Corporates embrace flat-fee structures

In-house legal teams are increasingly negotiating for flat-fee arrangements with external legal firms, a new report has found.

Stefanie Garber • 04 February 2016 • NewLaw

According to the Association of Corporate Council Chief Legal Officers 2016 Survey, the use of alternative fee arrangements has been trending upwards in recent years.

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Of the 1,302 chief legal officers (CLOs) surveyed, 41 per cent pointed to flat fees for an entire matter as their most commonly negotiated fee arrangement.

Other common fee structures included using flat fees for some stage of a matter (cited as commonly used by 40 per cent of respondents) and retainers (cited by 32 per cent).

CLOs in larger legal departments were more likely to use alternative fee arrangements than those from smaller firms.

In-house teams in Australia also reported spending more on internal budgets than their external legal spend, reversing traditional patterns.

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On average, 53 per cent of CLOs’ budgets were spent internally, as opposed to 47 per cent externally.

Despite this trend, firms are unlikely to see a decrease in workflow, with 61 per cent of CLOs predicting the total amount of work they send out is likely to remain unchanged over the coming year.

The major contributor to the growth in internal spending could be the increased roles for legal management staff – 48 per cent of general counsel said their companies now have designated legal operations staff, double the percentage of last year.

CLOs in Australia are also looking for business acumen, with the most sought-after non-legal skills being project management and executive presence.

ACC Australia managing director Tanya Kahn suggested GCs have a growing awareness of the need for lawyers to be commercially savvy.

“We know that to be an effective in-house lawyer, you need to understand and operate in a commercial environment,” she said.

Australian CLOs also placed a high value on the interpersonal, with communication skills and emotional intelligence cited as the third and fourth most important skills.

Guest Friday, 05 February 2016

"Sure I can provide you flat fees but in exchange I will give you terrible service" - said no firm to a client ever. If you provide (or tell a client you will provide) bad service, fixed fee or otherwise, you won't be engaged again.A counter argument could also be made that providing a traditional billable-hour structure encourages inefficient and time-wasting work, while doing very little to protect the client from the "incentive to resource the matter with the most inexperienced and under-qualified personnel available at prices that over-value their services".Law partners' stubborn refusal to provide a paying client with a predictable payment option shows how backwards the industry has become. It also smacks somewhat of the stubborn denial of the faltering music industry or the taxi industry.

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Bruce Friday, 05 February 2016

Lots of (non plain English) words that (barely) deliver an over simplified message. If a law firm does not properly resource the work or provide a professional outcome, they simply won't get repeat work. Smarter law firms understand their reputation and a relationship is at stake and will adapt accordingly.

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John Chisholm Friday, 05 February 2016

Boutique firm, I totally understand what you might do if faced with the prospect of flat fees, but could I respectfully suggest you perhaps speak to some of the clients of other law firms that are providing them with flat fees and a range of other non time based fees and see if they have noticed a drop off in quality? Smarter law firms do not necessarily follow 20th century mindsets.

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Boutiquefirm Thursday, 04 February 2016

It appears that some corporations have not worked out that they are placing themselves at a disadvantage by negotiating flat fees. From the perspective of the law firm, flat rates decrease the incentive for a partner to spend time properly supervising the matter, while increasing the incentive to resource the matter with the most inexperienced and under-qualified personnel available at prices that over-value their services. Over a period of time, these incentives would be likely to lead to poorer outcomes to the client, potentially leading to the loss of large amounts of money in outcomes by saving small amounts of money on legal fees. Similarly fixed fees for a flow of transactions tend to lead to an inherent incentive for less legal time to be spent on the more complicated transactions than they deserve, while wasting more time than necessary on simpler transactions. Smarter corporations do not necessarily follow the lemmings over the cliff.

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