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CCCA_V5No4_Dept-Performance-FIN_CCCA_V5No3_Dept-Performance-V1.qxd 11/20/11 9:33 PM Page 9 The quest for cost- Performance in the law department effective counsel Little progress seen on new fee arrangements. By Richard G. Stock CCA’s annual conference was held hourly-based fees Cin Halifax this past August. I joined by the end of 2012. speakers from AON, Fasken Martineau, There is a “fear Royal Bank of Canada, and the Human of the unknown’ at Rights Commission for a half-day ses- play. Most corpo- sion — Litigation on a Budget. The rate counsel would focus was on how best to manage the rather pay more for external counsel consider their lead law firm to be clearly case, the cost and external counsel dur- because of the predictability that comes better than that firm’s nearest and best ing complex litigation. With 40 corpo- with an hourly rate — albeit a rate that competitor. This explains why law firms rate counsel in attendance, I was anx- increases each year. When asked what type work so hard to develop and maintain ious to see how much progress there of non-hourly fee held the greatest inter- relationships with their clients. Only had been on the related economics over est, fixed and flat fees, not results-based 15 per cent of legal work in the market is the last 15 years. fees, came out ahead by far. Corporate price-sensitive and less than 5 per cent is counsel have neither the experience nor expertise-sensitive. “I hire the lawyer, not Concerns for corporate counsel the appetite to innovate with non-hourly the firm” goes the refrain. One can con- The trade literature reports a range of pricing. There is always a concern that the clude that 80 per cent of legal work is rela- concerns that legal departments have cost will be more than with a straight tionship-based. about external counsel. These include hourly arrangement. Most companies report that fewer than containing total legal spend, when to use Let’s look at the evidence. A 2010 sur- six firms do 80 per cent of their legal alternative fee arrangements (AFAs), and vey of 145 companies found that larger work. There are rarely any concerns about how to best measure the value of external legal departments face significantly more the quality of these firms. In most cases, counsel. Orrick, Harrington & Sutcliffe pressure to reduce costs. Some 84 per cent one or two firms do 80 per cent — 90 per have 1,100 lawyers in 22 offices. The firm’s of all departments reported pressure to cent of the volume. But, things get very chief client services officer believes that “if reduce external counsel costs. Yet, in the informal from this point on. Our own you’re thinking about cost certainty, last two years, 40 per cent of the same survey of legal departments reports that aligned interests, the value of risk avoid- legal departments achieved little or no written terms of engagement (they seem ance, and the value of hiring external reductions. Eighteen per cent achieved a to be in place less than 40 per cent of the counsel who thoroughly understand your 6 per cent — 10 per cent reduction in time) with law firms tend to have the fol- business — AFAs are fabulous.” costs, and the others achieved more than lowing profile: Participants in the Halifax session were 10 per cent in cost reductions. • only 31 per cent require a regular use of surveyed about the extent to which their matter budgets; companies used non-hourly (fixed or Quality vs. price • only 31 per cent define the areas for use results-based) pricing when retaining With the exception of very routine work, of firms; external counsel. There has not been much it is rare to see rates and costs as one of the • only 36 per cent are fixed term agree- change in 10 years with the average use of top five criteria for selecting a law firm. ments; non-hourly pricing still at less than 10 per Expertise, service levels, and experience in • 55 per cent stipulate no rate change without prior approval, and ISTOCKPHOTO cent. Interestingly, 100 per cent of the par- the industry sector are the prevalent selec- • 72 per cent call for a regular use of ticipants said there was no likelihood they tion criteria. Yet, the 2010 survey reported fee estimates. would move significantly away from that only 10 per cent of legal departments HIVER 2011 CCCA Canadian Corporate Counsel Association 9