LEGAL PROJECT MANAGEMENT: PREPARE FOR CHANGES IN THE PRACTICE OF LAW Presented by the American Bar Association and Center for Professional Development
American Bar Association Center for Professional Development 321 North Clark Street, Suite 1900 Chicago, IL 60654-7598 www.americanbar.org/cle 800.285.2221 CDs, DVDs, ONLINE COURSES, DOWNLOADS, and COURSE MATERIALS ABA self-study products are offered in a variety of formats. To take advantage of our full range of options, visit the ABA Web Store at www.shopaba.org. The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association or Center for Professional Development unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only. 2014 American Bar Association. All rights reserved. This publication accompanies the audio program entitled Legal Project Management: Prepare for Changes in the Practice of Law broadcast on August 18, 2014 (Event code: CEM4AUG).
TABLE OF CONTENTS 1. Presentation Slides 2. State Bar Ethics Opinions on Internet Use and Other Technology Issues Andrew L. Tuft 3. Alternative Fee Arrangements by Law Firms 4. Legal Project Management: Transforming Legal Services Susan Raridon Lambreth 5. Value-Based Legal Services (Not Just Estimating Hours at Standard Rates) Mike Burks and David A. Rueff, Jr. ONLINE RESOURCES Massachusetts Bar Association Ethics Opinion 12-03 http://www.massbar.org/publications/ethics-opinions/2010-2019/2012/opinion-12-03 New York State Bar Association Ethics Opinion 842 http://old.nysba.org/am/template.cfm?section=ethics_opinions&contentid=140010&tem plate=/cm/contentdisplay.cfm
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Welcome Legal Project Management: Prepare for Changes in the Practice of Law Moderator: William C. Hubbard, ABA President, and Partner, Nelson Mullins Faculty: Robert H. Brunson, Partner, Nelson Mullins Gil Renee Cubia, Senior Group Counsel, Johnson Controls Susan Raridon Lambreth, Principal, LawVision Group, LLC & The Legal Project Management Institute David A. Rueff, Jr., Shareholder, Baker, Donelson, Bearman, Caldwell, & Berkowitz Register for more FREE CLE Overview Why LPM is important Evolving best practices in the legal industry What clients are doing What law firms are doing What software vendors are doing What the ABA is doing Implementing LPM in law firms panel discussion & Q&A
What is Legal Project Management? A process for defining, planning, executing and evaluating matters / projects A more proactive, disciplined approach to the management of legal matters which includes application of specific knowledge, skills, tools, and techniques to achieve project objectives Underlying principle: effective communication and setting and meeting of expectations Why LPM is Important Client demands and expectations pressures to reduce costs and increase efficiency Competitive market for legal services New profitability models for law firms A better way to practice law
Evolving Best Practices in the Legal Industry Key Elements of LPM Upfront discussion of client s objectives / expectations Detailed scoping of the work whether on an alternative fee or to align with project budget Breaking down the work into component parts to develop more accurate budgets and plans Development of budgets and management of the matter to the budgets More active management of the matter throughout Enhanced project team communication Enhanced client communications Dealing with scope changes throughout a matter End of matter debriefing / lessons learned Evolving Best Practices in the Legal Industry Implementation Approaches Use of sophisticated tools to develop budgets for legal matters Training of lawyers in LPM skills Policies for providing detailed budgets and scope documents for matters over a certain size Development of model documents for managing projects within practices, matter types or client teams High level professional management heading LPM functions in firms Alignment of compensation incentives to support LPM
What Clients are Doing The Law Department s Case For LPM Initiatives Implemented Using LPM Mechanics of LPM Implementation Anticipated Benefits of LPM Sustainability (The LPM Infrastructure) What Clients are Doing The Legal Department s Case For LPM Align with changes in the business Respond to increased pressure on costs and resources Assess our current state to quickly identify & implement critical enterprise wide changes: Strategic Initiatives
What Clients are Doing Law Department Strategic Initiatives Implemented using LPM Workflow Process Improvements Standardized Contract Management Process, NDA Process, Budget Process, Case Assessment Developed Business Self-Help Tools Created Templates, Forms, and Checklists, Implemented Workflow tool Conducted RFP Process Evaluate & Select Partner Recruiting Firms, Outside Counsel, and Matter Management Software Captured/Shared Knowledge Created Various Playbooks/Sustainable Web Based Training What Clients are Doing The Mechanics of LPM Implementation Set tone from senior legal leadership team Utilized No cost/low tech tools Learned by doing Adapted existing project management templates for legal application Formed cross functional project teams and steering committees
What Clients are Doing Anticipated Benefits From LPM Process & data driven culture Improved communication & alignment with business Greater efficiency and productivity Disaggregation of low value work (LPO/Self-Help) Optimization of outside spend (Emphasis on Budgets) More leadership development opportunities for lawyers What Clients are Doing Sustainability (LPM Infrastructure) Legal project roadmap with monthly gate reviews Culture Shift (All lawyers now expected to develop and demonstrate LPM skills) Dedicated resources for Legal Process Improvement function
What Law Firms are Doing The Power of Legal Project Management, A Practical Handbook, (ABA 2014) includes interviews with 17 law firms and law departments where they provided insight on: what prompted the LPM initiative? what is the primary focus of the initiative? how has LPM been implemented? what benefits have been realized? how has training been conducted? how is momentum sustained? how is LPM supported within the organization? what tools have been utilized? What Law Firms are Doing What prompted the LPM initiative? The need for improved controls and performance of AFAs or any matter with a not to exceed budget Response to client demand for improved budgeting Strategic plans focused on improvement and value Providing a unique and powerful client service experience First adopter advantage in the marketplace
What Law Firms are Doing What is the primary objective of the initiative? Pricing Efficiency and productivity Legal project management Process improvement (Toyota's Lean and Motorola's Six Sigma) Integration of the voice of the client into matter planning Alternative staffing models What Law Firms are Doing How has LPM been implemented? "The implementation approach that is appropriate for a project is dependent on the client's needs, the composition and working style of the team, and the particulars of the legal matter." Lambreth and Rueff, The Power of Legal Project Management, A Practical Handbook, Appendix 1 - Fenwick & West LLP, p.349 (ABA 2014).
What Law Firms are Doing How has LPM been implemented? LPM champions leading the roll-out to obtain partner buy-in Project Manager supported pilot projects Workshops involving clients Response to client demand Practice Group or matter team implementation As needed / as requested What Law Firms are Doing What benefits have been realized? Collaboration with clients to make key decisions before the work begins Transparency and strengthened client relationships Reduction of scope creep Improved legal team management and coordination Promotion of data collection for pricing and budgeting Improved accuracy of cost estimates Cost reduction and predictability Improved realization
What Law Firms are Doing How has training been conducted? Topics o Process mapping techniques (Lean, Six Sigma) o Project management techniques (whether traditional or LPM based) o Task coding o Scoping o Pricing and AFAs o Change management What Law Firms are Doing How has training been conducted? High level awareness training Training for partners and senior level associates Training for all staff members Just in time or learn by doing Classroom training Consultant training incorporating the above
What Law Firms are Doing How is momentum sustained? Support from key leadership Alignment with compensation and recognizing time spent in training or development toward billable targets Regular topic on PG agendas BD's Quarterly Update Access to training videos Monthly meetings for on-going training, discussion of value components tied to LPM, shared best practices, shared successes and failures Regular participation in LPM webinars Consistent involvement of PMs in implementation Partner retreats showcasing success of pilot projects and creating business case to get buy-in What Law Firms are Doing How is LPM supported within the organization? Oversight committees including members of the Executive team Pricing department Client service teams Project management office Legal project management office Finance department
What Law Firms are Doing What tools have been utilized? Tracking ("real time") Project plans Stakeholders Statements of work or charters Journaling Calendaring and contacts Budget versus actual Profitability Gantt work plans Communication plans Applying Technology to LPM A value checklist Does it improve productivity? Reduce required effort for success Reinforce or improve best practices Allows benchmarking Process improvement Uses templates Better data, better decisions Dynamic reporting of key metrics Does it improve collaboration? Is it easy enough for even a lawyer to use Accessible to team Allows process chronology Allow effective resource allocation Mobile access Team transparency
Project Planning with Mindmaps Creating Phases, Workflows, and Tasks
Task Details, Resources, Dependencies Using Gantt Chart Views
Collaborating with Teams Mindjet Tasks Collaboration
Updating Tasks (fewer status meetings!) Lean for Legal
What the ABA is Doing Specialty Books LPM CLE programs & Panel Discussions New LPM 4-part Certificate Program Fall 2014 Stage1: Program Initiation Stage 2: Program Development Stage 3: Program Execution Stage 4: Program Closure Panel Discussion Robert H. Brunson, Partner, Nelson Mullins Gil Renee Cubia, Senior Group Counsel, Johnson Controls Susan Raridon Lambreth, Principal, LawVision Group & The Legal Project Management Institute David A. Rueff, Jr., Shareholder, Baker, Donelson, Bearman, Caldwell, & Berkowitz Register for more FREE CLE
Thank you for joining us Register now for the upcoming program in the series! Supreme Court Preview: The 2014-15 Term Robert Ambrogi Lawyer and Journalist Monday, September 15, 2014 1:00 PM 2:30 PM ET Register for more FREE CLE CLE Credit Request Instructions Please stay online The program evaluation link will appear shortly. Click on the link to take the program evaluation. After submitting the evaluation, an online request for CLE credit will appear. Fill out this form to receive CLE credit for this program. Register for more FREE CLE
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STATE BAR ETHICS OPINIONS ON INTERNET USE AND OTHER TECHNOLOGY ISSUES By Andrew L. Tuft Stanford biologist Paul R. Ehrlich is credited with saying: To err is human, but to really foul things up you need a computer. Over the past decade, the technology surrounding computers has changed and advanced rapidly, increasing the chance for attorneys to inadvertently really foul things up. The internet, social media websites, smart phones, GPS technology and various web applications have become an integral part of our daily lives. These technologies allow clients, lawyers and commerce in general to engage in countless activities in unique and efficient ways. Many practitioners often inquire how the California Rules of Professional Conduct can be applied to these types of technological advances. The State Bar of California offers several resources to help attorneys in researching professional responsibility issues. The primary resource available to attorneys is the State Bar Ethics Hotline. The Ethics Hotline is a confidential telephone information service which refers callers to California Rules of Professional Conduct, State Bar Act sections, advisory ethics opinions, and other relevant authorities. No one on the Ethics Hotline is permitted to provide legal advice or counsel; however, attorneys are enabled to pursue a thorough analysis of the law and to make their own informed decision on how to proceed in an ethical manner. The Ethics Hotline phone number is 1-800-2ETHICS and appears on the back of each member s bar card. While the Ethics Hotline cannot give legal advice or counsel, there is a group of attorneys who do provide ethical advice and guidance in the form of ethics opinions. The Committee on Professional Responsibility and Conduct (often referred to as COPRAC ) is a standing committee of the State Bar Board of Governors. COPRAC s primary charge is the development and issuance of advisory ethics opinions to assist attorneys in understanding their professional responsibilities under the California Rules of Professional Conduct. Although not binding, the opinions have been cited in decisions of the California Supreme Court, the State Bar Court Review Department, and the Courts of Appeal. These ethics opinions can be accessed from the Ethics page (www.calbar.ca.gov/ethics) on the State Bar of California s website. Over the past ten years, COPRAC has issued several ethics opinions addressing an attorney s duty of professional responsibility in conjunction with the use of technology. This article provides a brief review three of those opinions. State Bar Formal Opn. No. 2005-168: Law Firm Websites Allowing Visitors to Submit Questions on an Electronic Form In State Bar of California Formal Opinion Number 2005-168, COPRAC addresses the following issue: Does a lawyer who provides electronic means on his website for visitors to submit legal questions owe a duty of confidentiality to visitors who accept that offer but whom 1 1 Andrew L. Tuft is a staff attorney in the State Bar Office of Professional Competence. The Office of Professional Competence administers the State Bar s Ethics Hotline research assistance program and the State Bar s Standing Committee on Professional Responsibility and Conduct. This article offers general information and does not constitute legal advice or the position of the State Bar of California. 1
the lawyer elects not to accept as clients, if the attorney disclaims formation of an attorney-client relationship and a confidential relationship? The hypothetical facts of this ethics opinion describe Wife who was searching the internet for an attorney to represent her in pursuing a divorce from Husband. During her search, Wife discovers Law Firm s website which contains an electronic form where Wife can submit her name and contact information, along with a statement of facts related to her legal problem, and any questions Wife wishes to pose to Law Firm. Wife fills out the electronic form, discloses specific details related to her pending divorce and concludes her submission by stating, I like your website and would like you to represent me. Below the text box in which Wife described her case was a list of Terms which stated: (1) I understand and agree that I may receive a response to my inquiry from an attorney at Law Firm; (2) I agree that by submitting this inquiry, I will not be charged for the initial response; (3) I agree that I am not forming an attorney-client relationship by submitting this question. I also understand that I am not forming a confidential relationship; and (4) I further agree that I may only retain Law Firm or any of its attorneys as my attorney by entering into a fee agreement. I understand that I will not be charged for the response to this inquiry. Below the Terms section were two boxes, one which read SUBMIT and the other read CANCEL. Wife clicked on the SUBMIT button; had she clicked the CANCEL button, Wife s information would not have been transmitted to Law Firm. Upon receiving Wife s inquiry, Law Firm discovered that Husband had already retained Law Firm to explore the possibility of a divorce from Wife. The next day, an attorney in Law Firm sent wife an email, which stated: We regret we will be unable to accept you as a client because there is a conflict with one of our present clients. Good luck with your case. Based on the hypothetical facts above, may Law Firm be precluded from representing Husband as a result of Law Firm s contact with Wife on the ground that Law Firm has obtained material confidential information related to the subject matter of the representation? Law Firm believes that preclusion from representing Husband is improper because Law Firm did not enter into an implied-in-fact or express attorney-client relationship with Wife, and therefore no duty of confidentiality should attach. Further, Law Firm has attempted to avoid taking on a duty of confidentiality by requiring Wife to agree that (1) by submitting a question, the inquirer is not forming an attorney-client relationship or a confidential relationship; and (2) whatever response Law Firm provides will not constitute legal advice but, rather, general information. In response, Wife s position is that the formation of an attorney-client relationship is not a prerequisite for a lawyer s duty of confidentiality to attach. A lawyer may owe a duty of confidentiality to a prospective client who consults the lawyer in confidence for the purpose of retaining the lawyer. (See Cal. State Bar Formal Opn. No. 2003-161.) Therefore, although an attorney-client relationship did not arise from Wife s consultation with Law Firm, Law Firm may still owe a duty of confidentiality to Wife. 2
COPRAC s opinion surmises that Wife s agreement that she would not be forming a confidential relationship does not, under the facts presented, mean that Wife could not still have a reasonable belief that Law Firm would keep her information confidential. The statement, I also understand that I am not forming a confidential relationship, is potentially confusing to a lay person who may reasonably view it as a variant of her agreement that she has not yet entered into an attorney-client relationship with Law Firm. Conversely, if Law Firm had written its disclosure using a plain-language reference that Wife s submission would lack confidentiality, there would not have been a reasonable expectation of confidentiality. In addition, COPRAC suggests Law Firm could have avoided the confidentiality issue entirely if its website requested only information from visitors necessary to perform a conflicts check before accepting further information. If Law Firm s website first requested the visitor to provide the names of all parties, children, former spouses, maiden names, etc., Law Firm could use this information to determine whether representing the visitor might create a conflict with one of its current clients, preventing Law Firm from receiving the confidential information. COPRAC concludes that because Law Firm chose neither to make a plain-language reference to the non-confidential nature of the communications submitted via its website, nor first screen visitors for potential conflicts with existing clients, Law Firm may be disqualified from representing Husband should the court conclude that the information Wife submitted was material to the resolution of the divorce proceeding. A lawyer may avoid incurring a duty of confidentiality to visitors to the lawyer s website who disclose confidential information via the website only if the lawyer s website contains a statement in sufficiently plain language that any information submitted will not be confidential. State Bar Formal Opn. No. 2007-174: Release of Electronic Files to a Client upon Termination of Representation In State Bar of California Formal Opinion Number 2007-174, COPRAC discusses whether an attorney is ethically obligated, upon termination of employment, to promptly release to the client, at the client s request: (1) an electronic version of email correspondence; (2) an electronic version of the pleadings; (3) an electronic version of discovery requests and responses; (4) an electronic deposition and exhibit database; and/or (5) an electronic version of transactional documents. In this opinion, Attorney A was originally retained by Client to represent Client in negotiating and executing an agreement with Corporation, under which Client entrusted a secret invention to Corporation for development, patenting, and commercialization in exchange for royalty payments. During the course of representation, Attorney A prepared transactional documents, including the agreement itself, using a commonly available word-processing computer program to create manipulable files, and saving such files in a readily searchable electronic document management system. During the representation, Attorney A sent and received various email correspondence. In addition to the above transactional matter, Client also retained Attorney A in a separate matter to file and prosecute an action on Client s behalf against Landlord relating to Landlord s breach of a lease agreement. During the course of this representation, Attorney A prepared 3
pleadings and discovery requests and responses, using the same word-processing computer program as in the transactional matter, and preserved such files in the same readily-searchable electronic document management system. Attorney A also created an electronic database, which is searchable, containing deposition transcripts and exhibits. During this representation, Attorney A also sent and received various email correspondence. Client has decided to terminate Attorney A s employment and to employ Attorney B instead. Client has requested that Attorney A release to Client all of Client s papers and property. Specifically, Client has requested an electronic version of the pleadings in the action against Landlord, an electronic version of the discovery requests and responses, and the electronic deposition and exhibit database. In addition, Client requested an electronic version of the transactional documents in the Corporation matter, expressing an intent to make them available to Attorney B to safeguard Client s interests with respect to Corporation s obligation to pay royalties under licensing agreements. As to each representation, Client has requested an electronic version of the email correspondence, for ease of searching its contents. In response, Attorney A has refused to release any of these items, claiming that each contain metadata reflecting confidential information belonging to other clients. California Rule of Professional Conduct 3-700 is entitled Termination of Employment. Subparagraph (D) of the rule provides, [s]ubject to any protective order or non-disclosure agreement, an attorney whose employment has terminated shall... promptly release to the client, at the request of the client, all the client papers and property. Client papers and property includes correspondence, pleadings, deposition transcripts, exhibits, physical evidence, expert s reports, and other items reasonably necessary to the client s representation, whether the client has paid for them or not.... The attorney must release client papers and property at no cost to the client. (Rule 3-700, Discussion.) The scope of Rule 3-700(D) is conspicuous. Among [c]lient papers and property, the rule includes specific items coming within listed categories and also any other items that are reasonably necessary to the client s representation. However, the rule was drafted before email and searchable electronic databases were being used by the legal profession. Attorney A may take the position that because the rule does not specifically discuss email, or electronic databases, Attorney A is not obligated under Rule 3-700(D) to release them to Client. COPRAC points out that the rule clearly states an attorney is obligated to release all the client papers and property. There is no distinction based on the form of any item, whether electronic or non-electronic. COPRAC reasons that client papers and property is not a static concept, but one whose content will change depending upon the circumstances, including items in electronic form as well as non-electronic form. (See, State Bar Formal Opinion No. 1994-134.) Therefore, COPRAC reasons that Client s request for an electronic version of email correspondence and pleadings falls expressly under Rule 3-700(D)(1) s listed categories of correspondence and pleadings. Similarly, electronic versions of deposition and exhibit databases come under the expressly listed categories of deposition transcripts and exhibits 4
by implication, inasmuch as deposition and exhibit databases, by definition, contain deposition transcripts and exhibits. However, Rule 3-700(D) does not contain an express reference to discovery requests and responses nor transactional documents. Nonetheless, COPRAC points out that these items fall under the category of items that are reasonably necessary to the client s representation. (Rule 3-700(D)(1).) An item is reasonably necessary to the client s representation if it is generated during the representation for continuing use therein. (See, State Bar Formal Opinion No. 1992-127.) Discovery requests and responses satisfy this definition of reasonably necessary since they may give rise to further discovery actions. In addition, they may be used as exhibits to motions and as exhibits at trial in the future. Transactional documents satisfy this definition as well because they may be used for monitoring performance under the original agreement with Corporation as well as any related agreement between the parties to that transaction and third persons who subsequently become involved. COPRAC concludes that, upon termination of employment, an attorney is obligated under Rule 3-700(D)(1) to release to a client, at the request of the client: (1) an electronic version of email correspondence; (2) electronic versions of the pleadings; (3) electronic versions of discovery requests and responses; (4) electronic deposition and exhibit databases; and (5) electronic versions of transactional documents. COPRAC points out, however, that whenever an attorney is obligated to release items in electronic form, the attorney is not obligated to release them in any other application than the application in which the attorney possesses them (e.g. Word (.doc) instead of WordPerfect (.wpd)). COPRAC reasons this is because the attorney s obligation is to release the items, not to create them or to change their format. How should Attorney A reconcile the duty to release all of the electronic documents discussed above with the concern that each of the electronic items in question contains metadata reflecting confidential information belonging to other clients? In general, metadata refers to information describing the history, tracking, or management of an electronic document, which may include changes that were made to a document, a short summary of the document and other document properties. Attorney A is obligated under Business and Professions Code section 6068(e)(1) to protect each client s confidential information. Therefore, Attorney A would have to take reasonable steps to scrub any metadata reflecting confidential information belonging to other clients from any of the electronic items before releasing them to Client. State Bar Formal Opn. No. 2010-179: Use of Computer Technology to Transmit or Store Client Information In State Bar of California Formal Opinion Number 2010-179, COPRAC analyzes whether an attorney violates the duties of confidentiality and competence he owes to a client by using technology to transmit or store confidential client information when the technology may be susceptible to unauthorized access by third persons. The hypothetical facts describe Attorney who is an associate at a law firm. The law firm provides a laptop computer for Attorney s use on client and firm matters and includes software necessary to his practice. The firm has informed Attorney that the computer is subject to the law firm s access as a matter of course for routine maintenance and also for monitoring to ensure that 5
the computer and software are not used in violation of the law firm s computer and Internet-use policy. Unauthorized access by employees or unauthorized use of the data obtained during the course of such maintenance or monitoring is expressly prohibited. Attorney s supervisor is also permitted access to Attorney s computer to review the substance of his work and related communications. Client has asked for Attorney s advice on a matter. Attorney takes his laptop computer to a local coffee shop and accesses a public wireless Internet connection to conduct legal research on the matter and to send emails to Client. He also takes his laptop computer home to conduct the research and to send emails to Client using his personal wireless Internet system. Because almost every attorney uses some form of technology in the practice of law, attorneys are faced with an ongoing responsibility of evaluating the level of security of the technology they use. COPRAC states that its opinion is intended to set forth the general analysis an attorney should undertake when considering whether to use a particular form of technology. 1. Duty of Confidentiality Under Business and Professions Code section 6068(e)(1) attorneys have an express duty [t]o maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her own client. (See also, California Rule of Professional Conduct 3-100 Confidential Information of a Client.) There are very few exceptions to the duty of confidentiality. The discussion section following Rule 3-100 states a member may not reveal such information except with the consent of the client or as authorized or required by the State Bar Act, these rules, or other law. Section 952 of the California Evidence Code defines confidential communication between client and lawyer for purposes of application of the attorney-client privilege, and it includes disclosure to third persons to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted. Although the duty to preserve confidential client information is broader in scope than the attorney-client privilege, the underlying principle in analyzing whether a breach of confidence has occurred is similar: if the transmission of information through a third party is reasonably necessary for the purposes of the representation, the transmission should not be deemed to have destroyed the confidentiality of the information. In addition, section 917(b) of the California Evidence Code states, [a] communication... does not lose its privileged character for the sole reason that it is communicated by electronic means or because persons involved in the delivery, facilitation, or storage of electronic communication may have access to the content of the communication. 2. Duty of Competence The manner in which an attorney chooses to safeguard confidential client information is governed by the duty of competence. Determining whether a third party has the ability to access and use confidential client information in a manner that is unauthorized or without consent must be considered in conjunction with this duty. 6
The duty of competence is governed by California Rule of Professional Conduct 3-110. Rule 3-110(A) prohibits the intentional, reckless or repeated failure to perform legal services with competence. Under Rule 3-110(B) competence may apply to an attorney s diligence and learning and skill when handling matters for clients. In addition, the duty of competence also applies to an attorney s duty to supervise the work of subordinate and non-attorney employees or agents. (Discussion to Rule 3-110.) Currently, California is not an ABA Model Rules state. However, the ABA Model Rules may be consulted for guidance of an attorney s ethical duty, particularly in areas where there is no direct authority in California, so long as the Model Rules do not conflict with California public policy. (City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4 th 839, 852; and California Rule of Professional Conduct 1-100(A).) COPRAC cites to Comments [16] and [17] of ABA Model Rule 1.6, which state, among other things: (1) a lawyer must act competently to safeguard confidential client information from inadvertent or unauthorized disclosure by the lawyer or others who are subject to the lawyer s supervision; and (2) when transmitting a communication that includes confidential client information, the lawyer must take reasonable precautions to avoid receipt of the information by unintended parties. Thus, in order to act competently, an attorney must take appropriate steps to make sure that both secrets and privileged information belonging to a client remain confidential and that the attorney s handling of this type of information does not result in a waiver of any privilege or protections. Taking the above authorities under consideration, COPRAC lists and discusses in detail various factors an attorney should consider before using a specific technology. (This article lists these factors. For COPRAC s complete analysis, see the full text of State Bar Formal Opinion 2010-179.) In brief, the factors identified by COPRAC are: 1. The level of security afforded by the use of a particular technology, including whether reasonable precautions may be taken when using the technology to increase the level of security; 2. The legal ramifications to a third party who intercepts, accesses or exceeds authorized use of another person s electronic information; 3. The degree of sensitivity of the information. The greater the sensitivity of the information, the less risk an attorney should take with technology; 4. The possible impact on the client of an inadvertent disclosure of privileged or confidential information or work product; 5. The urgency of the situation; and 6. Client instructions and circumstances. After applying these factors to the hypothetical, COPRAC concludes that Attorney would not violate his duties of confidentiality and competence to Client by using the laptop computer. This is because the individuals who are permitted access to the Attorney s computer are only those individuals who are authorized to perform required tasks. Nonetheless, Attorney is responsible for ensuring that those individuals who have access to the laptop are properly instructed about the duties pertaining to client confidentiality and are supervised appropriately, pursuant to Rule 3-110. Furthermore, Attorney s supervisor s access to Attorney s laptop would 7
be permissible due to her duty to supervise Attorney in accordance with Rule 3-110 and her own fiduciary duty to preserve Client s secrets. Regarding Attorney s decision to use a public wireless connection, COPRAC concludes that due to the lack of security features provided in most public wireless access locations, Attorney risks violating his duties of confidentiality and competence in using the public wireless connection at the coffee shop to work on Client s matter unless he takes proper precautions. Such precautions may include using a combination of file encryption, encryption of wireless transmissions and a personal firewall. Attorney would need to evaluate the sensitivity of the matter and determine whether or not to avoid using the public wireless connection entirely. Finally, Attorney may need to seek consent from Client to use a public wireless connection after informing Client of the associated risks, including potential disclosure of confidential information and possible waiver of attorney-client privilege or work product protections. With respect to Attorney s personal wireless system at home, COPRAC determines that Attorney would not violate his duties of confidentiality and competence if Attorney configures his wireless system with appropriate security features. If not, Attorney may need to inform Client of the risks involved and receive informed consent, similar to the situation involving the public wireless connection. Conclusion Emerging technologies and resources may create some degree of ambiguity on how to apply the California Rules of Professional Conduct, especially where the rules don t refer expressly to new technologies. It is important to recognize that even though something is new in terms of technology, the rules are flexible enough to be applied in a variety of situations. As demonstrated in each of the three advisory opinions summarized above, as well as in examples beyond this article, if an attorney errs on the side of caution and chooses to apply sound risk management, the practitioner likely will avoid egregious professional responsibility violations. In contrast, an attorney who reviews the rules and dismisses them because they don t contain buzz words such as wifi or metadata is a practitioner who is on track to really foul things up. HOW TO RECEIVE MCLE SELF STUDY CREDIT After reading an MCLE credit article, complete the test online at: http://members.calbar.ca.gov/sections/lpmt To receive 1.00 hour of MCLE self study credit 8
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Alternative Fee Arrangements by Law Firms May 2, 2014 1. Fixed or Flat Fees: Charge a set dollar amount for a specific service. 2. Success Fees: The client pays a pre-arranged amount based on the performance of the law firm. If the law firm successfully reaches whatever outcome the client prefers, the client will pay the pre-arranged fee. 3. Budget Based Fees: The Client and the law firm work together to set a price for the work to be performed. 4. Retainer Arrangements: Client pays a fixed fee each month for a set amount of time (ex. 12 months) for the law firm to perform any legal work during that period of time. 5. Contingency Fees: Client pays firm based on results achieved. 6. Menu Pricing: For tasks and projects that are seen as routine, quotes can be given to the client. 7. Performance Bonus: Client pays a discounted rate with a promised increase in pay if the law firm is successful. 8. Blended Rates: All time with lawyers are billed equally, instead of there being varying prices for lawyers based on experience and subject matter expertise. 9. Volume Discounts: Rates are determined by the volume of legal work given by the client. 10. Capped Fees: The law firm and client agree upon a maximum amount that the client will pay. SOURCES: http://www.dupontlegalmodel.com/alternative-fees-for-litigation-improved-control-and-higher-value/ http://www.pepperlaw.com/about_alternative_fees.aspx http://www.kirkland.com/sitecontent.cfm?contentid=341 http://www.lexisnexis.com/pdf/intelligence/redwood%20analytics/pwc%20nyc%20final%200612.pdf There are four common factors: How a Firm Calculates a Billable Hour Size and prestige of the law firm Smaller and newer firms will charge less than bigger firms that have been around for quite some time. Those firms are also working on building client base and can and will charge less than firms that already have a client base. Level of Experience: Less Experienced lawyers will charge more than more experienced lawyers.
Location and jurisdiction where the Legal Work is being performed: Law firms in rural areas charge less because their clients aren t able to pay as much for services. http://blog.lawkick.com/how-much-lawyers-cost/
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White Paper Legal Project Management: Transforming Legal Services Susan Raridon Lambreth LawVision Group LLC slambreth@lawvisiongroup.com Founder, The Legal Project Management Institute LPMInstitute.net
Changing Market for Legal Services Places New Focus on Project Management In an increasingly competitive marketplace and with an economy in turmoil, most law firms recognize that they cannot continue to practice as they have in the past and expect to thrive in the future. Instead, like accounting firms and other service providers over the past few decades, they must transform themselves in order to thrive. While law firms have made evolutionary changes to their practice in the past, moving from democracy to centralized firm management and then to decentralized practice management, the rapid deployment by many firms of new approaches involved in project management and process improvement are more than evolutionary. Three main trends are driving the implementation of project management across the legal profession. First, let s define project management in a law firm context and then, review the trends driving it. Legal project management is the defining, planning, executing and evaluating of legal matters to meet the client s and firm s desired objectives and expectations (typically including budget). It is not about changing the entire way a matter is handled as legal process improvement is. It is fundamentally about a more proactive, disciplined approach to managing your existing work to enhance the likelihood of meeting client and firm expectations. A major theme throughout all the phases of legal project management (LPM) is greater communication with the client s key contacts and with the project team within the law firm. The first trend driving LPM is client demands and expectations. Beginning mainly in the fall of 2008, the demand for legal services dropped precipitously and clients realized that they were now in the driver s seat and had a buyer s market for legal services. Law firm approaches and processes (or in some cases the lack thereof) that clients had disliked became front and center of their efforts to bring about change in the law firm client relationship. Clients increased their requests for alternative fee arrangements or AFAs essentially non-hourly pricing arrangements. They began to expect law firms to stick to the budgets they had provided clients for matters. One managing partner of an AmLaw 50 firm where they studied all of their 2009 litigation matters said they found that over 50% of the matters were over budget and had writeoffs. Lawyers were simply not prepared for the almost overnight change from clients asking for budgets to check off the box for their boss and put away in a file somewhere to clients expecting that budget to be a cap on the fees, barring some extraordinary circumstances that justified higher fees that they should not have anticipated. Where in-house counsel had failed (at least in the eyes of their senior management) to keep outside counsel costs under control, the procurement departments or others in the finance area of the company became involved in the selection and management of outside counsel frequently making the cost of legal services a prime factor in hiring. While clients still expect to receive A+ level legal services, they do not want to pay for any inefficiencies and they often expect economies of scale savings from the firms to whom they give significant volumes of work, especially if the firm sold them on their extensive experience with similar matters, etc. And, where they do not feel their company needs an A+ job or the scorched earth approach to a particular legal matter, they expect the law firm to be able to provide the 80% solution to fit their budget even on highly sophisticated matters. Today, virtually every Request for Proposal (RFP) a law firm receives requests information about the law firm s approach to increasing efficiency for their matters through questions about project management or process improvement specifically or more general language about proving they are more efficient than Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 1
their competitors. This is compared to a year ago when less than 50% of the RFPs received by most large firms had these kinds of questions. The second major trend driving project management is increasing competition for legal work. With demand for the type of legal services provided by most medium and large law firms flat or declining, law firms have resorted to very aggressive price competition even for what has historically been considered high end work. For example, we have seen mid-sized law firms underbid for work by major NY-based firm or other international/us-based firms by 40 to 60% in the mid-sized firms home markets. These larger and very prestigious firms underbid local firms by 40% on product liability litigation, 60% on IP litigation and 60% on renewable energy projects, just to name a few. This has been a particular shock to many mid-sized firms who historically competed with larger firms by pitching they were just as good as, but less expensive due to lower costs in the locations where they had most of their lawyers. But, what this approach neglects to consider is that the larger firms have historically had greater volume of work in any given area. So, if Megafirm A does 20 of a particular matter type in a year and Midsized Firm B does 3, A has some economics of scale and could pass some of those savings/efficiencies on to their clients. Prior to the recession, they had no incentive to do so because there was plenty of demand for their high rate work. But, now, with demand much lower, they can selectively price work to win new business, even beating smaller firms on a price point. In addition, more large firms have embarked upon process improvement or project management approaches than mid-sized firms. As a result, some have actually been able to reduce their costs of doing certain types of work, not just through higher volume. Firms like Eversheds LLP on a global basis and Seyfarth Shaw LLP in the US, among others, have invested heavily in process improvement, project management or both to be able to both reduce their costs for certain kinds of work and enhance client relationships. As the profiles later in this white paper illustrate, a growing number of firms have embarked upon these initiatives as both a defensive measure to deal with the market trends and an offensive one to differentiate their firm from others in the competition for legal work. The third trend is the changing profit equation for law firms. From 2000 to 2007, law firms primarily increased their profits per partner (PPP) by increasing billing rates to clients. Every other factor that drives law firm profitability was trending negatively during that same time period (at least on average for law firms). Productivity (hours per lawyer) were trending down from the high in the late 1990s, realization rates were dropping (though not as much as they did from fall 2008 to present), overhead costs were going up at rates exceeding 10% a year in many firms and leverage was declining. Now, as every firm recognizes, billing rate increases are few and far between. While many firms have some opportunity to raise rates in selective practices, across the board rate increases of 5 to 10% as seen in the first part of the last decade are almost unheard of. Clients expect law firms to help them find ways to decrease the company s cost of doing business and therefore, their legal fees. And, while many lawyers get incensed over this, lamenting that clients should not expect them to provide the same level of services for lower costs than the year before, most clients of law firms are in industries where reducing product costs year after year is the norm. The clients typically have to keep improving their processes and approaches each year to be competitive. Finally, when clients know roughly the Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 2
compensation levels of partners in major law firms and they compare that to their organizations particularly the increases in PPP of the AmLaw 200 firms even during the recession, they are not particularly sympathetic to law firm statements that they cannot cut rates without cutting quality of legal services. They believe there are many excellent firms to choose from for most areas of work and if your firm won t cut costs or start to change the way it does its work to be able to do so, other fine firms will. Project Management A New Model for Law Firm Management The management of law firms evolves as they grow and as the market changes. This has been well documented for the past 50 years. The management approached that worked when the firm had 150 lawyers in one office most likely won t work with 750 lawyers in eight offices. Major law firms have recognized this as they evolved over the past 20 years from democracies where all partners were involved in most decisions to centralized firm management. Next, firms evolved, somewhere over the past two decades to practice group management (which for large firms includes departments, practice groups, industry and client teams). Now, client pressures as described above, client sophistication and competition combine to drive the next evolution from managing at the practice group level down to managing also at the matter or project level also. As a result, improved project management is fast becoming a key component for law firm profitability and growth in client relationships. Project management involves the following key areas: Development of a more thorough understanding of the project/matter at the outset, especially as it relates to understanding the client s situation and expectations. o To do this involves beginning each matter with an in-depth analysis of the key influencers affecting the matter (called stakeholders ) and what influence they have over a matter. This analysis then drives the law firm s understanding of the client s expectations, individuals who will affect the direction or approach to the matter, risk factors affecting the scope and direction of the matter, the types of communications that will be needed during the matter, the budget and more. Enhanced communication with the key influencers in the client organization and with the project team inside the law firm throughout the matter but especially at the beginning to define criteria for success, limitations on the matter, budget/cost expectations, etc. Development of a scope of work agreement at the outset of the matter which defines what is in and out of scope for the particular matter. The scope of work document, combined with an assessment of risks that can affect the law firm s ability to meet the client s objectives and the assumptions upon which the scope and budget are based on, enables a matter team to ensure they are on the same page with clients and to manage the matter and budget accordingly. Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 3
Development of a template for how the work will be done (called a Work Breakdown Structure in project management circles) so that a more accurate budget can be developed and then, the matter can be managed to that budget. Ongoing monitoring of the matter throughout, including budget to actual, key milestones for progress with the client s objectives, changes in scope, risk or influencers and more. Evaluating a matter at the end to identify lessons learned and how similar matters with the same or different clients can be improved in the future resulting in more efficiencies or better results for the client and, hopefully, more work for the law firm. While both process improvement and project management offer great opportunity for law firms to improve their business model and win more business, more firms are adopting project management approaches first because it requires less cultural change and they can decide to use any or all of the elements above. They do not have to convince the lawyers to undertake an entire overhaul of a type of legal work through process improvement in order to gain significant benefits. However, we expect over the next few years, all firms will be using PI and PM approaches in at least some of their practices. Successful Implementation of Project Management in the Legal Profession Firms that have implemented project management have seen many of the following: Benefits to Firm/Team Benefits to Client Improved profitability of matters Greater predictability Greater client satisfaction Improved communication / no surprises? Increased revenues from clients A more managed approach to legal work Enhanced risk management On budget / on time Greater differentiation from competitors Greater efficiencies Greater consistency across offices Enhanced quality of the work / greater consistency Enhanced morale and teamwork among project team members Many firms are implementing LPM because of the significant benefits in improved profitability of matters and/or the opportunity to use it to differentiate their firm from the competition and win work. However, one of the other important benefits is the increased teamwork within the firm and the resulting improvement in morale and commitment to the firm and in lawyer training and development. In the business world, even the employees of very large companies demonstrate a Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 4
high degree of employee loyalty and sense of belonging. Large companies typically create this loyalty by organizing and managing with small groups and teams. Our research shows that many law firms have lost much of the sense of personal ownership that they once had, even among those who still are technically owners, or partners. Having well-functioning matter teams with strong leadership is critical to law firms maintaining this sense of ownership and belonging -- and among the best ways to counter the terrific pressure for lawyer mobility in the profession today. Profiles in Successful Project Management At the Practising Law Institute program, Project Management for Lawyers each of the past three years, there have been 300 to 400 attendees live or by webcast. The audience was polled about their implementation of project management initiatives. In 2011, twenty-eight percent of firms had implemented LPM initiatives from 12 months to over 2 years ago. Forty-seven percent were studying what type of LPM approaches they wanted to implement. While these are not scientific studies, the stories told by the faculty indicate many firms believe their programs have been successful, particularly those who have been implementing for two years or more. Some of the firms that have been implementing LPM, ranging from specific practice groups to firm-wide initiatives, include: Akin Gump Strauss Hauer & Feld LLP Allens (leading Australia firm) Alston & Bird LLP Arent Fox LLP Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Baker & McKenzie Bilzen Sumberg Baena Price & Axelrod LLP Borden Ladner Gervais LLP Crowell & Moring LLP Dechert LLP Dickstein Shapiro LLP Epstein Becker & Epstein, P.C. Fenwick & West LLP Fish & Richardson P.C. Foley & Lardner LLP Fredrikson & Byron, P.A. Goodwin Procter LLP Gowlings Lafleur Henderson LLP Harris Beach PLLC Honigman Miller Schwartz and Cohn LLP Jenner & Block King & Wood Mallesons Littler Mendelson P.C. Loeb & Loeb LLP Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 5
Mayer Brown LLP McCarthy Tétrault LLP McDermott Will & Emery McKenna Long & Aldridge LLP McMillan LLP Michael Best & Friedrich LLP Miles & Stockbridge P.C. Nelson Mullins Riley & Scarborough, LLP Norton Rose Fulbright Ogletree, Deakins, Nash, Smoak & Stewart, P.C. Orrick, Herrington & Sutcliffe LLP Osler, Hoskin & Harcourt LLP Perkins Coie LLP Proskauer Rose LLP Quarles & Brady LLP Reed Smith LLP Seyfarth Shaw LLP Skadden, Arps, Slate, Meagher & Flom LLP Sidley Austin LLP Squire Sanders Stinson Morrison Hecker LLP Stoll Keenon Ogden PLLC Sutherland Asbill & Brennan LLP Thompson Hine LLP Waller Lansden Dortch & Davis, LLP Wiley Rein LLP Winston & Strawn LLP Law departments implementing LPM or related initiatives include DuPont, John Deere, Georgia Pacific, Nationwide Insurance, United Retirement Plan Consultants, Wolverine, and most of the major financial institutions and technology companies, just to name a few. As mentioned above, approximately half of the attendees at the annual PLI program, Project Management for Lawyers, are from corporations rather than law firms. Conclusion These are just a few of the many firms that are implementing LPM initiatives and are experiencing many benefits from their efforts. As the momentum for LPM continues to grow and many aspects of LPM become the standard of care for handling legal matters, we will likely see most law firms implement LPM approaches in at least some of their practices or matter teams. Please feel free to contact us to share your successes in LPM or to ask any questions you might have after reading this White Paper. Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 6
About the Author Susan Raridon Lambreth has her J.D. and M.B.A. and is a principal with LawVision Group LLC where she focuses on the issues involving practice and project management, leadership training and development, practice group structure and responsibilities, associate management, retention, morale and productivity. Over the past 20 years, she has trained over 5,000 lawyers in practice management positions. In addition, over the past the five years, she has also trained 3,000 professionals in law firms in legal project management skills. Susan can be contacted at slambreth@lawvisiongroup.com or (615) 377-3128. Susan Lambreth, LawVision Group and The Legal Project Management Institute, 2014 7
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financial management SEPT 12 DIGITAL WHITE PAPER turning a new corner Value-Based Legal Services (Not Just Estimating Hours at Standard Rates) by Mike Burks and David A. Rueff, Jr. of Baker Donelson Attorneys are groomed to equate the value of legal services with the number of hours it takes to do the work. Productivity in a law firm has also been historically based upon the number of hours an attorney can bill in a year. This culture places the working attorney in a state of conflict since law firm expectations are to bill more hours and client expectations are to pay what is reasonable and customary. This can lead to uncomfortable conversations at the closure of a matter to address discounts or write-offs. Inside the firm, attorneys who meet their hourly goals satisfy the firm s expectations, sometimes in conflict with the level of client satisfaction. Enter the Association of Corporate Counsel (ACC) Value Challenge, an effort to encourage outside counsel to increase the value and reduce the cost of legal services. The challenge is no small task for law firms who continue to live under the billable hour. Many firms are re-evaluating the focus on the billable hour and are now realizing that there are numerous tools to help them meet the ACC challenge. These include streamlining legal processes, improving communications, prioritizing efficiency by advocating a legal project management (LPM) approach and creating value-based fee structures that are not tied to hours at a billable rate, but are more closely aligned with client and market expectations. Alternative or Value-Based Fee Arrangements Alternative fee arrangements (AFAs) may sound like another term for discounts or reduced fees, but it really means an alternative to the typical pricing and delivery of legal services. Clients want more predictability in their legal spending. By developing an alternative fee structure that more closely aligns with the interests and goals of the client, the law firm must deliver its legal services in the most cost-efficient manner possible. This may mean using contract attorneys where appropriate. It may also mean that research is outsourced to third-party providers. For firms implementing AFAs, there has been a fundamental shift in strategy. Rather than focusing on how many hours a legal
Value-Based Legal Services (Not Just Estimating Hours at Standard Rates) service will take, firms must focus on what value is to be delivered to the client. The approach must include the development of a plan with the client, which gives the firm an opportunity to tailor the engagement to meet client needs. For example, clients must identify their strategy win at all cost or settle quickly. They must define successes and goals. There is no silver bullet in pricing, as needs and wants and risk tolerances for one client may differ from that of another. Communication, client knowledge and legal expertise are the key components in crafting a successful AFA. Many clients demand AFAs, so Baker Donelson has developed a robust package of pricing and tracking tools to make it easy for attorneys to develop AFA pricing and to track the actual progress in any case. The firm established an AFA team of attorneys and certified public accountants and purchased a software application, Budget Manager, to price matters and track performance. The AFA team works with the attorneys to develop a pricing model and requires the use of the legal project management (LPM) system, BakerManage, to help accurately plan the work to be performed. Baker Donelson currently offers 15 pricing alternatives to the billable hour. The process, depending on complexity, can be done with same-day turnaround, but typically requires several days to adequately evaluate a transaction or a proposal for a completely new line of business. The evaluation process implements an LPM assessment by developing a plan with the client to identify the scope of the project, building the task list required to efficiently meet the needs and objectives of the client, identifying how it will be staffed and setting a fee that also meets the financial objectives of the firm. Matters Best Suited for an AFA There is a broad range of value-based billing alternatives, and one size does not fit all. Factors that will impact the type of AFA applied are the type of case, the client s strategy, the firm s strategy, the timing of the case, the volume of work and the projected strategy of the adversary. Repetitive Work: Recurring or repetitive matters that allow for the collection of historical performance data are best suited for fixed-fee pricing. These types of matters include labor and employment litigation, intellectual property, product liability or healthcare litigation, mass real estate loan closings, or a portfolio of similar loan foreclosures or asset recovery matters. These matters have similar legal issues and procedural challenges; therefore, assumptions and risks are more predictable and support the creation of a more reliable fee estimate. Phased Budgeting: If the entire matter cannot be predicted with a level of certainty, the matter may be estimated by phases. This approach permits the firm and the client to enter into an AFA for preliminary phases of the case, with an agreement to reevaluate later phases when more facts and information regarding the opposing party s strategy are available. Matters that fit into this category are litigation, mergers and acquisitions, and commercial transactions. Clients benefit from this approach because they do not bear the risk of a windfall to the firm if the matter settles early before completion of all the phases. Conversely, the firm benefits because it is not at risk for a fixed fee prior to gathering valuable information during discovery and motion practice. Billable Hour with Fee Caps: With matters that are more difficult to predict, the client may be more comfortable with a billable hour arrangement, but the client may still want to cap its legal spending. In this situation, capped pricing is used and the client and the law firm agree that the fee will not exceed a certain dollar amount. Bonuses can also be factored into this approach. If the matter settles before the fee cap is reached, the client only pays for the time it took to settle. This approach involves a true partnership between the client and the law firm because the law firm accepts the risk that the matter will not settle before reaching the fee cap. Volume or Tiered Discounts: If the law firm and client do not have an existing relationship, and they anticipate a significant volume of work, volume discounts or tiered volume discounts may be appropriate. Once the volume exceeds X dollars, the client receives a discount off standard rates for amounts over X or, in a tiered volume arrangement, the discount would apply to the entire amount retroactively. Volume discounts allow the client to be billed at reduced hourly rates in return for the client guaranteeing a certain volume of legal work. In addition to the above arrangements, Baker Donelson also offers the following AFAs: Collar Up: A collar up implies that there is an amount set as the budget. If the firm goes over the limit, it cannot charge for any additional work until it reaches a certain amount over the limit (the collar amount). At that point, the law firm is allowed to charge a certain percentage of the amount over that limit. Example: The budget limit is $1,000,000. The collar is $100,000 and the percent is 60. The amount from $1,000,000 to 1,100,000 cannot be billed. If the firm s fees reach $1,200,000, then they can bill the client 60 percent (40 percent discount) of the $100,000 that is over $1,100,000 (or $60,000). Collar Down: A collar down is the same as a collar up, except it also rewards the firm for being under the limit. Example: If the firm only bills $800,000, it would get a bonus of $60,000 or 60 percent of the difference between $800,000 and $900,000. Blended Rates: A rate is established that will be charged for all timekeepers or a rate for each class of timekeeper associate, shareholder, paralegal, etc. Using LPM To Evaluate the Work Although value-based fee structures, such as fixed fees, have been around for years, they have been fraught with difficulties. Firms did not have the tools to estimate the work accurately or to manage a budget efficiently. The end result has been write-offs that strained the
Value-Based Legal Services (Not Just Estimating Hours at Standard Rates) Volume discounts allow the client to be billed at reduced hourly rates in return for the client guaranteeing a certain volume of legal work. firm-client relationship or requests to the client for additional fees prior to the completion of the engagement. Neither of these approaches achieved one of the primary goals of an AFA: predictability. The key to identifying a predictable fee is confirming the reasonable expectations of the firm and the client. Reasonable is the common denominator. Clients normally base their expectation of legal costs upon prior experiences with other attorneys. This is rarely accurate, because it fails to identify the unique aspects of the case at hand or the adversary. Likewise, attorneys who lack the tools and skills to estimate a budget accurately typically rely upon the last two or three engagements they have conducted to derive an estimate. LPM provides a methodology to estimate fee arrangements and ensure that the legal team operates within the constraints of the arrangement to achieve predictability. Since there is no standard for LPM, Baker Donelson developed its own unique approach: BakerManage. BakerManage is tied to traditional project management principles and includes five easy planning steps which can be implemented to estimate the fee accurately. Step 1 - Identify the Scope of Services. The project plan for a legal engagement is typically codified in an engagement letter which outlines the scope in one sentence and identifies the timekeepers who will work on the engagement and their rates. In no other industry does such poor planning authorize a professional to expend thousands of dollars on behalf of a client. Rather, the scope of services should be the framework for tailoring the engagement for the client and should include the client s business need and the goals and expectations of the client with regard to timing and cost. The scope of services should also identify what should be excluded from the engagement or what is out of scope. Identifying what is out of scope requires the attorney to demystify all tasks necessary to perform the engagement so that the client can determine what tasks or services can be performed in-house or outsourced at a lower cost. Step 2 - Identify Stakeholders. Most engagement letters are the result of a conversation with one representative of the client who is typically in the legal department. Rarely is the business unit given the opportunity to outline their expectations with regard to the management of the engagement. This can leave a huge gap in the plan. A good LPM regimen encourages the evaluation of scope with all stakeholders who have an interest in the successful outcome of the engagement. Step 3 - Develop Tasks. Task list (or process map) development must be tailored for the specific engagement and can be designed using templates developed by practice groups within the firm. If this resource is not available, attorneys can evaluate historical matters to derive a reliable list of tasks. This is a much simpler process if historical matters utilized phase and task coding rather than block billing. This stage also requires attorneys and the client to identify assumptions which can result in omitted tasks for factual, procedural or strategic assumptions. Clearly communicating these assumptions is a critical element to deriving a reliable valuebased fee. Risks should also be identified at this stage. This is the point at which an engagement moves from being simply a best guess of the hours necessary to complete the engagement to a fee arrangement that provides the client with predictability. The firm and the client must decide who will bear the risks of changes in the engagement. A firm with good historical information regarding past risks and costs related to those risks will be better positioned to provide the client with a fee estimate that mitigates or covers as many risks as possible. Step 4 - Identify Resources. A reliable estimate can only be derived if the appropriate resources are assigned to the appropriate tasks. Partners should not perform tasks that can be performed by an associate, and associates should not be assigned tasks that are more appropriately performed by a paralegal. This step in the process not only helps identify a reasonable estimate, but also forms the baseline for what tasks timekeepers or staff will perform once the matter is executed. Step 5 - Develop a Budget. Most budgets are based upon the tasks, the number of hours to complete the tasks and the rate of the resources performing the tasks. This is only an estimate and should be compared against historical matters to confirm the estimate is reasonable. The tasks to be performed should also be shared with the client to provide them with a clear understanding of the
Value-Based Legal Services (Not Just Estimating Hours at Standard Rates) nature of the work. Once completed, the budget is now a clear road map for the legal team to follow. Legal team members who historically billed time without constraints now have guidelines for a reasonable amount of time necessary to complete their tasks. However, law firms should not stop there. A value-based fee requires some assumption of risk. This responsibility is solely on the shoulders of the firm. The client must rely upon the firm s expertise to identify potential risks in like engagements. The firm must first clearly identify and communicate potential risks to the client and then confirm which risks will be assumed in the value-based fee. Firms can only achieve this step if they have good historical information upon which to base the fee. There will be some wins and some losses in this approach, but each matter will add to the firm s organizational assets and enable the firm to improve the fee arrangement on subsequent matters. financial management turning a new corner Monitoring Performance Against the Value-Based Fee Clients may want to monitor performance against the budget to evaluate the reasonableness of the fee estimate. An LPM system should include tools to monitor schedules, key milestones, resource allocation and performance against the fee estimate or budget. The collection of this information also enables an LPM system to provide clients, managing attorneys and team members with alerts and automated reports on performance. This is a vast improvement over the standard billing system, which only provides clients with performance metrics on a 30-day window. illustration by thomas boucher, all rights reserved SEPT 12 DIGITAL WHITE PAPER This article was first published in ILTA s September 2012 white paper titled Financial Management: Turning A New Corner and is reprinted here with permission. For more information about ILTA, visit their website at www.iltanet.org. An Increase in AFA Volume Baker Donelson has definitely seen a steady increase in the volume of AFA evaluations since the program began in December 2010. Initially, the evaluation process was more reactive, working only with those attorneys who were aggressively seeking out AFAs. However, as the repository of task lists, budgets and experience has grown, the AFA team has become more proactive with all attorneys within the firm. AFA implementation includes large corporate clients as well as one-off cases for small companies and individuals where they are seeking to cap exposure and legal spending. We envision AFAs will continue to increase and become an even more integral part of the firm s business in the future. Mike Burks is the Pricing Manager in the finance department of Baker Donelson. He is a certified accountant with over 11 years of experience in law firm management and administration. Mike is responsible for the evaluation and implementation of value-based billing arrangements for the firm and provides practice group financial management to improve financial performance for eight of the firm s practice groups. He can be contacted at mburks@bakerdonelson.com. David A. Rueff, Jr. is a shareholder with Baker Donelson and is the firm s Legal Project Management Officer. He is a practicing attorney with over 20 years of experience implementing project management systems. David is responsible for the design and implementation of the firm s patent pending legal project management system, BakerManage. He can be contacted at drueff@bakerdonelson.com.