Rising: Supply Chain Management and Alternative Legal Service Providers

Last post, I offered some skepticism about one conclusion--the billable hour is already dead--in the annual Report on the State of the Legal Market from The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute. I tried to be emphatic that this minor point of incredulity did not take away from the overall brilliance or usefulness of the Report. Yet I spent an entire post on the subject.

I have fallen into the same trap. I once opened a piece with the premise that the billable hour is not the sole topic worthy of discussion:
The billable hour is not the immediate cause of all that ails the legal industry. Freedom from the tyranny of the billable hour would be a fine start. But there is much more to do and discuss. For proof, look no further than law departments. Many corporate law departments suffer from the same pathologies as law firms despite having cast off the perverse incentives of compensable time sheets.
We have a culture challenge that is more than a matter of modifying a single incentive. My piece focused on the rise of legal operations and procurement. It cited massive increases in in-house staffing and technology spend, as well as tipping points in the use of metrics and RFPs. I touched on the BigLaw caste system, along with the rigidity and fragility of the traditional law-firm partner and compensation models. I used cybersecurity as an example of why law departments and law firms need to engage in data-driven dialogue on topics not taught in law schoole.g., the integration of process and technology into the delivery of legal services.

Naturally, since the thesis was that there are many topics to discuss beyond the billable hour, the comments section quickly devolved into a forum solely to debate the merits of the billable hour. It is my own fault. The billable hour is catnip to the kind of legal professional inclined to take part in an online discussion (including me). Like Antwan Rockamora, I had to expect a reaction.

Whenever I try to not talk about the billable hour, I am reminded of this take from the phenomenal Kevin Colangelo. As one of the primary forces behind Panagea3, Kevin experienced first hand the staying power of the billable hour:
Despite our best efforts to be “innovative” in terms of how we priced our services, clients and prospective clients always found shelter in the billable hour. Offers of unitized rates for drafting and negotiating contracts were always met with something like “And how many hours of work does that represent?” It quickly became clear that although we were doing what the market had asked us to do (i.e., offer fixed, unitized and other alternative fee arrangements), the only way that the market could understand the value of our pricing was to stack it against the only measure of value on which we’ve all been conditioned to rely: time.
Vince Cordo of Shell and I discussed this dynamic at length in the ACC Docket. We tired to explain why a law department that had moved exclusively to AFAs would bother with a reverse rate auction (we also tackled 'shadow billing' here). And that is at a company that successfully transitioned to AFAs. You get story after story from Toby and his compatriots in pricing who regularly respond to client demands for innovative fee arrangements only to find that, in the end, many clients opt for a slightly deeper discount on the traditional billable hour.

Again, the billable hour is not the only piece of the puzzle. The value proposition Colangelo was selling was not predicated solely on the fee arrangement. Whether they are for or against alternative legal service providers, I suspect there are very few participants in the legal marketplace who would take the position that moving business from a traditional law firm to TR Legal Managed Services (what Pangea3 became) or Elevate (a subsequent Colangelo company) or [pick favored provider] has no impact unless accompanied by abandonment of the billable hour.

And that's the topic I want to discuss: Alternative Legal Service Providers

"Oh, that's just labor arbitrage" is sometimes deployed by people like me to sound dismissive of a particular cost-saving measure. We're not saying the savings aren't real. We're just saying that it is not all that interesting. Using an alternative provider, however, can be just labor arbitrage and also the first step on the path to interesting.

To take extreme examples that some people believe have been eradicated (nope, not yet, not even close), there are too many clients out there who could quickly save millions by finding alternative means to accomplish tasks that keep (much diminished) armies of junior associates in hours. Due diligence, document review, routine contracts, low-level fact investigation and organization, etc. They could cut costs dramatically through simple substitution of hours charged at between a third and a tenth the billed law firm rate.

The substitution need not even be 1:1. With rates being a fraction of what they were, the transition costs and subsequent friction introduced by collaboration across multiple organizations can increase inefficiency, add hours, and still produce significant savings. The bottom line is that if you can get the same quality at lower cost, you should do it. Labor arbitrage is a perfectly valid path to cost savings. It is just not that intellectually interesting..

But what can become interesting is that moving work to an alternative provider is an admission that the work is not the exclusive domain of high-cost, high-status experts. Once you've done that, a world of possibilities opens up.

This is the thing that scares so many lawyers. Much of what we do could be handled by an ambitious high school sophomore. Much. Not all. The abstract legal insights and the articulating thereof can generate immense business value. It is also hard to replicate. But executing on those insights—i.e., converting them into concrete deliverables like contracts and motions—while absolutely necessary is often more labor intensive than skill intensive. It is the advocacy/counsel/production/content matrix that I long ago appropriated from Jeff Carr. The genuine value of the advocacy and counsel has served to excuse our awfulness at production and content.

Yet the disaggregation movement has been slow. The multi-sourcing of legal work has taken time. That it did not happen overnight was often cited as evidence that it would/could never happen, that outsourcing would remain a "gnat in an elephant's ear." Well, that gnat is starting to buzz awful loud.

Because alternative providers can be the harbinger of alternative methods for delivering legal services, the pace at which alternative providers are growing is an indicator (leading? lagging?) of how the market is changing. In addition to the Report, The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute also released The 2017 Alternative Legal Service Study, which pegs the alternative provider market at $8.4 billion. I remember a few years ago when it was controversial to suggest it was a $1 billion market. That's considerable growth, especially compared to law firms that have seen flat demand this entire decade. The $8.4B looms even larger if you account for the displacement effect, i.e., law firms losing $4 for every $1 paid to alternative providers.

But the Study isn't all about law firms losing. Law firms are setting up alternative providers. Law firms are integrating alternative providers into their own delivery of legal services. Where 60% of corporate clients are using some form of alternative provider, law firms aren't far behind at 51%. The Study also suggests that "many firms are exploring the idea of serving as a 'general contractor' for matters where ALSPs are leveraged to maintain or increase margins while maintaining or expanding service offerings and staying competitive."

The Report further explores this concept:
Opportunity for a New Focus on Supply Chain Management. In response to the growing influx of nontraditional competitors in service areas historically dominated by lawyers, many law firms – in addition to focusing on their core practices – have chosen to expand their service offerings into other related areas that complement the firms’ existing legal expertise but are beyond the scope of traditional law firm services. While these ventures currently constitute a very small part of the legal market, there has been a noticeable increase in the number of firms willing to experiment with such approaches.
One particularly intriguing opportunity for such expanded services responds to the growing client willingness to disaggregate work among many providers by reimagining a new role of the law firm as the overall coordinator for all of the services being provided to the client. In this supply chain management role, the law firm would offer not only the core services that only lawyers can provide but also the overall supervisory function that would ensure that all of the work of various vendors providing services to the client is consistent with the needs of the project, delivered in an efficient and cost-effective way, and acceptable against agreed upon standards of quality.
And here is where it gets truly interesting for me. Now we are talking about integrated systems for delivering legal services. While it can start out as just labor arbitrage, there should be returns to scale as dedicated alternative providers gain institutional experience and insights at delivering types of services that were previously doled out to a rotating cast of law firms and matriculating junior associates. Since we've already conceded that the work does not demand a high-skill, high-status expert, there should be opportunities to introduce automation and other forms of technology into the service delivery process. While transitioning to an alternative providers may have upfront costs and introduce some frictions, in the long run their capital structure and culture should be better suited to innovation.
It is also a replicable type of success that can build on itself and move up the value chain. The Study observes that, "the most common use of ALSPs is low-risk or standardized, high-volume tasks" but "corporate law departments were more likely than law firms to say that they would look to alternative providers in situations where specialized expertise was required, indicating some willingness to allow ALSPs to play at least some role in more bespoke tasks."
We're transitioning to a multi-polar world. Customers, law departments, law firms, alternative legal service providers, legal technology companies, etc. But the logic of the multi-polar world has been evident for a long time. Why do we just now seem to finally be moving in that direction? Why do clients need a general contractor or supply-chain manager? Good questions. I'll try to tackle at least one of them in my next post.

D. Casey Flaherty is a legal operations consultant and the founder of Procertas. He is Of Counsel and Director of Client Value at Haight Brown & Bonesteel. He serves on the advisory board of Nextlaw Labs. He is the primary author of Unless You Ask: A Guide for Law Departments to Get More from External Relationships, written and published in partnership with the ACC Legal Operations Section. Find more of his writing here. Connect with Casey on Twitter and LinkedIn. Or email casey@procertas.com.

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Billable Hour Deathwatch: of that day or hour no man knoweth

I always get so much mileage from the great data and charts in the annual Report on the State of the Legal Market from The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute. This year is no different. All praise to them. But, first, a minor quibble (it is my nature).

The headlines upon the Report's release were clear on the main takeaway:
Billable hour pricing is effectively dead because of budget caps, report says
Death of billable hour kills of traditional law firm franchise
The billable hour is effectively dead
The Billable Hour Isn't Dying - It's Already Dead
The headlines were consistent with the text of the Report:
Death of Traditional Billable Hour Pricing. One of the most potentially significant, though rarely acknowledged, changes of the past decade has been the effective death of the traditional billable hour pricing model in most law firms. This isn’t to suggest that most firms have done away with billing based on hours worked; indeed the majority of matters at most firms are still billed on an “hourly basis.” But focus on that fact alone misses a fundamental shift that has occurred in the market.
This change has been overlooked principally because of a definitional problem. In much of the writing on this subject, the focus has been on so-called alternative fee arrangements or “AFAs,” pricing strategies that are based on fixed-price or cost-plus models that make no reference to billable hours in the calculation of fees. Since other pricing models typically incorporate some reference to billable hours, it has often been assumed that only AFAs are genuine non billable hour alternatives and every other approach is simply business as usual. That conclusion, however, overlooks a major shift that has occurred over the past decade: the widespread client insistence on budgets (with caps) for both transactional and litigation matters....
Although today AFAs probably account for only 15 to 20 percent of all law firm revenues, budget-based pricing is much more prevalent. Indeed, in many firms, these two methods combined may well account for 80 or 90 percent of all revenues.
Quick, someone go find Jeff Carr and tell him that Don Quixote has vanquished the windmill! I would love to interrogate this data and find it to be righteous. But it is so contrary to my personal experience that, absent more compelling evidence, I just can't accept it despite the credibility of the source. That skepticism probably comes, in part, because of how many times I've read about the death of the billable hour (for fun, I rounded up 20+ instances at the bottom of the post).

I encounter a number of clients with written requirements that all matters must have a budget. I see fewer who actually enforce such requirements in any meaningful way. And it is passing few that seem to impose discipline around the budget number to the point where it functions as a cap. This is not to say that such clients do not existsome absolutely doit is to say that I haven't found enough of them for that 80 to 90 percent number to be automatically assimilated into my mental models of how the world works.

That said, I've had reason (NBA, MLB, POTUS, NFL) to call into question my mental models. So I come at this from a place of epistemic humility.

Everything else in the Report is as fantastic as ever. I've already updated my slide decks with the charts on demand and realizations. The former remains flat, the latter continues to fall. But I'm sure we can square both trends with increased profits and then paint a picture of long-term sustainability, right? It's not that I am skeptical that we are in for some sort of reckoning. I just don't think it will be an abrupt end, let alone that it has arrived in a final, categorical form like the death of the billable hour. For an actually balanced and nuanced parsing of the import, I recommend Mark Cohen. And for his eternally amusing (and always brilliant) foretelling of the apocalypse, I must share Ken Grady. Myself, I actually have a different TR report I want to dig into next post.

As promised, the many deaths of the billable hour (it's like a terrible version of John Wick but with a few awesome cameos):
An Obituary for the Billable Hour (2016)
Is the Billable Hours Obsolete? (2015)
Your Clients Want Alternative Fees (2015)
Is this the death of hourly rates at law firms? (2014)
More In-house Lawyers Question the Billable Hour (2013)
Watch Out, Billable Hour: Alternative Fee Arrangements Continue to Grow (2012)
The Case Against the Law Firm Billable Hour (2012)
Law firms look for alternatives to the billable hour (2012)
Billable hour's time is up (2012)
Curbing those long, lucrative hours (2010)
Alternative Arrangement (2010)
Forever in Flat Fees (2010)
Billable Hours Giving Ground at Law Firms (2009)
In Corporate Counsel's 'Who Represents Whom' Survey, GCs Say They're Serious About Alternate Billing (2009)
Has the Billable Hour Met Its Tipping Point? (2008)
Kill the Billable Hour (2008)
Lawyers Ditch Billable Hour Structure (2008)
The Scourge of the Billable Hour (2008)
Killable Hour (2008)
The Billable Hour Must Die (2007)
The Tyranny of the Billable Hour (2005)
And some counter programming:
The Billable Hour Just Won't Die, Report Finds (2016)
The unkillable billable hour (2015)
Billable Hour's Death Greatly Exaggerated (2015)
In Defense of the Billable Hour (2014)
In Defense of the Billable Hour (2014)
In Defense of the Billable Hour (2013)
Despite Stagnant Economy, Movement Toward Alternative Fees Still at a Crawl (2012)
The Billable Hour Endures (2010)
Surprise! The Billable Hour is Not Dead (2009)
D. Casey Flaherty is a legal operations consultant and the founder of Procertas. He is Of Counsel and Director of Client Value at Haight Brown & Bonesteel. He serves on the advisory board of Nextlaw Labs. He is the primary author of Unless You Ask: A Guide for Law Departments to Get More from External Relationships, written and published in partnership with the ACC Legal Operations Section. Find more of his writing here. Connect with Casey on Twitter and LinkedIn. Or email casey@procertas.com.

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Justly: Practical Insights from Massive State & Federal Court Data

Last September, Geek #2, sent me a short email asking if I knew anything about the product called Justly. His short description of how Justly had a case categorization feature, and was pulling data from the Federal Courts (not that big a deal), and thousands of State Courts (huge deal), made my ears perk up and I made an effort to find out more about the product. I went to the website and poked around a little and finally reached out to Laurent Wiesel at Justly to learn more. In the five months since initially talking with Laurent, they have given me a couple of demos, and quite frankly, it was the coolest product I saw at LegalWeek last week. I've seen more and more potential with Justly and have finally convinced the Justly team to let me blog about it.

So what's the big deal behind Justly? I don't want to bury the lead here, so let me first start off by listing what I think is the most important feature behind Justly. The large amounts of data. Specifically, the large amount of State Court data. As of the writing of this article, here are the numbers:
  • Over 15 million cases
  • 12.5 million State Court cases
  • 2.6 million Federal cases
  • 2,247 U.S. Courts
Those are numbers that other sources just don't have. Of course, data is simply that. How does Justly put it to work? Let me give a bit of background.

Justly was founded by former BigLaw attorney Laurent Wiesel (CEO) back in 2015 and he has teamed up with Sanjay Singh (technology), and Matteo Balzarini (Marketing), and they have focused on developing Justly as a data-driven platform for corporate legal departments. In a nutshell, they give the corporate legal departments a way to create early case assessments on cases in which the corporation is involved. With that information in hand, the corporate legal departments can take the case number of their case and Justly returns a series of elements that are useful in order to take action. The three main features returning actionable insights are Matter Classification, Case Precedents and Timeline Analytics.

Classification helps you understand all the public data in better way that helps you find the elements that define your case. Through that, it connects to Precedents and those are the cases that are comparable based on the classification. You can then see what happened in the past based on the actual metrics of similar cases. This leads us to the third feature of Timeline Analytics which assists you in making informed decisions based on the metrics. These features come together as a standardized case assessment that predicts phases, major events (tasks/deliverables) and the cycle times for any U.S. litigation matter. Having this level of analysis allows those managing the matters (whether that is in-house counsel or litigation partner in a law firm) to structure Alternative Fee Arrangement (AFA) and matter-level budgets, review precedents with your internal or e-billing system, and scope your matter management processes through the use of the scoping template.

[See the embedded video below for a quick tour of performing a case assessment on a specific court case.]

Beyond the value that is found in the results that Justly brings to case management, they are undertaking a process to bring more court information into play in a useful way. Many products have great features, but not enough, or not the right kind of data behind it. Justly brings both to the table. With the demands on in-house legal departments to better manage and pay for legal services, Justly can serve as a method of leveraging court and internal data to better predict what is the proper way to manage and price the case. For law firms, Justly allows them to better scope and predict the details of a matter, and how to better staff and price the matter for the client.

From what I've seen from Justly, they are positioning themselves to support the legal industry that is demanding better way's of managing cases and filling in the blanks with solid data and analytics.

Justly - Standardize Legal Business Operations from Justly on Vimeo.

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Rapid Prototyping and Iterative Design with AirportLawyer.org

The five-word phrase in the title of this post is likely the second most common five-word phrase I utter on a regular basis.  The most common being, "What a crock of sh**!"

Coincidentally, I uttered my most common five word phrase on Sunday, January 29th when I first heard about the Trump travel ban on 7 predominantly Muslim countries.  This is not a political forum and I'm not going to go into politics here, but that travel ban led to a fantastic example of  Rapid Prototyping and Iterative Design (RPID).

RPID is a concept found in Design Thinking, essentially you build a limited example of what you're imagining and share it with stakeholders, and then take their feedback and expand or adjust your prototype.  Then you do it again.  And again.  And again.  Do this enough times and you end up with something that usually looks or acts nothing like any stakeholders originally imagined, but that meets all stakeholders needs in a much better way.

I've been talking about RPID for many years, going back to my days at Norton Rose Fulbright.  Going back to before I ever even heard the phrase.  This was essentially my approach to writing music, back when I did things like that. But in law firms, "Rapid Prototyping and Iterative Design" is usually seen as crazy talk.

Firms are loathe to deliver anything that isn't 'perfect' or 'complete' and sometimes there are very good reasons for that.  'Imperfect' or 'incomplete' legal work may lead to 'malpractice'.  But that's no reason to ignore the benefits of the Rapid Prototyping approach.  RPID is how you ultimately get to something approaching 'perfect' and 'complete' with software development.

Back to the Trump travel ban.  I saw reports of volunteer lawyers camping out at airports all around the country and said to myself, "Self, we have technology that can help this situation."  Unfortunately, Legal Week started the next day in New York and I was swamped for the next few days.  On Wednesday evening, my company, Neota Logic hosted a cocktail party and I ran into my friend Joshua Lenon from Clio.  Joshua mentioned that Clio was working with a group of volunteer lawyers in Seattle headed by Greg McLawsen, and that they needed an intake and distribution system.

  • On Friday evening last Greg started a Slack channel devoted to this project.  
  • On Saturday afternoon we had our first prototype. 
  • On Sunday afternoon we had our third prototype and a website.  
  • On Monday the website and Neota Logic application went live servicing one airport.  
  • Today, Tuesday, we sent out a press release, got covered by the Seattle Times, and now have 7 airports being serviced with more coming in hourly.
The tool is evolving quickly with new functionality being added every day.  The video below was published an hour ago, but I just changed the way the lookup feature works for supervisors during my lunch hour.

This is Rapid Prototyping and Iterative Design in practice.  The applications I built are simply gathering and distributing data.  There is no legal advice being given. But with a concerted effort and a passionate team, we went from idea to product that is actually making a difference in a few short days.

With committed people, the right technology, and most importantly, the right approach (RPID) you can accomplish incredible things very quickly.

The next step for AirportLawyer.org is to build a triage tool to help volunteer lawyers who are not familiar with immigration law to triage the needs of incoming immigrants.

We gotta have something to do tomorrow.

Watch the video below and check out AirportLawyer.org for more information or to get involved.

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The 2017 ABA TECHSHOW Academic track is a go!

[ED. NOTE: Please welcome guest blogger, Michael J. Robak, Associate Director/Director of Information Technologies, Leon E. Bloch Law Library, University of Missouri - Kansas City. -GL]

Such great news! – thanks to 2017 TECHSHOW Chair Adriana Linares (Viva Adriana!) and University of Illinois Jenner Law Library Director, Faye Jones, the first ever Academic Track will be part of this year’s TECHSHOW which will be held March 15 – 18, 2017.  The groundwork for the track was developed last year at the direction of 2016 TECHSHOW Chair, Steve Best and has been many months in the making.

Here’s the skinny – the Academic track will be a conference within TECHSHOW.  Faye, and the University Illinois College of Law, are generously sponsoring a series of panels and sessions that will occur on Thursday March 16 and Friday March 17.  These are designed to allow those from the Academy to move between the TECHSHOW and the Academic track.  In fact, that was the concept behind the conference within the conference, maximize the opportunity for practitioners, and particularly members of the ABA Law Practice Division, to help inform the Academy on what’s needed in the curriculum.  The schedule is designed for faculty, administration and (we hope) students to move between TECHSHOW and the track and to bring ideas and people into the track conversation.  And we’ve designed the track to create working takeaways that can help expand and supplement conversation at the 2017 AALL Annual meeting with the Teaching Legal Technology Caucus as well as add to CALI’s page supporting the caucus.  In addition we will create follow up opportunities for the AALS Section on Technology, Law and Education.

With Greg’s permission, I’ll provide additional posts about TECHSHOW’s Academic track to give updates and provide ideas about how to maximize what I know will be an amazing event.
To register for the Academic track you register for TECHSHOW, which provides full access to TECHSHOW and the vendor hall.  There is a reduced rate for academics and even more reduced rate for student attendance.  Early registration closes January 30so sign up ASAP!

One final note for this post – the Incubator Consortium’s 4th Annual Conference will be held at the same time at Texas A&M and hosted by Professor of Law and Associate Dean for Experiential Education Luz Herrera.  There is quite a bit of crossover with the Consortium’s focus on technology for Incubators.  So we’ve decided to link the two conferences and we will have a virtual panel on Friday, March 17, 2017 at 9:00 a.m. that will be a technology plenary at both conferences and which will talk, in part, about how Law Schools can build Lawyer Referral Service platforms and the opportunities for data analytics with such a platform. 

More to come…. Please sign up today!

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