertise and value. Demonstrating your partnership with clients in this way often has another upside result: fewer billing disputes and faster payments.
- 2013 is the year of “value”. For the past few years, the market has been about cost cutting. While pricing pressures remain, now law firms have increased opportunities to show why they’re the best firm for a client’s needs in subject matter expertise, price, and also customer service and client knowledge. Your firm can bring efficiencies to the table representing both legal and operational expertise; and, as the incumbent with client experience, you should be able to provide better predictability and transparency for your clients. With competition so fierce, you need to be confident about why your firm is the best for your client’s needs, and articulate your value at every appropriate opportunity.
- If your client asks “Are you willing to negotiate an Alternative Fee Agreement?”, say “Yes.” If you aren’t, you can be assured competitors will be, and this answer could knock you out of future considerations. Some matters are truly unique, without historical precedent, and can’t be worked as an AFA. However, other firms are finding ways to work more efficiently, so many departments should be able to develop predictable budgets. Additionally, proactively discuss matter budgets up front, and consider your client’s budget/risk profile. Surveys report that when law firms offer an AFA, it moves the negotiation from oppositional to a partnership … even though clients may still wind up with an agreement based on hourly billing rates. It puts both parties on the same side of the table. Both law firms and corporate law departments indicate their biggest success with AFAs has been the relationship-building aspect of the discussions.
- Plan to fail fast, learn, iterate and improve. Firms that report success with AFAs say they have a history of failed AFA agreements. However, those failures have led to current success because the firm was able to learn what worked for both the client and the firm, and make frequent course adjustments to improve. Start small, with a reasonable client and a limited-duration matter. During the matter, talk to your client specifically about how the AFA is working and ask how improvements can be made. On a routine basis, conduct retrospective matter-closing reviews (a.k.a. “post mortems”). Hold discussions with matter and business teams at the firm and with the client to determine: successes that went well, issues that occurred, what to do in the future to mitigate difficulties, and out-of-scope opportunities that surfaced which warrant further discussions. Was the matter profitable for your firm? If not, could you have staffed it differently, carved out risky areas, found ways to be more efficient, or provided different fees by phase and task? AFAs can let you share risks and rewards with your clients. But you won’t know how until you try and learn.
- Performance metrics matter: “You can’t manage what you don’t measure.” On their own, attorneys will measure their revenue contributions and how busy they are. Profitability is harder to see, and few use it as a metric to drive decisions. Most GCs say they want and need law firms to operate profitably, to be partners for the long haul – they just need firms to figure out how to do this within acceptable budget guidelines. The tricky part is law firms finding ways to be profitable without compromising the GC’s corporate health or political position in their own companies.