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Leaving the billable hour in the rearview mirror

Editor's Box

It used to be that alternative or “appropriate” fee arrangements were the common subject matter of in-house counsel conference seminars, but over the last few years the mechanics around the various AFAs out there have given way, it seems, to a more hefty discussion on more thought-out budgets and project management.

Case in point is a panel I sat in on recently called Foolproof RFPs to Get the Legal Services You Want, held at the Association of Corporate Counsel annual meeting in Washington D.C. featuring two Canadian in-house counsel, a law firm partner from Gowlings (Canada) WLG and a California-based associate general counsel.

Geoff Gibbs, deputy general counsel with the University of California, said his department is “moving dramatically” to a non-billable hour paradigm, noting that what’s critical is in doing so you have to get away from using the hourly paradigm as “shadow billing” to value what you’re doing. “If you always go back to comparing what it would have been, then you’re really not moving away,” said Gibbs.

“People think it’s a revolutionary mind shift, but most professions don’t bill by the hour,” said Gibbs. “We have ourselves spun up in this old way of looking at things and it doesn’t seem to be serving anybody well. It’s up to us to break free from it.”

And if you don’t like the idea of hourly billing, consider what Bombardier has been trying — a weekly billing model based on “X thousands” of dollars a week for the period of a project and it’s the job of the firm to staff it to make sure it makes money.

As in-house counsel increasingly collect data on what matters cost over time, they are becoming armed with that information the next time external firms are approached to work on and provide budget for similar work. BMO Financial Group, for example, is extracting data from its ebilling systems and using that information. As Bindu Cudjoe, vice president, deputy general counsel technology and operations legal, and chief knowledge officer of legal, compliance and security groups at BMO, pointed out, BMO lawyers are investing time looking at what the fees were on a matter and what they paid for certain kinds of services. “It’s helping us create baselines and performance indicators,” she said.

Gibbs said when he first joined the legal department at the University of California, matters routinely went over budget. With an RFP or budget process, firms would submit a budget for $40,000 and then through a “chipping away” process it would creep to $80,000. “We’ve stopped that and put in a clause that says overages will be granted only in extraordinary circumstances and what we are now getting is firms estimating $60,000 instead of $40,000, but they know they can’t get to $80,000 so, frankly, we feel everybody comes out ahead.”

Faran Umar-Khitab of Gowlings acknowledged the firm has “mounds of data we haven’t mined” but is working to change that. Software it is using for project management will give a realistic figure of what Gowlings thinks the value is going to be.

As Nick Cerminaro, director of legal services at Bombardier Inc. noted, budgeting isn’t always about saving money, it’s about how much it’s going to cost and having predictability that is followed through.