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Value Based Fee Structures

Learn about the benefits of implementing value-based fee structures in legal services and how to effectively assess, implement, manage, and evaluate these structures. Explore how value-based fees can reduce costs, improve productivity, and align incentives in the legal industry.

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Value Based Fee Structures

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  1. Value BasedFee Structures

  2. Introduction

  3. Format: Interactive

  4. Overview Business Case Defining Scoping Assessing Implementing Managing Evaluating

  5. Why Even Focus on This?

  6. Client Perspectives Survey – corporate counsels’ “single largest unmet need” is “better value from law firms” Survey – 54% of CEOs/CFOs are “very highly” or “highly” interested in reducing these costs

  7. Quantifying the Problem Source: Corporate Executive Board, 2009.

  8. The Result: Higher Use of Value-Based Fee Structures Source: The Legal Intelligencer, July 02, 2009.

  9. The Result: More VBF Dollars Source: The Wall Street Journal, August 24, 2009, p.A1.

  10. The Business Case for VB Fees Reduce inefficiencies (savings from 15-30%) Increase productivity Improve the way legal services are delivered Focus on results to better align incentives

  11. “Begin with the end in mind.” -Stephen Covey

  12. Core Questions What is the client buying? What should it cost?

  13. Overview: Value-Based Framework

  14. Value-Based Framework

  15. Defining Value

  16. Defining Value What does it mean to achieve greater value? How will we measure that?

  17. Measuring Value: Approaches According to outcomes achieved According to the cost of comparable services

  18. Value Via Outcomes Achieved • Is it reasonable to expect a particular outcome with respect to the matter(s)? • Is the desired outcome measurable in terms of dollars or timing?

  19. Value Via Outcomes Achieved Should a portion of outside counsel’s compensation depend on the result? Should the definition of success be more comprehensive to cover legal fees as well?

  20. Resource: Outcome-Based Tree

  21. Measuring Value: Approaches According to outcomes achieved According to the cost of comparable services

  22. Value Via Cost of Comparables Outcomes aside, can we define value per the cost of comparable services?

  23. Value Via Cost of Comparables • Key questions • What items are we buying or producing? • How do we segment the work to enable apples-to-apples comparisons? • E.g. Portfolio(s)? Matter(s)? Component(s)?

  24. Value-Based Framework

  25. Scoping

  26. Scoping: Generally • What are we buying? • How do we segment? • Then, who is best suited to produce? • Legal department? • Law firm? • Vendor?

  27. Scoping: Sources of Info Existing information from prior matters Other sources (ACC, other in-house contacts) Existing law firm information

  28. Scoping: Reference Points Scope and complexity of the work Type of resources – composition of team Timing, duration & sequence of steps Price you paid in the past

  29. Scoping: Categories

  30. Scoping: Categories • Depending on similarity and predictability, categories of legal work include – • Portfolio of similar matters (e.g. employment discrimination cases) • A single, distinct matter (e.g. M&A transaction) • Components within a matter (e.g. SJ motion)

  31. Resource: Value/Scoping Checklist

  32. Value-Based Framework

  33. Assessing: Generally

  34. Assessing: Generally • Who should perform the work? • Focus on quality and cost • Who are the right service providers? • What is the role of competition? (RFPs? Bids?) • On what terms? • How will outcomes factor into the equation? • What fee structure?

  35. Assessing: Fee Structures Fixed fee per deliverable or matter Capped fee Flat fee per period Portfolio fixed fee Per capita fee / “Ad Agency” Model Performance-based hold back Contingency (partial or full)

  36. Resource: Decision Tree re Terms

  37. Resource: Matrix of Options

  38. Value-Based Framework

  39. Implementing: Generally

  40. Implementing: Generally Four key items:

  41. Implementing: Terms Pricing: Fixed, flat, hourly, combination? Payment: When, how much? Outcome portion: Held by client? Accrued? Look-back: Shadow invoices? Assumptions? Structure: Firm manages others? Vendors?

  42. Implementing: Reports & Tracking Staffing plan: Who? How many? Right mix? Project plan: Defined roles? Optimal fit? Budget & forecast: How much in total? How much for components? When? Frequency of Updates? What is optimal?

  43. Implementing: Assumptions • What provision for changed assumptions? • Is there role for “shadow invoices” tracking hours worked?

  44. Value-Based Framework

  45. Managing

  46. Managing: Generally Corollary to implementing Seeks to ensure quality execution of plan Formal or informal tracking? Scorecards?

  47. Managing: Core Checklist • Are we effectively executing against the plan? • How strong is the quality of the work produced? • How strong is the process of producing the work?

  48. Managing: Core Checklist How strong are the information tracking and communication processes? How are things faring according to both quantitative and qualitative measures?

  49. Value-Based Framework

  50. Evaluating

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