Twenty-nine percent of in-house counsel reported an increase in their use of alternative fee arrangements in 2010 according to a survey by the Association of Corporate Counsel (ACC) and The American Lawyer. Although still a small percentage of total outside counsel spend, the increase in the number of "value-based" fees demonstrates legal departments' determination to continue to increase the use of alternative pricing and valuation methods, regardless of the market rebound.
Fifty-three percent of general counsels (GCs) surveyed said that they had used flat fee billing for an entire matter, up from 48 percent in 2009. Large company GCs (working in companies with more than $1 billion revenue) are generally more likely to expect alternative arrangements, with 62 percent using flat fees for an entire matter in 2010, up from 60 percent in 2009. Only 13 percent of large company GCs did not utilize any kind of alternative fee arrangement this year. GC respondents say that their value-based or alternative fee arrangements are initiated primarily by the law department (51 percent), not by law firms.
"To some, the results from 2010 won't show the significant increases in value-based fee arrangements from 2009 that many expected; however, I was most heartened by confirmation that value-based billing options are becoming institutionalized, and will likely increase steadily year over year," explained Susan Hackett, ACC's senior vice president and general counsel. "We were interested to see if in-house counsel would continue to experiment with - or continue to deploy - new fee structures once the markets began to rebound and budgets were not under the same level of stress in 2010. The fact that billing practices did not revert back to the 'way we used to do it' demonstrates that in-house counsel are not retreating, but instead continuing the march to drive costs and value away from measuring the value of hours alone."
Alternative staffing arrangements by general counsel have changed significantly with large companies, as opposed to smaller companies - which reported more comparable numbers to last year's survey. This year, only 50 percent of large companies reported using some type of alternative staffing including secondments, shared staffing, outsourcing or contract lawyers, down from 64 percent in 2009. Thirty-three percent of the total group surveyed had used alternative staffing - a similar number to last year.
"While more research is needed to find out why there is a decline in the number of larger companies outsourcing their work, past experience suggests that many are requiring such arrangements to be made through their firms, and do not directly retain 'alternative' talent as often on their own. These practices are now not only more acceptable, but more firmly ingrained as an offering at major firms," said Hackett.
The ACC/The American Lawyer survey was conducted online in September/October 2010 and of the 453 corporate chief legal officers and general counsel surveyed, 128 worked for companies with annual revenues of $1 billion or more. At the same time, The American Lawyer conducted the annual Law Firm Leaders survey gathering the opinions of the heads of the AmLaw 200, the 200 top-grossing firms in the U.S. Leaders of the top firms registered their firms' gradual slide away from billable hours, with 90 percent indicating that their firm had used a flat fee for entire matters in 2010, compared to 82 percent in 2009. Ninety percent said that their firm used incentive or success fees up from 75 percent in 2009.
"Law firms may be settling into a new normal, at least until they see a significant uptick in corporate activity," commented Robin Sparkman, editor in chief for The American Lawyer. "Many of the changes implemented by law firms during the recession are continuing, including smaller associate classes, de-equitizations, scaled-back profits and more flexible fee arrangements for struggling corporate clients."
Survey results are incorporated in the December edition of The American Lawyer in "The New Normal," an article looking at the many ways in which law firms have adapted to the market downturn. The results will also be published on the Corporate Counsel website at www.corpcounsel.com and available to ACC members by contacting ACC Membership at: membership@acc.com.
Published: Tue, Dec 7, 2010
