What data is needed for an alternative fee structure?
We recently wrote about alternative fee structures for large law firms and their clients. A post from the WSJ law blog on Kirkland & Ellis’s foray into the field recognizes a point we’ve made before: some companies (and indeed, most law firms) don’t have good information about their usage of legal services.
Without solid data-driven analysis, both parties are stuck with the status quo: law firms are reluctant to take on the risk inherent in any other arrangement, when their superior knowledge of the process, their internal performance on prior related matters, and their ability to analyze information across all clients should allow them to take on that risk and, of course, be paid for bearing it. Companies are reluctant to accept the possibility of occasionally overpaying for services (we’re assuming, in general, that the alternative arrangement is a fixed fee, based on a stage-by-stage negotiation between the client and the law firm), but it will be unable to know whether the suite of services it purchased in times past will be sustainable under a new payment scheme.
We’ve offered a variety of analytical services to law firms and clients of such firms. There are plenty of internal hurdles, since good law firm-side analysis almost demands a profitability (FCF, actually) analysis of practice groups and senior lawyers. On the client side, firms with some bargaining power generally expect that they will be able to cram down the lawyers if necessary, and GCs with relatively pedestrian legal needs can shift retention of that talent to the company’s internal purchasing department, where the low cost provider will be more likely to be successful.
… sophisticated [parties] are reluctant to negotiate the nontraditional payment plans because they don’t have the historical data they need….
If this description fits your firm or your company, contact us to arrange a discussion; we can help you figure out how to structure an alternative fee arrangement that improves net FCF more than any other option.