Lexpert Magazine

LEXPERT MAGAZINE | MAY 2018 61 | IN-HOUSE ADVISOR: EVOLVING FEE ARRANGEMENTS | doing something creative around it." Sometimes clients ask for creative ar- rangements, but have trouble understand- ing them. Frequently, they settle on a capped fixed fee. In one case where a cli- ent facing a portfolio of class actions was concerned about predictability, Gowling quoted a fixed fee for certain types of work involved in class actions. "If we didn't have to do it, we didn't get paid, but if it came up, we got paid as we went along," Kathuria says. "Sometimes, when it's difficult to pre- dict what will happen with any certainty, we may do a fixed fee by the month." Richard Stock of Catalyst Consulting, a firm that focuses on advising corporate and government legal departments, says that many companies differentiate their approach to pricing depending on wheth- er they're putting out what he describes as "a call for legal services" or looking for a firm to handle "a big project." Difficul- ties or misunderstandings about pricing or AFAs tend to arise in the call for legal services category. "Many companies have automated the RFP process relating to a swath of legal services and le them in the hands of pro- fessional procurement people with little involvement from lawyers ¾ and there's not much GCs can do about it," Stock says. "Communication about pricing tends to be much better on the big projects that are run by legal departments on a matter-by- matter basis." Which is not to say that procurement professionals have no place in the legal services arena. According to Stock, inno- vation tends to happen more readily when both procurement and legal are involved, as is the case at companies like Bell and Na- tional Bank. From clients' perspectives, lack of inter- nal historical data is one of the greatest bar- riers to innovation. "It's very difficult to do AFAs when there's poor data," Stock says. "Very few Canadian organizations have good information on the legal fees they've paid and the type of work they've paid for." e upshot is that Canadian law firms have tended to be more sophisticated and innovative than what Stock calls many "extraordinarily uninformed" law de- partments. As might be expected, capital- intensive industries, such as the extractive sector, are the ones most likely to think out of the box. In contrast, law firms have more creative potential on the pricing side than ever. "Proposal teams have always existed at our firm, but they have become more sophisti- cated and utilize better tools," Peters says. "Financing, pricing and clients services professionals form a highly integrated group that works together closely." Indeed, the trend to pricing professionals, or at least to pricing professionally, is country- wide. At McInnes Cooper, a regional Mar- itimes firm, pricing is the responsibility of a proposal team that collaborates with lawyers, project managers and finance pro- fessionals. "We have lawyers on staff with project management professional (PMP) certifications and proposal professionals who have honed their pricing skills," says Halifax-based Angela Lewis, the firm's Managing Director, Client Development & Administration. And it's not just the full-service firms that are joining the pricing bandwagon. Toronto litigation boutique Lenczner Slaght Royce Smith Griffin LLP has a PMP on staff who is the firm's coordinator for pricing, and a certified professional who bears the title "director of pricing." Both work with lawyers on AFAs, and they're both very busy. "We have fee arrangements, budgets, and work-in-progress tracking for every institutional client," says partner Mo- nique Jilesen. "Approaching pricing profes- sionally is not only a fact of life when deal- ing with these clients but the very stakes required for doing business with them." All this having been said, professional pricing has some way to go in the legal community. Just 70 per cent of firms in the Am Law 100 have full-time pricing professionals on staff. e ones who don't include at least two of the top 10. "What many of these firms tells me is they are operating with- out price professionals because they have a very strong relationship with their clients and a very talented financial staff capable of conducting business as usual," Johansen says. "But my belief is that they may be missing out on opportunities to explore a continuum of fee arrangements and adopt other approaches to their pricing strategies that could add extra profits to their bot- tom line." e argument for full-time pricing pro- fessionals at smaller firms, however, may not be nearly as strong. Johansen could find only two law firms in the US outside the Am Law 200 that employed full-time pricing professionals. "Smaller firms who service smaller clients frequently don't have the resources to hire dedicated pric- ing professionals, they tend to have more direct and stronger relationships with their clients, and they generally don't deal with procurement departments that are involved with legal spend," Johansen says. Perry Dellelce of Toronto's Wildeboer Dellelce LLP, a 35-lawyer corporate fi- nance and tax firm, thinks pricing profes- sionals are a "waste of money" ¾ at least for firms like Wildeboer. "I don't under- stand how pricing professionals, who won't understand the legal work involved unless they're dealing with commodity work, can help build the relationships ne- cessary to grow firms and service clients," he says. Which is not to say that AFAs are not available to Wildeboer's clients. "e days of billing by hourly rates multiplied by hours worked are dead," he says. "From day one, we've been operating with value and success as our benchmarks for billing." While the firm frequently gives esti- mates to which they are bound, the process for pricing the estimates is "just by experi- ence." e firm also reduces rates for sig- nificant volumes of guaranteed work, and frequently resorts to success and failure or termination fees. "We recently quoted a transaction that would normally attract about $500,000 in fees to completion on a success/failure basis at $200,000 if the deal didn't go through and $800,000 if it did," Dellelce says. When all is said and done, then, it turns out that hourly rates and AFAs are not mutually exclusive. It follows that it is an overstatement to claim that hourly rates are due for extinction. What is likely due for extinction, however, is the billable model, the open-ended one that provides neither for flexibility or certainty. AFAs, properly defined, do exactly that. "It's taking a while for our industry as a whole to really get into AFAs," Peters says. "But we're happy about the evolu- tion, because it gives us all the benefits of efficiency."

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