Canadian Lawyer InHouse

JANUARY 2017 24 INHOUSE A s in-house counsel continue to experiment with alterna- tive fee arrangements, there has been a shift toward look- ing more at overall value — whatever fee arrangement is ultimately used. This year, 4.9 per cent of respondents to the Canadian Lawyer Corporate Counsel Survey said they use alternative fee arrange- ments with their primary law fi rm. Last year, the number was 12.7 per cent. Stephen Rotstein, chairman of the Cana- dian Corporate Counsel Association, doesn't think the whole idea of AFAs — whether you're looking at alternative or appropriate fee arrangements — is going away, but he does see it as going through a transition. Be- cause of the cost certainty and predictability in-house counsel are looking for, they're al- ways going to be receptive to new ideas. "For too long, we've looked at the value lawyers bring to an arrangement just by the amount of hours they put in and that's not the value they bring to corporate clients," he says. "It's not the hours you bill but the value you provide. There's got to be better ways." Lorne O'Reilly, senior counsel at Dow Chemical Canada ULC in Alberta, sug- gests the drop in reported usage may come down to what people are reporting as an AFA, a factor of familiarity of what's out there or simply the fact that AFAs have been tried, but in a number of circum- stances the traditional hourly billing rate provides the best value. He also wonders whether in-house coun- sel are nervous about losing their jobs and trying to internalize more work or if they are too rushed to analyze what's best for their billing. O'Reilly says that whatever might be hap- pening with AFAs, it continues to be a hot topic and the senior leadership he talks to still expects some sort of different fee ar- rangement from the external counsel with which they work. Rotstein agrees, saying that, in his experience, external law fi rms are looking for ways to provide models of billing that work for corporate clients. "I think we're an evolving legal market where constantly things are tried and if they don't work we try something else," he says. O'Reilly says most fi rms are more than willing to work on a different fee basis in Alberta. Some are providing a budget and identifying different expertise that can be provided such as a project manager. He wonders if any pushback on AFAs stems from poor RFPs that are being put out where the fi rms have to put a considerable amount of work into trying to understand what the organization wants. Billable hours are back as the most com- mon billing arrangement in-house counsel have with their primary law fi rm or external service provider, sitting at 50.2 per cent this year compared with 46.8 per cent last year. Staying in line with what the survey said last year, fl at fees are still the least popular op- tion, weighing in at 2 per cent. The combi- nation of billable hours plus AFAs spiked to 42.9 per cent from 31 per cent last year. "I think the challenge has always been, both for our organizations being in-house organizations and law fi rms, how to struc- ture models that work for both players in the arrangement," Rotstein says. One survey respondent said he still uses the billable hour because "we can effectively manage external counsel billable hours and we drop ineffi cient lawyers." Despite the mixed results, the percentage who said more than 75 per cent of the work they send out falls under an AFA held more or less steady, at 6.3 per cent this year versus 5.9 per cent last year. Also, 78.8 per cent of respondents say they are interested in engaging with their law fi rms in AFAs. But of the 21.2 per cent who aren't interested, 22.5 per cent of that group admit they don't fully understand AFAs — this could be because in-house counsel haven't had the opportunity to use them in a matter and explore the possibilities. O'Reilly says his company is looking to its external service providers and asking for a budget for every matter. While 65.6 per cent choose external law fi rms based on specifi c lawyers — with one respondent commenting that lawyers "need to know your stuff, [be] cost effective, but most important is the relationship . . . are you making life easier?" — O'Reilly suggests in- house departments branch out in who they hire. However, as 56.4 per cent of respon- dents made clear, choosing the external fi rm based on industry/practice area expertise is an important consideration. The remaining respondents said 40.1 per cent choose their external fi rms based on technical expertise and 30 per cent choose based on reputation. More than 300 law department leaders from corporations and government complet- ed the survey. Similar to last year, 62.1 per cent of the 303 respondents said the volume of legal work carried out by their department and external counsel was likely to grow. Hav- ing their company in growth mode was the top reason at 72.5 per cent, while 23.9 per cent said they would grow because of a company- made acquisition and 21.1 per cent projected growth based on a one-time project. Multiple respondents noted increasing complexity and more activity in the industry as key infl uenc- ers on their company's growth rate. Despite more than 60 per cent saying they expected more work, when asked if the size of their legal department changed over the past year, only 27.4 per cent said it grew, noting it was because there was more work to be done. A little more than half — 50.8 per cent — said department size remained the same. According to 8.9 per cent, vacant positions were fi lled, and 12.9 per cent said they saw the legal department shrink. Fee discussions shift from AFAs to value The Annual Canadian Lawyer Corporate Counsel Survey found the use of AFAs has declined from last year, but experimentation continues. BY MALLORY HENDRY

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