AFAs and Facing the Client

1. #AALL14 AFAs and Facing the Client Paul Covey Julia Stahl-Hughes Lucy Curci-Gonzalez, Moderator

2. Presenters Paul Covey Managing Director for Strategic Pricing & Analytics O’Melveny & Myers LLP Julia Stahl-Hughes Director of Library Services StradleyRonon Stevens & Young LLP Lucy Curci-Gonzalez Director of Library Services Kenyon & Kenyon LLP 2

3. Outline • Market Trends • Strategic Pricing • Informed Pricing • Alternative Fee Arrangements • Matter Budgets • Legal Project Management • Finding a Way In 3

4. 4

5. Market Trends 5

6. Growth in Demand for Legal Services 6

7. 7

8. 8

9. The Search for Value: • Clients • Growth of in-house • ACC Value Challenge • Billing metrics • Law Firms • Growth of fixed fees • New staffing models • Giveaways 9

10. Value Price When offered four possible law firm pricing options, 36.4% of CLOs said they wanted ‘transparent pricing’ in which they understand how and why the price is set and have the opportunity to discuss changes; One-third of CLOs chose ‘guaranteed pricing’ as their preference; and 20.3% of CLOs preferred ‘value-based pricing’ that varies based on results. Only 9.6% of Chief Legal Officers say they wanted the ‘lowest price’ available. 10 From 2013 Altman Weil Chief Legal Officer survey results

11. Strategic Pricing 11

12. What is “Strategic Pricing?” Strategic pricing sets a product's price based on the product's value to the customer, or on competitive strategy, rather than on the cost of production. Competing through pricing means recognizing what your customers value and charging them accordingly. 12 From What is Strategic Pricing, Evangeline Marzec, Demand Media

13. The Best Strategic Pricing Arrangements: • Better align law firm and client interests • Emphasize value • Increase predictability of outside legal spend • Encourage efficient matter management • Create a genuine partnership between law firm and client. 13

14. Informed Pricing 14

15. Client Intelligence • Legal Spend • Magic Bullet? • Reference USA • Annual Report 15

16. Client Intelligence • Current Firms - Litigation • Federal • Court Link • Monitor • PACER • Bloomberg Corp Rpt. • State / Local • manual • Monitor?? 16

17. Client Intelligence • Current Firms – Transactions • SEC • Knowledge Mosaic • Monitor? • Current Firms - Transactions • Other Transactions • Capital IQ • Merger Market • Deal Book • Asset Backed Securities Alert database • Search • Monitor – levereagedloan.com 17

18. Client Intelligence • Current Firms – Other • Web Search • Press Release search 18

19. Competitive Intelligence • Strengths/Weaknesses • CourtLink • Martindale • Website • Rival Edge (ALM) • Legal Intelligence (ALM) • Local Newspapers (general / legal / business) • Rate Structures • Valeo • Cost data for similar cases • TyMetrix

20. Matter Intelligence • Judge / Jurisdiction • Almanac of the Federal Judiciary • Westlaw Profiler • Manual (Westlaw/ PACERpro) • Opposing Counsel • Westlaw Profiler • PACER/ PACERpro • Manual (Westlaw / PACER) • Rival Edge • Other Sources • Lex Machina • Litigation Monitor • CourtLink • Rival Edge • Legal Intelligence • News Aggregators

21. Alternative Fee Arrangements 21

22. AFAs – A Continuum of Risk Matter Budgets Volume Incentives Blended Rates • Often a de facto fee cap from the client’s perspective • Provide Predictability • Encourage Efficiency • Improve Communication • Align Incentives • Lower hourly rates as volumes increase • Provide an incentive for the client to send more of its work to the firm • Do not inherently reward efficiency or offer the client budget certainty • Can reduce sticker shock of partner rates • Best for work that can be well leveraged • Do not inherently reward efficiency or offer the client budget certainty 22

23. AFAs – A Continuum of Risk Holdbacks + Success Fees Fixed Feeswith or without collars, by segment, matter or client Contingency • Zero or small cost to client up front • Provide an opportunity to earn a large fee based on specified outcomes • Align firm and client interests; firm assumes high risk for high potential reward • Lower cost to client up front • Provide an opportunity to earn a greater fee based on specified outcomes • Align firm and client interests; firm puts “skin in the game” • Provide Predictability • Encourage Efficiency • Improve Communication • Align Incentives • Reduce Administrative Resources on Invoice Review 23

24. Matter Budgeting 24

25. “Achieving a great legal outcome is assumed from any firm that we hire. So even if you get a great result for us, if you exceed the budget in the process, we will consider the representation a failure.” From a client, following a complete victory achieved in a case that could have resulted in the client paying more than $1B in damages 25

26. The Budgeting Process Talk to the client Discuss case trajectory, key assumptions, client risks, what the client considers “success” Create/Modify budget Look at representative matters, consider available staffing Communicate Budget Capture the scope of work covered by the budget and the key drivers in a memo to the client Monitor budget Use emails, data on matter pages and the monthly bills to monitor activity levels against the budget Repeat 26

27. Sample Matter Budget Excerpt 27

28. Legal Project Management 28

29. Staffing • Work • Processes • Flow 29

30. Staffing • Right person for the right job… • Legal • Staff Attorneys • Contract Attorneys • Outsource • Administrative • Professionals – library / accounting • Para-professionals – paralegals, IT staff • Outsource 30

31. Efficiency • Research and Develop • Knowledge Management • Document Assembly • Consistency Evaluators • Research Tools 31

32. Some Implications of Fee Constrained Work • A focus on staffing mix & efficiency • Better communication • Increased use of Phase & Task Codes • Timely Time Entry 32

33. Key Take-Aways • Understand what “success” means to the client, both qualitatively and quantitatively • See matters from a client’s perspective and understand the performance metrics that are important to them • Invest effort into capturing more aspects of matter experience to enhance knowledge and enable the ability to confidently price services • Create budgets, even when not requested, and communicate with clients regularly about case trajectory and budget impact so that there are no surprises • Seek client feedback regarding performance, both in providing legal service, and also in matter management 33

34. Finding a Way In

35. Getting Involved • Unintentional • Intentional 35

36. UnintentionalOrganic • Dumped • Up to speed • Triage • Plan • Involve other departments • Sidelines • Act don’t react • Assess the situation • Make Contact(s) • Casual discussion • Open ear • Offer professional assistance 36

37. IntentionalCreate a Need • Go Big or Go Home • Grant family • Who’s house? • Knight in Shining Armor (KISA) – champion • Old / New Normal • Back channel iteration 37

38. Intentional Back-channels • Monitor research/retrieval • Reference staff? • Practice Group Structure • Committees • In general? Keep your ear to the ground 38

39. Intentional Back-channels • Touch • Monitor/Update • Practice Group Point person (KISA) • Committee Person (KISA) • Administrative staff 39

40. Intentional Back-channels – touch • Casual discussion – where? • Coffee Room (visit different floors) • Elevator (?) • Hallways/Library/Office • Lunch • Events 40

41. Intentional Back-channels – touch • Casual discussion – about? • What they are doing – LISTEN • Existing helpful work product (repurpose?) • Offer expertise (share) • Develop bibliography/repository • FOLLOW UP (repeatedly) 41

42. Intentional Back-channels – foot there • FOLLOW UP (repeatedly) • Leads to possible meetings - CALENDAR 42

43. Questions and Answers Contact Information • Paul Covey: pcovey@omm.com • Julia Stahl-Hughes: jhughes@stradley.com • Lucy Curci-Gonzalez: lcurcigonzalez@kenyon.com 43