Innovative Lawyer Patrick Lamb Discusses The Inevitable Movement Towards Alternative Fees
2010.02.22
Patrick Lamb is a well known Chicago lawyer, who has put his money where his mouth is when it comes to new business models for law firms. Patrick's firm, Valorem Law Group, offers options for clients in the areas of alternative ("value") billing and technology.
Read or listen to the interview below. My Favorite Quotes:
- ... the thing about alternative fees is that they’re shifting the financial risk to the firm, and so firms should be looking for ways to do things even more efficiently than they did before when they were doing things under an hourly basis.
- from client’s standpoint, one of the huge advantages is the predictability of costs. If you quote an alternative fee, we’ll do x amount of work for $10,000 or we’ll handle this case for $10,000, the client knows that that’s what it’s going to cost.
- There’s a lot overhead that that firm’s clients are paying for ... if you are working virtually or using technology in a cloud ... you can cut out a huge amount of that expense, and those savings can then passed along to the client.
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Damien Allen: Good afternoon, and welcome to GAL Radio. My name is Damien Allen, and today we’re discussing alternative fee arrangements with Patrick Lamb. Patrick is a partner with the Valorem Law Group, a Chicago litigation firm. He joins us now via the telephone. Good morning and welcome to the program, Patrick.
Patrick Lamb: Good morning, thanks for having me.
Damien Allen: It’s a pleasure to have you today. You recently did a blog entitled, The Transition to Alternative Fees: A Wolf in Sheep's Clothing Is Still A Wolf. This is really the heart of what we are discussing today. Why are alternative fee arrangements causing such a stir? There’s a lot of opinions pro and con, but what’s driving the debate?
Patrick Lamb: What triggered that specific blog entry and one of things that’s causing a stir is that lots of firms, and in particular large law firms, are scrambling so much for any kind of revenue that they’re willing to take alternative fees or quote alternative fees without real regard to what they’re trying to accomplish. And so, a lot of them will start from the premise that if we did this on an hourly basis, we would expect to earn this much money, and so they simply recast the fee proposal as that much money but as an alternative fee. And so, you’re not or the client, in particular, is not obtaining any of the savings – the efficiencies – that you would hope would develop under a reasonable alternative fee arrangement.
Damien Allen: If a common practice if I’m, you’re filing for whatever you’re filing for, if I’ve done enough of those I should know how many billable hours I have in that, correct?
Patrick Lamb: That’s certainly one thing. If you have the right data, you should know what the cost was, but the thing about alternative fees is that they’re shifting the financial risk to the firm, and so firms should be looking for ways to do things even more efficiently than they did before when they were doing things under an hourly basis. So, I always tell clients that if you have data that show what you paid on an hourly basis, that of course has all of the firm’s profit built into it. And so, rather than simply guarantee the profit of the firm by using that same number, lower the number so that the firm has to find creative ways to become more efficient at delivering the service. That’s what happens in the business world. People demand lower prices, and companies who are suppliers have to respond by figuring out how to deliver their product more efficiently so that they can still generate a profit for their company.
Damien Allen: Other than profit margins, are there any other reasons for moving to or implementing alternative fee arrangements for your legal services?
Patrick Lamb: Well, from client’s standpoint, one of the huge advantages is the predictability of costs. If you quote an alternative fee, we’ll do x amount of work for $10,000 or we’ll handle this case for $10,000, the client knows that that’s what it’s going to cost. There’s no surprise, there’s no bill that comes in the last month of the case that takes it up to $20,000, for example. And so, they can plan, they can budget, and they can move forward, or they can say you know what that’s too much I don’t want…I can’t afford to spend that much money on this problem. I can afford to spend $7,000, what work can we do for $7,000, and you can start looking on what work is taking out of the equation, and you come up with a scope of work for an agreed upon price. So, it starts getting into a level of risk, a level of comfort, a level of investment, and those are things that are, again, pretty standard business concepts, but lawyers aren’t used to dealing with them, but they do allow a lot greater control by the client over the legal spend.
Damien Allen: Is technology helping drive the implementation of alternative fee agreements? And if it is, how so?
Patrick Lamb: I think it is for this reason, and there’s probably a lot more, but this is what I see. First of all, you have the easy thing, which is, technology allows you to retrieve data on your prior cost, and so you start off with a slate that has data on it rather than a clean slate in every new case. The second thing is that you, from a firm’s standpoint, have easy access to all of your prior work product, meaning you should frequently be able to avoid reinventing the wheel. If you’re not reinventing the wheel, you’ve done work before, and you can pull it in and tinker with it, the time it takes to do that is much less than if you were starting from scratch, and that of course means that you can be more efficient. So, if you can quote a lower price and then lower your cost by using work product that you’ve used in another matter, you’ve effectively lowered the client’s cost and maintained your profit margin. And then the last thing is, is that it allows people to work virtually. You can have a partner who’s in California or an associate who’s in Kansas or in Michigan or in Ohio or wherever because they are able to do the work you want in a way that you like having it done, and they are able to do it cheaply, and you don’t have to pay for the bricks and mortar. I’m in downtown Chicago right now, and I can look out and see a brand new building that was principally paid for and is principally occupied by one of the 20 largest law firms in the country, and I’ve been inside it, and it is a very expensive building. There’s a lot overhead that that firm’s clients are paying for and will be paying for for the foreseeable future. Obviously, if you are working virtually or using technology in a cloud, for example, or whatever, you can cut out a huge amount of that expense, and those savings can then passed along to the client.
Damien Allen: What are some of the other changes a law firm or a solo attorney must address when they’re implementing an alternative fee agreement into their billing models?
Patrick Lamb: Well, I always tell people if your compensation system for associates depends on the number of hours they bill, bill 2,000 hours they get a $50,000 bonus, you’ve pretty much guaranteed that the associate is going to find a way to work that number of hours, or if you tell people if you don’t hit your targets, you’re at risk of being fired, then people are going to work those kinds of hours. So the first thing you see, you really have to go through a cultural transformation. People are used to looking at work and saying I want to spend this many hours on it, and they don’t ask the question, do I really need to do this at all? Is it going to affect the outcome? And if it’s not going to affect the outcome, then why am I doing it? Those are the kinds of questions you have to start asking yourself every single day on every single thing that you’re working on, and people aren’t used to doing those things. The other thing is most of us grew up in a system where you advanced if you generated perfect work, it wasn’t just high quality, it had to be perfect. No typos, no grammatical errors, you had to have every relevant case cited, even if it was the fifth or sixth or twentieth case on a particular point. Briefs had to be long because long briefs were obviously good briefs. All of those things are different now. You have to start off by saying on this issue, is it a major issue. If it’s a major issue you may want that kind of brief that I was just talking about, but if it’s something minor, you don’t need that. Maybe you can handle it by a phone call or maybe you can have an email exchange to accomplish what you normally would have filed a motion to do before. I tell this story when I’m speaking on this about one of the early things that happened in my legal career was I was asked to do a motion for an extension of time, and I worked on this motion, and I used a form that somebody else in the firm had used, so I thought I was doing exactly the right thing, and it turned out to be two pages. I gave it to the partner and she said, Oh!, this is completely inadequate. And after many, many revisions, we ended up filing a 15 page motion for an extension of time. It had cases in it. I mean, it was probably the best motion for extension of time ever prepared in the history of law. And we went to court, and I got to go and watch because I had worked on it. And I was sitting there, and he walked up, and when they presented the issue to the judge the judge had clearly not seen the motion, he clearly was not going to read it while he was sitting there on the bench, he says, well, tell me why you need an extension of time. And the plaintiff’s lawyer said, judge, let me cut this short, I have no objection. If they would have called me, we could have presented an agreed order. And the judge had granted and we were done. So, we’re walking out of court, and I said, well that seems to be incredible waste, and the partner turned to me and said well, we’ll get paid for it. And the point was, there was no reason ever to have that kind of motion, and certainly nowadays, you look to, you know, picking up the phone, calling and saying can we do this on this schedule or can accommodate things this way. More often than not, you are able to do that. So, if it’s a motion for summary judgment, that’s one thing. If it’s a motion for extension of time or a motion to compel, I think you have to approach the amount of work you’re going to put into it somewhat differently. That’s a new development and a new way of thinking that most lawyers, through the training that the law has provided over time, are not used to thinking about. So, you have to change your daily thought process, very hard to do.
Damien Allen: So, it comes down to a point where time may be money, but money might not necessarily be time.
Patrick Lamb: Exactly.
Damien Allen: In your opinion, is the trend showing alternative fee agreements to be on the increase, and is this something that’s going to be the norm across the board in the field of law?
Patrick Lamb: Well, currently the data from in-house counsel tend to suggest that it’s on the rise, and whether it becomes the new norm, I think, is probably up in the air. I think for a lot of companies who are having positive experiences, it will be their new norm. But I think when you get below the level of companies that have in house lawyers and you start talking about start-up companies or dealing directly with entrepreneurs, those people never really had the leverage that they do now, and I think those people love the idea of an alternative fee because they have to control every expense. They have to budget for expense, and every expense has the potential, means really money coming out of the owner’s pocket, and so they want to know how much am I going to make or how much out of my pocket am I going to have to go on this particular problem, and that’s clearly an investment decision for them. And the thing that an alternative fee, at least where you fix a fee or you tie it to an outcome, it allows them to make a bad investment decision in an intelligent way. And I think as they hear about this becoming more common, they’re going to insist on it.
Damien Allen: Thank you very much for joining us today, Patrick, and discussing alternative fees.
Patrick Lamb: It was my pleasure being with you.
Damien Allen: You can check out Patrick’s blog The Transition to Alternative Fees: A Wolf in Sheep's Clothing Is Still A Wolf at www.partickjlamb.com, his blog In Search Of Perfect Client Service is available for everyone to read. You’ve been listening to GAL Radio. My name is Damien Allen. Everybody have great afternoon.
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