Pricing it Out: Value Based Billing October 24, 2014

Industry Realization Against Standard Rates 2

YTD Demand (Hours Worked) Growth by Firm 3

Value Billing Support Team Jeff Sanok: Chair Finance Committee Matt Laws: Sr. Director Practice Management Jerry Murphy: Vice-Chair (Contingent Fee) Kathy Kirmayer: Vice-Chair (Pricing) Cliff Elgarten: (Contingent Fee) 4

What In-House Counsel Requires “Value” (based on in-house counsel’s definition of “success”) “Predictability” “Creativity/multiple AFA/VBB options” “Transparency” “Efficiency” “Shared interests/ shared risk” 5

Client Steps Toward Value RFPs requiring AFAs Convergence Counsel Programs Use of Procurement Professionals by In- House Counsel Budgeting e-billing systems (with controls if over budget) 6

Pricing and Practice Management: Expanded Role 7 Pricing Budgets Project Management Knowledge Management Client Status Reports

What is value-based billing? Any fee arrangement in which you… (examples to come) 8

Mutual Benefits of VBB Pricing Benefits to Clients Cost savings Price certainty of legal spend Ease of invoice review & payments Risk sharing: aligned interests with the firm Bottom Line = Value Benefits to Firms Typically firms receive an increased volume of work from current clients New clients Communication often increases with the client providing a strengthened relationship 9

What is not value-based billing? Rate discounts Blended rates Not to exceed fee caps Mere budgets Even “flat fees” as some craft them… 10

2014 YTD C&M Pricing Portfolio 11

Why is the Billable Hour Dying so slowly? “VBB may be fine for commodity work, but my matter is too… … unpredictable … complicated … important and risky … unique.” 12

So we still monitor industry rates 13

Adding Project Management to the Mix 14

Pricing and Management Support Pricing Legal Project Management Profitability Alternative fees require alternative work practices 16

17

1.Fixed Fees For time period (e.g., month) For scope (phase) For life of matter For portfolio of like matters 18

Fixed Fee Example Annual Fee for Defined Portfolio: Fixed fee of $10M for all matters in competency for a Fortune 500 company Docket varies with new matters added and other matters resolved Flat fee amount changes annually to account for the anticipated workload for the coming year Client pays the fee at $833k per month 19

2.Monthly Retainers Fixed amount for a set period of time and stated scope of work – E.g., monthly amount for “counseling” work (defined as maximum hours/task, or hours/period) Typically applies to high-level, specialized counseling Provides “access” to SME’s as needed Often contains a periodic “look back” to assess mutual fairness 20

Monthly Retainer Example Counseling on Privacy/Cybersecurity Issues: For monthly fee of $5,000, [law firm] will counsel on day-to-day questions arising in privacy/cybersecurity regulatory arena [add specific inclusions/exclusions]. “Counseling” is defined as individual inquiries requiring less than 3 hours to complete, and total monthly inquiries requiring 10 hours or less to complete. 21

Client or firm holds funds in reserve to grade law firm’s performance Explicitly linked to client satisfaction with firm’s overall performance: Holdback criteria: Accuracy of budget Achievement of case objectives on time/under budget Communications performance Right staffing performance – right level; right team; compliance with client goals (e.g., diversity; development of vertical client team) 3.Performance Holdbacks 22

Holdback Example Fee deal with client provided for payment of 90% of agreed fees for 12 month period for class action case, with 10% holdback payable based solely in client’s discretion Client paid full holdback when firm won second motion to dismiss antitrust claim with prejudice 23

4.Flat fees with success awards Identify victories, large and small, possible throughout life of matter Reward counsel for achieving victories Flat fee alone vs. flat fee with victories 24

Flat Fee plus Success Example Antitrust defense: 1.Flat fee of $ X for initial MTD Set at 50% of average price 2.Plus success fee resulting in premium of 130% of average price 3.Flat fee of $ Y for MSJ 4.Plus success fee resulting in premium of 130% of average price 25

Explicitly links Firm compensation to outcome May include total cap on recovery varying at stage of “success” Ultimate value-based fee 5.Contingent Fees 26

Final Pricing/LPM Thoughts: Recommendations to Compete Aligning client needs with the right arrangement Lead with fixed fees Consider success payments vs. a reduced fixed fee Increased reporting both internally and externally Project Management has to be aligned with VBB pricing efforts 27