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Birmingham Bar Association Bulletin - Winter 2013

Asked what actions they had taken in the past 12 months to control costs, CLOs responded: 71% have negotiated price reductions from outside counsel. 47% shifted work from outside providers to inhouse staff. 36% reduced the volume of work sent to outside counsel. As for internal strategies to trim the bottom line: 63% improved efficiency of their own procedures. 36% shifted inhouse work from attorneys to paralegals. 2% of law departments outsourced work to non-law firm vendors. While such statistics typically reflect the attitudes and actions of large firms, smaller businesses are also working for lower professional fees. The Search For Alternatives The holy grail of legal billing – the standard hourly rate – is no longer standard. Clients are not only seeking lower rates, but are also demanding higher levels of efficiency. They want an up-front idea of the ultimate tab for a given legal matter, and more overall transparency in the billing process. If they don’t like what they’re hearing, businesses with a large volume of work can always shop a less costly replacement. In the typical scenario, a client will request a discount from its current legal services provider. This produces a predictable result for budgetminders. Lawyers, on the other hand, feel forced to comply for fear that the client will walk. One of the most talked-about responses to fee pressure is the Alternative Fee Arrangement (AFA). Altman Weil describes an AFA as a structure “that is not based on hours multiplied by rates.” While AFAs can include a flat fee with a cap or fixed fee, they are not discounts on hourly rates, blended rates or progressive discounts. How are lawyers responding to requests for these and other alternatives to traditional billing? According to American Client Fees Lawyer, 92 percent of firms using AFAs had used flat fees, 83 percent used incentive or “success” fees and 82 percent used caps and collars. (A collar is based on an estimated budget for a particular matter.  If the project comes in under budget the firm is paid a bonus; if the budget is exceeded the client receives a discount.) While these options represent a lifeline to firms whose clients might defect without an alternative to the hourly rate, they are not a panacea. I urge caution especially about agreeing to a fixed fee. In my mind this is the least attractive way to go. The firm relinquishes any control over opposing counsel or their client, whose actions and reactions can blow the budget for a given matter. Arrangements that provide the client with a range and include some type of incentive are much less risky. Part two of this article (to be published in the March 1, 2014 issue of the Bulletin) will address strategies for handling fee discussions and requests for discounts from clients and prospects. I also offer tips for maximizing profitability by improving your billing and collections process. G CPA Mike Baker is Managing Partner of Dent, Baker & Company. He joined the firm in 1989. A Certified Financial Planner, Mike is a member of AICPA and the Alabama Society of Certified Public Accountants. Reach him at Mbaker@ dentbaker.com. Birmingham Bar Bulletin/ Winter 2013 35


Birmingham Bar Association Bulletin - Winter 2013
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