Canadian Lawyer InHouse

JULY 2016 38 INHOUSE L aw D e p a r t m e n t M a n a g e m e n t "That's the drive for commercial mind- set — it's no longer a world where we pro- vide our in-house lawyers with a long list of lawyers they can choose from," says Mc- Cue. "We're in a tight cost environment and under a lot of pressure from our businesses to reduce our cost, and one way to do that is to be more commercial about everything we do. If we're going to spend money, we want to make sure we're spending it wisely." McCue is quick to note the rate auction has to be understood in the context of the AFAs. It may have seemed to some of the fi rms that asking them to compete on an hourly fee was counterintuitive to the push for AFAs, but there was a method to Shell's request. "We explained to fi rms that we are com- mitted to AFAs and every new matter has to be on an AFA, but we had a rate auction because we have found in negotiating AFAs that because of the way law fi rm compensa- tion structures exist they always drive back to hourly rates. So it was in our interest to make sure we had the best hourly rates in place with the fi rms because those are the building blocks for the AFAs put in place." On occasion, McCue says, the appropri- ate fee arrangement is still an hourly rate and Shell wanted to have the best compensation rates in place for when those situations arose. "Some of the fi rms pushed back saying, 'I thought we are in an AFA world?' We are, but until the majority of the law fi rms out there have a compensation structure that doesn't drive off of the hourly rates, we're kind of stuck with putting that in place and working on AFAs on top of it." Shell chose to set hourly rates with its panel fi rms for three primary reasons: 1) hourly rates are still a part of some forms of AFA it uses (capped fees, risk collars, etc.); 2) like it or not, the hourly rate is still typically used by the law fi rms as the building block on which they calculate the pricing for AFAs, as they calculate how much time they expect it will take to complete a given task/ project in an effi cient manner, and what an acceptable level of remuneration for that de- livery is; and 3) there will be times when the hourly rate is the "appropriate" fee arrange- ment, and Shell does not want to be paying a fi rm's rack rates on those occasions. Shell put these new rates in place with the panel fi rms selected for the next two-year period, and will revisit the need for hourly rates in two years' time (the new Framework Agreements run through to 2020). McCue admits there was "a lot of anxiety" around the entire process with the law fi rms. "Shell's a big client for many of them and knowing we were reducing our numbers dramatically in this way means I had a lot of phone calls with relationship partners during and after the panel was announced," he says. Over the years, Shell has gathered a massive amount of data on litigation fees through the department's matter manage- ment system — TeamConnect from Mitra- tech. The company has used the system in the U.S. since 2002 and since 2012 globally. "It provides a lot of data to help us im- prove our pricing and improve the way we manage matters," says McCue. In the last two years, the trend Shell has been seeing is that the fi rms with good legal project management are the fi rms that do well under AFAs. "Legal project manage- ment is key for us," says McCue. IH Will technology transform the practice of law? Find out at The Emerging Legal Technology Forum Presented by Thomson Reuters and MaRS District Discovery September 20, 2016, 9:00 a.m. – 5:00 p.m. MaRS Discovery District, 101 College Street, Toronto Join us as renowned legal professionals and change leaders examine the impact of technology on law fi rms. Here's your opportunity to • Consult with industry experts about new and future legal technology trends • Network with colleagues and exchange ideas through interactive conversations • Gain invaluable insight you can apply at your fi rm Seating is limited. Register now at www.trlegalx2016.com Untitled-4 1 2016-06-06 10:34 AM

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