YourABA March 2013 Masthead
 

Corporate counsel discuss value-based billing at ABA meeting

“There are 100 rooms in a value-billing house,” Jeffrey Carr said during a session at the 2013 Midyear Meeting in Dallas. ”What’s important is that you come into the house, not which room you use.”

Carr, senior vice president, general counsel and secretary at FMC Technologies, and John Torres, executive vice president, chief legal officer and corporate secretary of Lennox International Inc., provided an in-house counsel perspective on alternative fee agreements during a panel sponsored by the Tort, Trial and Insurance Practice Section’s Corporate Counsel Committee titled “Value-Based Billing from the Client’s Perspective: A Panel Discussion of Viewpoints from Corporate Counsel.

“There are 100 rooms in a value-billing house,” said Jeffrey Carr. ”What’s important is that you come into the house, not which room you use.”

Neither Carr nor Torres likes the traditional term “alternative fee arrangement.” As Carr said, “In my world, it’s not ‘alternative.’” Torres said he likes to refer to value billing as “nonhourly billing.” Among the vast array of possibilities are contingency, retainer, flat or fixed rates, success fees and a blended-fee structure — all of which revolve around the premise of “the budget [being what] matters,” Carr said.

What in-house counsel want is trust, Torres said, emphasizing the tedium of reviewing every bill. Sometimes, he said, he feels like outside counsel is “treating me like opposing counsel.”

Corporate legal divisions do like predictability of legal expenses offered by nonhourly billing — even more so, controllers like predictability — but what really matters is value, Carr explained.  He said he wants law firms seeking his business to tell him “how they’re going to help me with my business objectives.”

Many outside firms are resistant to nonhourly arrangements, at least initially, said the two in-house counsel. But “I am the customer,” Carr pointed out. He also spoke about using a “reverse auction” where suppliers — outside firms — bid to provide the services wanted by the corporation.

The time has long since come and gone where firms seeking corporate business can get away with saying “we’re open to alternative billing,” Torres added. “Don’t use that tired line.” Rather, Torres said, I want firms to “propose something.” Carr said that FMC touts good work by its outside firms and looks for “creative alternative strategies.”

For the law firms that balk at using nonhourly billing, citing risks and uncertainty as barriers to being able to consent to a nonbillable hour arrangement, Carr emphasized that a firm’s experience and expertise can mitigate concerns. Carr said that “if you’ve done hundreds of these” before, you — meaning the firm — should, in most instances, be able to see the possible scenarios and expect the “uncertainties.”

But that doesn’t mean there isn’t room for discussion if something truly unexpected occurs. However, Carr explained that one firm tried to argue that the risk profile changed because the case was to go to Cook County court shortly. Carr’s response was, “Did we move?” referring to the location of the case as a long-term given that did not warrant reconsideration.

Meaningful feedback is also a surprise advantage to value billing for some firms seeking corporate work, Carr and Torres said. Carr explained that some of his arrangements pay 80 percent of the agreed-upon price to a firm initially, and then his department issues a report card on how the firm fared in meeting the company’s service criteria. Depending on how the firm fared, the outside counsel ends up receiving 80 – 120 percent of the invoice.

Marcy Hogan Greer, partner at Fulbright & Jaworski LLP, added that in-house counsel can provide this type of feedback to firms. Greer is working on a book about alternative fee arrangements from the client’s perspective. She spoke about the importance of discussions between in-house and outside counsel — talks that cover scope, objectives and assumptions relative to a case or representation.

Carr and Torres noted that the way their companies do business with outside firms is transparent. Carr outlined FMC’s three-step method of interviewing firms for work — beginning with a two-page questionnaire with a series of issues ranging from willingness to use the Covenant with Counsel, to accepting customer feedback on performance; narrowing down to a one-page Excel spreadsheet, forcing the firm to rank itself on litigation matters and provide information on summary metrics; and ending with a tweet on why the firm wants to be a preferred provider to FMC. Lennox’s outside counsel guidelines covers communication, protecting confidential information, compensation, fees and conflicts of interest. Information on both of the companies’ materials was distributed in conjunction with the program.

Selim Fiagome of Hartline Dacus Barger Dreyer LLP moderated the panel.

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