Integreon

Integreon’s Ron Friedmann’s recent blog post, Estimates for Legal Work and Legal Estimators (January 11, 2010), was cross-posted at Legal OnRamp (LOR), a collaboration system for in-house counsel and invited outside lawyers and third party service providers.  Several LOR members participated in a thought provoking commentary, which we reproduce below.

Ron suggested in his blog post that General Counsel should increasingly request legal cost estimates from their outside counsel for both routine and complex legal tasks:

“Consumers routinely seek estimates for many services, for example, buying a new roof, replacing an HVAC system, repairing a car, and even obtaining some medical services. The logic behind this should also drive general counsels to seek estimates for the cost of legal work.”

Legal Process Outsourcing (LPO) can facilitate the uptake of legal cost estimates and at a broader level, alternative fee arrangements (AFAs). The process driven approach to the delivery of legal support services in the LPO model supports AFAs. Integreon and other reputable LPOs take a systematic approach to delivering legal support services that blends process, technology and human resources. These techniques, however, are most effective when the legal function in question has been “unbundled”, or in other words, separated out into discrete, core, constituent tasks. Although it may seem counter intuitive to apply such a pragmatic approach to the provision of legal support, as a solutions provider, the application of a six sigma DMAIC (define, measure, analyze, improve, control) methodology ensures consistency of quality and continuous improvement, across a variety of service lines being provided from multiple delivery centers across the globe.

LPO providers are used to applying workflow analytics and a variety of project management tools to track costs, accuracy and time, while continually monitoring and repeating the process to refine estimates. Both General Counsel and outside counsel can benefit from this structured approach, which results in legal cost clarity and predictability. This in turn facilitates the implementation of legal estimates and AFAs across the board.

With the kind permission of the Legal OnRamp contributors, I reproduce here the original Legal Estimates discussion thread:

First, see Ron Friedmann’s original post (Estimates for Legal Work and Legal Estimators, as posted on his blog Strategic Legal Technology). It generated the following dialogue at LOR:

Comment 1: By Judah Lifschitz of Shapiro, Lifschitz & Schram, P.C.

My practice concentrates on very large complex trial matters - the precise type of case that “can’t be estimated”. The solution to that “it can’t be done” problem is to divide the case into phases and to provide rolling 3 to 6 month estimates focused on discreet time frames. These estimates are very helpful to both client and trial team in the management of a complex matter.

Comment 2: By Patrick Lamb of Valorem Law Group LLC

There is a tendency to equate large and complex cases with large companies who can afford to write a blank check for those trials. Many, many smaller companies find themselves party to large, complex and costly cases where the case threatens to swallow the company. In these circumstances, even the short term budgets suggested by Judah, which work well in some circumstances, do not give the company management [over] the information it needs to make informed decisions critical to the company’s future. More is required.

I think Ron is right on the money when he suggests that “legal estimators” may be required if we are to become as proficient at estimating costs as other industries are. Our experience is that the precision of the estimate is a function of control over key factors–time to trial being one, number of parties being another and e-discovery issues being a third. But the greater the handle a lawyer has over these factors, the more precise the estimate can be. The less control over these critical factors a lawyer has, the more an estimate becomes an estimate plus an insurance policy against a runaway fee.

These estimates can be made and cases can be managed so that the estimates are accurate. Doing so may carry some risk for the client, but the client can then make decisions about whether to make additional investments in the matter, just like any other change order process. Whenever lawyers talk about how they “can’t” estimate fees, I am reminded of things I have heard from a number of GCs about how their companies do A, B and C and have to provide a guaranteed price and make a profit. The idea of bringing the skills of professional estimators to what we do seems to be a likely evolutionary step in the development of pricing prowess.

Comment 3: By Steven Levy, author of Control Costs, Meet Schedules, Manage Risks, and Maintain Sanity

Estimates aren’t the same as AFAs. You should be able to provide an estimate for any type of work, albeit, as you point out, with significant variances. Those variances rather than the “inability to estimate” are perhaps what should drive an AFA decision.

Estimates are a critical part of managing a project. They force people to understand and challenge assumptions, to negotiate “Done,” to set targets that constrain unfocused work.

And as Samuel Johnson said, “Nothing so concentrates the mind as the prospect of being hanged in the morning.” Deadlines, estimates, and constraints matter.

Comment 4: By Hanna Hasl-Kelchner of LegalLiteracy.com

I agree with Steven’s characterization of a case as “project management.” If more folks looked at it that way even the most complex case could be broken down into enough bite size chunks and some costs (+/-) assigned.

Estimating will never be perfect. But presumably you pick counsel in these highly complex cases because of their past experience. So why should anticipating the steps of the project be treated like a case of first impression?

Comment 5: By John Riccione of Aronberg Goldgehn Davis & Garmisa

All of us who have experience and resources upon which to draw can do this! And the better you get at estimating, the more comfortable you will become with using alternative fee arrangements (AFAs).

A properly-constructed AFA is usually a product of four variables:

(i) the company’s primary objectives in the litigation;
(ii) the definition of success;
(iii) the estimate of when the litigation will resolve; and
(iv) an estimate of the total cost of the litigation, calculated on an hourly basis, if the case were to proceed through trial.

Stay tuned for our step by step process on “Setting the AFA - Debunking the Mystery.”

Comment 6: By Steven Levy, author of Control Costs, Meet Schedules, Manage Risks, and Maintain Sanity

John, could you expound on (iv) a bit more, “an estimate of the total cost of the litigation, calculated on an hourly basis….”

I worry that some attorneys will see (fixed-fee) AFAs as purely an equivalence mapping. “This case would cost you X if we billed hourly, so we’ll charge you X but do so in a single statement to cut out a bit of tracking-hours overhead.” It seems to me that an AFA affords the opportunity to approach the case a bit differently from a staffing perspective. “What is the most efficient way we can provide service for this part of the case?” It allows you to separate cost-to-the-firm from billing-cost, looking not just at revenue but at margin on the hours of particular providers. You can also include efficiency — attorney A costs 2x of what attorney B costs but is 3x as efficient. Or maybe it’s better to have a paralegal do a big chunk of work, or use LPO.

I’m not suggesting that having an internal hourly estimate isn’t valuable, but wondering if at the same time it can limit your way of approaching the work. What are your thoughts about this question?

Comment 7: By Patrick Lamb of Valorem Law Group LLC

Steve, somewhere I saw a quote from Samuel Johnson that you used that is so appropriate here. “Nothing so focuses a man’s mind as the prospect of being hung in the morning.”

When your profit depends on your ability to create margin between your cost of achieving an outcome and what the customer is paying you, you quickly find out how much of what you had been doing does not need to be done at all, done the same way or done by the same people who had done it before. Fred Bartlit and his colleagues have built one of the most successful firms in the country on the execution of this principal, to which we all should take heed. They do everything that is necessary to win, but only those things necessary to win.

When it’s the lawyer’s nickel at stake, it amazing how few summary judgment motions actually get filed. Project management is a damned important tool, but the thinking behind the tool is more important.

Comment 8: By Steven Levy, author of Control Costs, Meet Schedules, Manage Risks, and Maintain Sanity

Patrick, you’ve just defined Legal Project Management: “They do everything that is necessary to win, but only those things necessary to win…. [T]he thinking behind the tool is [most] important.” LPM is neither a methodology nor a (traditional) toolset, but rather a thoughtful application of principles and techniques to the management of legal cases.

Comment 9: By John Riccione of Aronberg Goldgehn Davis & Garmisa

There are many different ways to devise an AFA and I do not propose to have a lock on any one method. And I certainly don’t mean to suggest that our AFAs in a fixed-fee plus bonus situation are simply a factor of what it would cost hourly without monthly billing statements. We do, however, draw upon our experience and that of our clients and competitors using an hourly model, when developing our AFA for comparison and verification purposes.

For example, we know that a client has paid, or our competitors have charged, in similar cases $100,000 for taking depositions (or 200 hours at $500/hr). However, we know that doing only the depositions which will take us down the straightest path toward success will take only half the time or be properly taken by someone who costs less. In addition, we know that when we win, we will get $X by way of a bonus. So, we may be able to take the necessary depositions for $40,000 and know that we will get our profits by way of a bonus, and fix this phase at $25,000-$30,000. This is how we have used fees calculated on an hourly basis in formulating our AFAs. It allows us to bid competitively against our hourly-fee competitors and identify those areas in which we must be more efficient to win.

Notwithstanding the foregoing, we are always open to improving our processes for devising AFAs and debunking the mystery associated with them for prospective clients.

Comment 10: By Steven Levy, author of Control Costs, Meet Schedules, Manage Risks, and Maintain Sanity

Thanks, John. That makes a lot of sense. I appreciate the follow-up.

End of thread

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