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.

Someone asked me recently why I think more and more law firms are creating CI roles or increasing their CI capacity, encouraging their BD and Library staff to work more closely so forth. I didn’t really have a good answer on the spot, “cause it makes good business sense, or because market competition and consolidation is increasing” seemed all to obvious and do not address this specific moment in the evolution of the modern law firm.  Last month, I participated in a webinar presented by Ann Lee Gibson, long time law firm CI consultant as a part of the IntelCollab webinar series and unknowingly, Ann Lee answered the question in part.  Her presentation was titled How Competitive Intelligence Helps Professional Services Firms Succeed, and you can view the entire presentation here.  The focus wasn’t specifically on law firms, but by not focusing, certain things became clear.  To begin the various US based professional services firms are compared  by revenue, number of employees and number of professionals.  According to the data, law firms had the highest revenue in 2013, but also the greatest number of employees (costs) but NOT the highest growth rate, nor does the profession represent the largest number of businesses in the professional services.  Furthermore, when compared to Accounting firms, the 2013 data  points out that 75% of revenue in law firms comes from 53 firms, whereas in the Accounting sector that same percentage of revenue is drawn from four firms.  So putting on the CI analyst hat here, what do the numbers tell you? Not surprisingly, especially if you follow any of Toby’s posts, law firms are running inefficient organizations, with leverage issues as a result of the many many owners. I am not the economist so won’t get into the numbers except to say that law firms are increasing CI as way to minimize the impact of the figures.  But even forgetting the economics for a second, you can see from the literature, the blog posts and the new titles that are popping up all across law firms that something is happening.   

Twenty, even 15 years ago firms only had to worry about appeasing clients, doing good work and getting more work from the same or other clients. Few firms were concerned in any systemic way about their competitors and even fewer were thinking about clients in terms of their needs and wants. Today, that landscape has entirely changed.  Clients are driving change at firms by demanding attention be it through: AFAs, LMP, LPO, and/or e-billing. Add to that the growing impact of technology on both the business and practice of law, industry consolidation nationally and internationally, growing in house legal teams, changes to the ownership rules for law firms and firms are forced to be more competitive.  How a firm chooses to be more competitive can (and does) come in varied forms.  Some are shrinking administrative costs and reducing overhead by creating pools of assistants rather than the traditional 1:1 of firms, shrinking headcount or budget for things like KM, Marketing and Library services. Others are taking a different approach choosing to focus on understanding their clients, their markets, their competitors and their own business savvy better.  That’s where CI enters the mix and helps to set the course.  CI is a strategic endeavour in understanding the market condition, the forces of pressure and their impact while also being tactical in informing RFP responses, filling the pipeline and providing colour in addition to background information.  CI, when done well can be the centre point for collaboration and competitive advantage within in a firm. 

There is no denying that the legal industry is changing. The speed of the change depends on where you sit, what you see, and where you want to go, but no one can deny that as the legal industry ship is steering in a different direction, and firms are realizing the power of CI as the compass to help navigate the waters. 

It has been a busy time for our illustrious Mr. Toby Brown over the past few weeks. In the past few weeks, he has co-written a book with Vincent Cordo on Law Firm Pricing: Strategies, Roles, and Responsibilities, conducted an interview with Bloomberg Law’s Lee Pacchia about the challenges of implementing a pricing strategy at a large law firm and the recent efforts to utilize Legal Process Management software, and last, but not least, been named as a Trailblazer and Pioneer by the National Law Journal (pdf, page 16). The only thing he failed to do this month was be named People Magazine’s Sexiest Man Alive… (maybe next year, my friend.)

Congrats, Toby on being recognized for all your hard work and forward thinking.

Image [cc] Rigmarole

As legal pricing evolves, it is taking many twists and turns – along with some convoluted spins. The initial efforts by clients to save money typically results in requests for bigger discounts. This allows the GC to go back to the CEO and say “we saved 5% more this year.”

After a year or so of this approach, clients realized bigger discounts don’t directly translate into savings. I would argue that in this situation, clients can’t even tell if they are saving money or not. So at a point the CEO comes back and says “Show me the money.”

Next up on the pricing evolution list is usually Fee Caps. These are hourly billings with a “not to exceed” number. Of course these deals usually retain whatever discount level the client previously received. So now the client can say with more certainty they are saving money. Or can they?

To fully explore this question, we need to understand the behavior such a fee arrangement drives. People like to talk about value pricing, which many times means creating an alignment of interests between client and law firm. So an examination of the behavior each type of pricing arrangement motivates, for both law firm and client, is in order.

On the surface it appears a fee cap motivates efficiencies. Law firms should logically want to keep their fees under the cap, so they will carefully dole out resources during the engagement to avoid hitting the cap. This is the “efficiency” clients seek. And to some degree this outcome may be true.

However, lawyers are motivated to maximize revenue in order to drive up their personal compensation. To that end, they are motivated to hit the cap. Going over does mean write-offs, but coming in too far under means lost revenue attributed to them for comp. These lawyers are also motivated to have as many of their personal hours involved in the matter as well. Since their comp is also driven by that factor. And once a cap is exceeded, the lawyers are motivated to reduce their personal hours and pull back on resources. So instead of motivating efficiencies, fee caps can easily motivate counter-productive behaviors.

Now one might point accusing fingers at law firm compensation systems (and rightly so), but that doesn’t change the current motivations.

On the client side with these motivations in place, they need to closely monitor work on matters to make sure the right tasks are being performed by the right levels of expertise.Clients trying to manage costs under a traditional hourly arrangement will have the same burdens. An added burden is watching the fees billed against the cap. I heard of one client using fee caps who was not monitoring this metric. One month they suddenly noticed the size of the bills dropped dramatically. The outside counsel had hit the cap and pulled back case activity significantly. 

One other point for clients to consider – fee caps with discounts can put law firms in a no-win situation. If as a client your goal is reducing your law firms’ profitability, fee caps are a great tool. They make it increasingly difficult for law firms to maintain a healthy bottom line. Now many will argue this goal, perhaps as an unintended consequence, is not so bad. I would argue as a client you probably don’t want to be doing business with financially unstable partners. 

Fee caps probably deliver some savings to clients in some form. However, they bring with them significant unintended consequences. My advice to both clients and firms considering various fee arrangements: make sure the arrangement truly aligns interests. As I repeatedly say – it’s about The Conversation. Clients and lawyers need to have open, honest conversations about goals and motivations when it comes to fees. Otherwise, clients may get what they pay for and not what they wanted.

Image [cc] Daniel*1977

An article on a recent legal market survey suggested a new trend in legal pricing: a trend away from Alternative Fee Arrangements (AFAs). Trend may be too strong a word, but in any event, the survey results bear consideration.

Offline I received a number of reactions about the survey result. Most people were concerned it might be viewed as a sign things are returning to the Old Normal. Yet at the same time, no one suggested they were seeing signs of such a return.

So what does it mean?

I never thought AFAs were going to sweep through the market and eliminate hourly (a.k.a. time and material) billing. As much as hourly billing has been pilloried as the demon of the profession, it will retain a role in the market as along as clients find it useful. So it would only be a matter of time before some new equilibrium of pricing approaches was established. This new balance would likely include a greater variety of types of billing arrangements and over time the balance will always be adjusting to market conditions. But maybe we are reaching a point where AFAs have peaked in their natural share of the market?

In looking at various surveys and market data, I see a possible explanation. As clients continue to seek ways to reduce the cost of legal services, some surveys and commentators rightly suggest that clients have been asking for AFAs, and then settling for bigger discounts. Market data seems to confirm this, as rate increases are moderating and realization against standard rates continues to drop. As well market surveys show firms in the second and third tier of the market (AmLaw 200 and Mid-level firms) have been doing relatively well, compared to the top tier (AmLaw 100).

This all suggests clients are moving work to lower rate providers instead of embracing AFAs. So a survey stating AFAs may have peaked seems reasonable to me.

Looking past the various surveys, I see two other market movements afoot. The first is a growing recognition from clients that not all work needs to be handled by top tier firms. In the past, this was the classic “you can never go wrong choosing IBM” approach. Clients sent a vast majority of their work to top tier firms as a means to protect themselves. No one wanted to take the risk of a bad legal result. With cost savings pressure increasing, in-house counsel now have the cover they need to take those risks. Saving money takes precedence over legal risk. Or at least we might make that assumption based on the market behavior.

The second market movement I suggest is afoot, is yet to fully materialize. Moving work to lower rate providers may or may not save clients money. It is easy to claim credit on cost savings with a 10% reduction in billing rates, but does it actually save money? The answer is: we’re not sure. Which is not a great answer. We see a number of providers entering the market bent on helping answer this question.

Adding the two movements together results in clients taking on greater legal risk without a clear cost savings result. I think this issue will come into focus over time. At that point clients may do one of two things: #1 – They may re-engage on AFAs, or #2 – They may increase their attention to efficiency and effectiveness. With #1, clients will be shifting their focus to cost savings at the fee level over the rate level. This approach should result in more quantifiable cost savings. With #2 – clients will more deeply engaged with their law firms to focus effort on value. Of course some combination of #1 and #2 is even more likely.

At the top level, I sense the market is just trying to find its way to new ground. AFAs were originally held up as the best path towards cost savings. In reality, they are merely a tool. Achieving cost savings goals requires more than different pricing approaches. So the market will continue in its struggle to find the right mix of tools and approaches to meet that overriding goal. I suggest it is an overriding goal in the market, given the consistent focus on reducing legal fees across the market.

In the meantime, I predict we will continue to see such trends, within trends.

Perhaps Law.com was just fishing for traffic by choosing a controversial headline (something we at 3 Geeks would never condone!) but yesterday’s article, misleadingly entitled AFAs Trending Down in U.S. and U.K., got a lot of attention. To be fair, the data gathered in the 9th Annual Litigation Trends Survey Report, does indeed show a decrease in AFAs from 2011 to 2012.  And it gives some indication that those numbers MAY go lower again this year.  However, there is one big problem with the headline, the second word.  The appropriate headline would have been AFAs Down in U.S. and U.K. There is no trending about it.

The survey has been asking “Does your company use Alternative Fee Arrangements?” since 2009.  If we add 2009’s survey results to the data published in this year’s report, we see a different story emerge. Plotting the percentage of positive responses to the AFA question over the last 4 years (solid lines), and then using handy dandy Excel to plot linear trend lines (dotted) over that time, you’ll see that even with last year’s drop in AFA usage, the trends are still pointing up.

Now, a relatively small drop in use of AFAs in the U.S. – from the current 51% to less than the 48% reported in 2009 – would turn the US trend line down over the five year period from 2009 to 2013. But, to do the same in the U.K. would require AFA usage to be cut nearly in half to only 32% this year. A very unlikely occurrence.  
The Law.com article correctly points out:

“…in 2011, some 52 percent of U.S. respondents said they intended to increase their use of alternative fee arrangements. But only 39 percent this year said they expect increased use over the next 12 months…”

But from this they conclude:

“…indicating the downward shift will continue.”

This is an example of statistics that seem meaningful until you tease them apart.  In 2011, at a time when AFA usage had just gone up 17% in the previous year, 52% of respondents said they would be doing more AFAs.  In 2012, when AFA usage had diminished by about that same amount, only 39% said they would be using more AFAs. This does not indicate that the downward shift will continue, it indicates that people tend to assume this year will be pretty much like last year.  Sometimes they’re right, often they’re wrong.

It will be very interesting to see the 10th Annual Litigation Trends Survey to see how the trends actually play out in 2013, but a single Year-Over-Year drop in usage, does not a trend make.

image [cc] Karan Jain

It may appear I am on some Defend BigLaw run with my recent posts. It’s actually not that, but merely some pent up pet peeves I need to air. This one addresses the attack on law firms for how they come up with matter budgets and fixed fees.

The scenario goes something like this: When a client asks for a fixed fee (typically with little to no scope) and the law firm calculates that number by adding up the number of hours and multiplying it by hourly rates, they apparently are committing some act of near-fraud. The audacity of a firm to just add up hours to give a fixed fee to a client. How stupid do they think the client is?

My response: How exactly is a firm supposed to develop a budget or a fixed fee? Should they just make up a number? Or should they put on their value thinking caps and derive a number that way? Even if they look up fees from past, similar matters, those numbers will be based on … hours.

Now I realize the client is attempting to limit the number of hours a firm might utilize in providing a service and shift fee risk to their outside counsel. And that is definitely one of the outcomes of using a fixed fee. But a firm still needs a method for determining what the fee should be. And hours times rate is the most practical method for doing that.

Once you have the fixed fee, or even just a budget, the goal of limiting hours has been met. So why would you attack the firm for using time and materials to derive a budget? If a client has an issue with a proposed fee, they may want to negotiate.

I believe this tension is symptomatic of the market-level breakdown of trust between client and lawyer. This issue is a pet peeve because I think the concern is seriously misplaced. If clients and firms want to better align cost and resources, instead of attacking the number of hours, they should be sitting down,setting strategy and prioritizing resource allocation (can anyone say Legal Project Management?). This type of approach drives a clear alignment of law firm effort with client needs and goals. I suggest fewer hours should be an aspect of the clients’ cost management goals, but not the only one. As my mentor used to say, “If reducing outside legal spend is your only goal, stop hiring lawyers. Just pay the settlements and move on. Your cost will go to zero.”

If you truly want to meet cost management goals while continuing to meet the legal needs of your clients (internal clients for in-house lawyers, external clients for law firms), then: Have The Conversation. Throwing stones only leads to shattered glass.

The week of October 22nd has a couple of excellent conference opportunities for the legal community. Both of these will have great content on adapting to change for the legal professions.

KM in the Legal Profession – Runs on the 24th and 25th in NY and is produced by the Ark-group.

Strangely, I will be leading off this program and moderating the first day. I say ‘strangely’ since I do not seem a logical choice to be talking about and promoting KM in law firms. When asked to participate, I suggested I might not be a good choice. My views on traditional law firm KM can be, at times, unpopular within the KM community. When I speak of KM, I usually preface my remarks with something like “Does enterprise search keep your Managing Partner up at night?” The obvious answer is no, suggesting KM has been playing too far from the bottom line.

As a consequence of my participation, the conference is focusing more on how KM can be tied to the bottom line – where it should be. Find out more about this conference, here.

The COLPM Futures Conference – Runs the 26th and 27th in D.C.

The College of Law Practice Management (COLPM) established this annual conference to focus on cutting edge challenges for legal professionals. As usual the program includes an impressive list of speakers (except me of course) and topics. As well the 2012 InnovAction Awards will be presented. To find out more about this conference and to register, go here.

Both of these will be excellent opportunities to learn more and get great ideas for managing the dynamic changes in the legal market. If you make either of these, make sure you say hi.

Jeff Brandt shared a great video in a recent Pinhawk newsletter. The video was produced by Riverview Law, an innovative provider of legal services.

The video, which I thoroughly enjoyed, is a conversation between lawyer and client about a fixed fee. As Riverview Law is based in the UK, so is the scenario. The client asks for a fixed fee about 20 times, meanwhile the lawyer does his best to redefine fixed fee as ‘hourly.’

In many respects the video represents reality … for both sides.

My thoughts:

Law Firm Side

The law firm guy struggles to grasp doing it differently. Any fixed fee in his mind will come from an accounting of the billable hour. When it appears he may be succumbing to the fixed fee concept, he lays out a list of incomprehensible caveats as some lengthy and easy to invoke list of out-of-scope assumptions. When the client doesn’t buy that, he reverts to his known quantity – hours.

Client Side

The in-house lawyer gets points for sticking to her guns. The video is obviously meant to show her in a reasonable light, as opposed to the blundering law firm guy. However, what is unspoken by her, and is definitely part of the challenge, is that she gives no scope or parameters when requesting her fixed fee. Somehow her outside counsel should be able to produce a fixed fee on a complex matter with Zero Scope.

I recommend you watch the video. It’s a great lesson in how not to have the conversation – for both sides.

Image [cc] Magic Trax

[Recently I was asked by Bridgeway to write a section for an AFA Handbook for Clients. My section is meant to give clients a look in to how law firms are approaching AFAs and give clients some tips on how they might better partner with their outside counsel on this subject. In my usual fashion, it’s too long, so the handbook will have a shortened version. Since I spent the time writing it, I thought I would share the full version here. Enjoy.]

The Law Firm Side of AFAs

Many clients are exploring Alternative Fee Arrangements (AFAs) as a means for controlling their legal spend. AFAs do present many opportunities for attaining this goal. However, clients will find that their best chance of meeting this goal is in partnership with their outside counsel. This approach makes the goal a shared one and allows the law firm to focus the types of AFAs and its service directly towards that goal.

In pursuing healthy fee partnerships with their outside counsel, clients will benefit from a deeper understanding of how law firms are approaching AFAs. What follows is a brief description of the internal workings of how a firm might be responding to requests for AFAs. As part of this description, also provided are ideas for how each step in the process can be improved with better levels of trust and communication

The Request

Currently most law firm AFAs are generated at client requests. A partner receives a communication from a client about a potential matter. In addition to the legal issues, the client will request a quote on rates along with a note about being open to alternative fees. Sometimes the request is more direct, suggesting that the law firm “be creative in proposing some sort of AFA.”

This is a key point in time when a partnership between client and outside counsel should be established. Law firms can be creative and propose all sorts of fee options. However, for a fee option to be successful it needs to be crafted with a client’s specific fee concerns in mind. As a client, your fee drivers will change from matter to matter, for each type of legal practice need, and maybe even over time. Sometimes risk sharing will be the right approach. Other times monthly predictability will be best suited. The main point here is that to get the best suited fee type, you should meet with your law firms and have an open conversation about those needs. Without that information, your outside counsel is making a wild guess as to how best to help you meet your fee goals.

The Fee

Once a firm has an understanding of your fee needs, they can prepare a specific AFA proposal, including fee amounts as appropriate. Using best practices, the law firm should be modeling this fee arrangement to know whether it is profitable or not. I suggest you will want these to be profitable. Doing business with a low-cost provider who is not profitable is unsustainable. This is not to say that firms are not able to lower your fees while maintain profitability. In fact it is quite the opposite. Firms must find ways to meet this challenge and many are devoting expanded resources to this goal.

With a specific proposal in hand, another best practice is to meet in-person to present the proposal and discuss it together. Too many intentions can be lost with just the written word. As noted above, the best approach is one where you develop a common goal. A conversation about the proposal leads to refinements and improvements that stay focused on the goal while generating a win-win option.

Providing the Service

Many clients have “efficiency” as a stated goal. However, much like the AFA request, efficiency can take many forms. This presents another opportunity to forge a healthy partnership with your outside counsel. With a fee arrangement in place, or perhaps as part of establishing that arrangement, you should consider engaging in a dialog about efficiency with your outside counsel. Efficiency generally means: a) doing less, b) doing more with less time, or c) doing the same, but with lower cost resources. Your dialog can explore each of these aspects, helping focus on which of these make the most sense for your situation. For instance, a firm could expand its use of staff lawyers (a.k.a. non-partner track lawyers) to move work to lower cost resources, but only if that approach aligns with your needs and goals.

Both the efficiency and fee dialogs need to be on-going conversations. In the past, a single conversation at the onset of a matter was too common. In this new environment, with these new dimensions, conversations need to be before, during and after. Too many things can change during the course of an engagement. What neither party wants is a big surprise when a course change is made, but not calculated in to the fee deal or the delivery model. For instance, a decision to join a third party to a litigation case, results in a substantive change. Regular conversations (e.g. monthly or quarterly) will catch these modifications and keep both the fee and the delivery model clearly aligned with the goal.

Law firms are committing a growing level of resources to concepts like Legal Project Management (LPM). These LPM efforts are focused on both efficiency and quality. Smart firms know that in order to help clients meet their changing goals, they need to change their approaches. An excellent question to add to your outside counsel conversations is: “What are your efforts related to efficiency, including process improvement and the use of technology?”

Concluding a Matter

Perhaps the single most important conversation about the fee and service needs to occur at the end of a matter, or in the case of on-going work, at the end of each year. These meetings should be open, honest assessments about how things went. The lessons learned from these conversations will lead to better defined goals for the next matter and continued success towards goals of cost savings and efficiency gains.

Conclusion

Law firms really want to help clients meet their legal needs in a cost effective manner. Most firms are trying very hard to adapt to changing demands and realign their business models to continue to meet client needs. The theme from this section should hopefully highlight that whatever steps are taken by both client and outside counsel, they will be best taken together. As I like to say, the keys to all successful fee arrangements are trust and communication.