Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50877
"Why don't people do it? I don't know. Maybe they are lazy, maybe it's hard, maybe [as] lawyers, they think of this as being administrative . . . and not professional. My response to that is get over it, you're being paid to be a manager and part of your function is to manage your legal spend, you can't do it all yourself," says Carr, when asked his opinion of why so few people at the conference put up their hands. In reality there are likely a number of reasons for the lukewarm response from those gathered at the meeting. First of all, it is unlikely anyone in the room hasn't heard of the Value Challenge, but they simply haven't begun value billing. every person here on my legal team," Carr says. "I have three jobs here at the company. One of them is to run a high- performance legal team that delivers right-sized legal services to our corpora- tion effectively and efficiently. "I can like my people that work for me on the outside, I can like them a lot. I can like to go bird hunting with them or out to an opera or to a football game and that can be very enjoyable, but unless they are people who bring value to me as a service provider, none of those things matter to me." Value-based billing is not new for FMC. The company began employing the practice a decade ago, and began I can like my people that work for me on the outside, I can like them a lot. I can like to go bird hunting with them or out to an opera or to a football game and that can be very enjoyable, but unless they are people who bring value to me as a service provider, none of those things matter to me. JEFFREY CARR, FMC Technologies, Inc. might be hourly, it might be project- based, it might be retainer. It might even have a performance component in it, a band or something like that. The firm bills us, we pay 80 cents on the dollar of the invoice and that's legal fees plus expenses. Twenty per cent is held back and then we periodically give the firm a report card." Where the business-helping-busi- ness aspect comes in is through the updates. The report card has six factors. Depending on how the outside law firm fulfils those factors, it receive between zero and 200 per cent of the withheld amount. This means law firms have the potential to make 120 per cent of their bill, or 80 per cent depending on the level of "efficiency, effectiveness, and customer satisfaction." So far in 2009, FMC has paid on average 107 per cent of invoice. "The paradox of our engagement sys- tem is we pay our law firms more than they bill us, however, our legal bills have gone down every time, yet our company has tripled in size since 2001," Carr says. "So how do you do that? The only way you do that is by changing the way you buy legal services. You buy less of them even though you pay more for them on an hourly basis." The fact in-house lawyers are start- Secondly, there may have been a host of lawyers from law firms trying to gain the inside scoop on the initiative. Thirdly, the room might have been full of in- house counsel trying to figure out just what all the fuss has been about. Carr is often seen as a beacon to shine the light on value billing. He has a simple rule for outside law firms wanting to do work with his company — buy into a value-based billing model or find busi- ness elsewhere. For that statement he makes no apologies, his company has a modest legal budget, $7 million last year, and every dime of that budget spent on U.S. counsel is on a value basis. "This is a business, I am a business- person first and a lawyer second, as is working on a value-based model in earnest five years later. But the ques- tion that often comes up is what is value billing? That is perhaps a question more easily answered by what it is not. On that premise, and simply put, it is not a discount, capped rate, or reduced rate, value billing has more to do with improving the business of clients and if done properly it can mean more money for law firms. Carr says FMC has two basic value- billing models, the simplest of which is a "report card" system called ACES LT or the alliance counsel engagement system, light or long term. "It's a really simple model. We come to an arrange- ment with the firm on a fee basis that 24 • DECEMBER 2009/JANUARY 2010 INHOUSE ing to ask how, instead of what, when the subject of value billing comes up is something ACC president Fred Krebs did not expect to happen this quickly. When the group rolled out the Value Challenge in Seattle last year it was to begin to persuade legal departments the old way of billing should be looked at. The idea was to start questioning wheth- er the relationship between law firms and their clients was one that promoted the success of both entities. "Initially what our effort was aimed at . . . and what it was all about, was persuasion," Krebs says. "With the eco- nomic downturn that provided impetus and momentum, things picked up and moved much more rapidly than we had thought or anticipated." Originally the ACC had a benchmark that 25 per cent of its