Maximizing Profitability with Alternative Fee Arrangements (AFA)

1. Using LPM to keep AFAs Profitable January 25, 2013 Monte Malone Mike Burks David Rueff, Jr.

2. Panelists • Mike Burks is the Pricing Manager in the finance department of Baker Donelson. He is a CPA with over 11 years of experience in law firm management and administration. Mike is responsible for the evaluation and implementation of value-based billing arrangements for the firm and provides practice group financial management to improve financial performance for eight of the firm’s practice groups. Monte C. Malone is the Chief of Practice Management for Fulbright & Jaworski L.L.P. He has an MBA in finance and over 22 years of experience in law firm management and administration. Monte is responsible for all areas of pricing and legal project management for the firm. This includes working with all firm practice groups in the development of alternative fee arrangements for clients, the management of these arrangements and monitoring their profitability. David A. Rueff, Jr. is a shareholder with Baker Donelson and is the firm's Legal Project Management Officer. He is a practicing attorney with over 20 years of experience implementing project management systems. David is responsible for the design and implementation of the firm's patent-pending legal project management system, BakerManage.

3. Monte Malone Mike Burks Alternative Fee Arrangements

4. Legal Project Management: THE AFA • Alternative Fee Arrangements (AFA's) may sound like another term for discounts or reduced fees, but in reality, it means an alternative to the typical pricing and delivery of legal services. Clients want more predictability in their legal spend. • By developing an alternative fee structure that more closely aligns with the interests and goals of the client, the law firm must deliver its legal services in the most cost efficient manner possible. Burks and Rueff, Value-Based Legal Services (Not Just Estimating Hours at Standard Rates), ILTA White Paper (September 2012), p.1. • Communication, client knowledge, and legal expertise are the key components in crafting a successful AFA.

5. Legal Project Management: THE AFA • What types of matters are best suited for an AFA and what type of AFA pricing should be used? • Repetitive Work: Recurring or repetitive matters, which allow historical data collection on performance are best suited for fixed fee pricing. These types of matters include labor and employment litigation, intellectual property, product liability or healthcare litigation, mass real estate loan closings, or a portfolio of similar loan foreclosures or asset recovery matters. These matters have similar legal issues and procedural challenges, therefore assumptions and risks are more predictable and support the creation of a more reliable fee estimate. Burks and Rueff, Value-Based Legal Services (Not Just Estimating Hours at Standard Rates), ILTA White Paper (September 2012), p.1.

6. Legal Project Management: THE AFA • What types of matters are best suited for an AFA and what type of AFA pricing should be used? • Phased Budgeting. Alternatively, if the entire matter cannot not be predicted with a level of certainty, the matter may be estimated by phases. This approach permits the firm and the client to enter into an AFA for preliminary phases of the case, with an agreement to re-evaluate later phases when more facts and information are available regarding the opposing party’s strategy. Matters which fit into this category are litigation, mergers and acquisitions, and commercial transactions. The client benefits from this approach because they do not bear the risk of a windfall to the firm if the matter settles early before completion of all the phases. Conversely, the firm benefits, because they are not at risk for a fixed fee prior to gathering valuable information during discovery and motion practice.

7. Legal Project Management: THE AFA • What types of matters are best suited for an AFA and what type of AFA pricing should be used? • Billable Hour with Fee Caps. Some matters are more difficult to predict and the client may be more comfortable with a billable hour arrangement, but the client may still want to cap its legal spend. In this situation, capped pricing is used and the client and the law firm agree that the fee will not exceed a certain dollar amount. Bonuses can also be factored into this approach. If the matter settles before the fee cap is reached, the client only pays for the time it took to settle. This approach is a true partnering between the client and the law firm, because the law firm accepts the risk that matter will not settle before reaching the fee cap. Burks and Rueff, Value-Based Legal Services (Not Just Estimating Hours at Standard Rates), ILTA White Paper (September 2012), p.1.

8. Legal Project Management: THE AFA • What types of matters are best suited for an AFA and what type of AFA pricing should be used? • Volume or Tiered Discounts. If the law firm and client do not have an existing relationship, and they anticipate a significant volume of work, volume discounts or tiered volume discounts may be appropriate. Once the volume exceeds "X" dollars, the client receives a discount off standard rates for amounts over "X" or in a tiered volume arrangement, the discount would apply to the entire amount retroactively. Volume Discounts allow the client to reduce its hourly rates in return for the client guaranteeing a certain volume of legal work. • Burks and Rueff, Value-Based Legal Services (Not Just Estimating Hours at Standard Rates), ILTA White Paper (September 2012), p.1.

9. Legal Project Management: THE AFA • What types of matters are best suited for an AFA and what type of AFA pricing should be used? • Collar Up: A Collar Up implies that there is an amount set as the budget. If the firm goes over the limit, it cannot charge for any additional work until it reaches a certain amount over the limit (the collar amount). At that point, the law firm is allowed to charge a certain percentage of the amount over that limit. Example: The budget limit is $1,000,000. The collar is $100,000 and the percent is 60%. The amount from $1,000,000 to 1,100,000 cannot be billed. If the firm goes to $1,200,000 then it can bill 60% (40% discount) of the $100,000 that is over $1,100,000 or $60,000. • Collar Down: A Collar Down is the same as a Collar Up only it also rewards the firm for being under the limit. Example: If the firm only bills $800,000, it would get a bonus of $60,000 or 60% of the difference between $800,000 and $900,000.

10. David Rueff Monte Malone Legal Project Management

11. What is Legal Project Management? • LPM draws upon traditional project management • Improves planning, monitoring and communications to ensure that an engagement adheres to a set of defined objectives for scope, cost, and time • Coordinating scope, cost and time is sometimes referred to as the triple “constraint” • If scope remains the same, but time is reduced, cost and necessary resources increase; likewise, if costs and resources are reduced, time is increased

12. Identify the legal Project management tool BakerManage – Baker Donelson’s LPM Process

13. Baker Donelson’s LPM Solution:BakerManage – Technology and Implementation • Baker Donelson’s Project Management Information System was developed in SharePoint • Communicates with Firm’s financial • system (Aderant – CMS), time entry • system (DTE) • Patent Pending for both the process • and integration with other Firm systems • In Edge International’s 2011 publication, Staying Power: Legal Project Management Update - the BakerManage system was described as follows: “Among the best is Baker Donelson’s BakerManage system, a model of singular clarity, simplicity and utility. BakerManage serves as a one-stop information shop, neatly integrating project information, budgeting, team selection and communication in a format that echoes the classic project management activity sequence.“

14. BakerManage Example of a BakerManage Client / Matter Site in SharePoint 2010:

15. Fulbright’s LPM Solution: Engage – Technology and implementation

16. Fulbright’s LPM Solution: Engage – Technology and implementation

17. Project development – Step 1Develop a Project Plan – scope of Services • The scope of the engagement should be clarified to confirm that the tasks to be completed, schedule and budget are limited by the scope and will be on target with expectations. • Identify the Client’s business need for the engagement • Identify the Client’s goals and expectations with regard to timing and cost (early settlement, expedited discovery, closing a transaction in a short period of time) • Develop a clear statement of the scope of services to be provided • Use Best Practices Guides to clarify whether there are any carve outs from the services – what is out of scope • Develop the factual background with the Client, identify key documents, and note any assumptions being made which, if untrue, could broaden the scope of services, timing or budget

18. Project development – Step 1BakerManage – scope of Services • BakerManage captures this information in a Statement of Work which is included in the engagement letter. This information is also shared with the Client (through an external login) and the Legal Team (through the Firm intranet) on a Share- Point collaboration site

19. Project development – Step 2Develop a Project Plan – identify stakeholders Normally the scope is communicated by the Client through a single point of contact. Other Stakeholders should be identified to confirm that the scope includes all Stakeholder objectives. • Key Stakeholders include inside counsel, business department representatives, third parties, vendors, opposing parties and counsel • This information is captured and shared with the team and should also include: • Contact information • Contact type • Expertise • Responsibility • Copied on correspondence • Project role / authority

20. Project development – Step 2BakerManage – identify stakeholders BakerManage captures and makes this information available to inside and outside counsel through the SharePoint collaboration site. The Stakeholder list serves as a contact list and a clarification of roles Evaluation of all Stakeholders presents opportunities to identify potential cost savings through shared responsibilities or vendors

21. Project development – Step 3Develop a Project Plant – Develop Tasks Whether using a standard hourly or an alternative fee arrangement, the tasks to be completed must be identified in order to prepare an accurate budget and schedule. • Best Practices Guides for each practice group identify the phases, tasks and subtasks to be completed • The tasks should be consistent with the original definition of scope, including carve outs • If tasks are removed due to assumptions (i.e. plaintiff will not file a motion for summary judgment) these should be noted in the task list and confirmed with the Client • The task list will be used to assign resources, identify estimated time for completion and ultimately develop the budget

22. Project development – Step 3Fulbright's engage – task list development

23. Project development – Step 4develop a Project Plan – Assignments and Schedule • Once the list of tasks has been developed, the Legal Team must identify the resources and milestones for completion of the work. • Best Practices Guides are provided in the template for recommended resource allocation • Used to track Team Assignments, Status, Due Dates • SharePoint Alerts identify tasks not started or completed within a specified time of the due date • Upon login, users are notified of their pending tasks by project • Excellent training tool for associates who see the larger picture

24. Project development – Step 3Fulbright's engage – Resource Assignment

25. Project development – Step 3Fulbright's engage – Resource Assignment

26. Project development – Step 3Fulbright's engage – Resource Assignment

27. Project development – Step 4BakerManage – Assignments and Schedule • BakerManage provides a simple assignment tracking tool to monitor completion of work. This includes the ability to monitor task status, due dates and recommended hours for completion.

28. Project development – Step 5develop a Project Plan - Budget • Clients can realize immediate cost savings by implementing a budget to control legal spend. Although not an alternative fee, by placing goals or constraints on the Legal Team, the traditional practice of “bill what it takes” is replaced by “let’s talk if you need more time”. • Practice group-approved template budgets estimate time, recommended resource allocations, assumptions and potential risks • Budgets at the task or subtask level provide estimated hours for completion which serve as a goal or guide for team members • The template also serves as Best Practices Guide which can be tracked by all team members

29. Project development – Step 5BakerManage – budget • BakerManage’s Budget view identifies the original budget allocations by Phase, Task and Timekeeper, and (if time is entered daily) shows real time (updated every hour) Budget-to-Actual comparisons.

30. Project development – Step 5Develop a Project Plan – budget • BakerManage’s Budget view also permits filtering to view budget-to- actual comparisons by Phase, Task or Timekeeper.

31. Project development – Step 5develop a Project Plan – budget Budget information can be tracked and reported at the Client Level (by Matter), at the Matter Level (by Phase), at the Phase Level (by Task) and at the Task Level (by Timekeeper). Phase Level Reporting

32. Project development – Step 5Fulbright’s Engage – budget

33. Project development – Step 5Fulbright’s Engage – budget

34. Project development – Step 5Fulbright’s Engage – budget

35. Project development – Step 5Fulbright’s Engage – budget

36. Project development – Step 5Fulbright’s Engage – budget

37. Project development – Step 5Develop a Project Plan – budget Proper real-time budget evaluation tools can streamline the budgeting oversight process and provide historical information for more reliable estimates: • Effective cost controls and monitoring legal spend - searches to show Phase, Task and Resource / Timekeeper performance against budget • Set constraints for the Legal Team (not an AFA, but reasonable estimates for the engagement) • Integration of all costs related to a matter (local counsel, expenses) • Automated Alerts to notify of pending budget overages • Confirm that Phase / Task codes meet client's E-Billing requirements • Opportunities for alternative fee arrangements that are based upon actual past performance and trends, and not guestimates by either side

38. Legal Project Management: Alternative Fee Arrangements • Example of Phased Budgeting: • We propose three flat fee phases: (1) Initial Case Assessment, Answer and/or Early Motion Practice, (2) Discovery, and (3) Summary Judgment. A fourth phase to include trial preparation and trial (if necessary) would be established based on the nature of the case after the summary judgment hearing. The phases are more fully detailed below. Phase One – Case Assessment, Answer and Early Motion Practice: Flat Fee: $12,000 Tasks would include but are not limited to: • Review Complaint • Fact Investigation/Witness Interviews • Analysis / Strategy • Removal • Answer • Scheduling Conference • Other Written 12b Motions or submissions • Informal efforts to resolve the matter prior to discovery

39. Legal Project Management: Alternative Fee Arrangements • Example of Phased Budgeting: • Phase Two- Discovery Flat Fee: $25,000 Tasks would include but are not limited to: • Prepare and issue first set of interrogatories and RFP • Respond to Plaintiff’s first set of interrogatories and RFP • Prepare and enter standard Protective Order • Prepare for and take Plaintiff’s deposition • Defend up to three depositions taken by Plaintiff • Report to client and send status reports Phase Three – Summary Judgment Flat Fee: $25,000 Tasks would include but are not limited to: • Prepare Motion for Summary Judgment and Memo in Support • Prepare Reply to Plaintiff’s Response to MSJ • Prepare for and argue Summary Judgment Hearing • Prepare any necessary Post-Hearing Memo in Support of the MSJ • Report to client and send status reports

40. Legal Project Management: Alternative Fee Arrangements Foreseeable Risks To Be Included in the Budget: • Standard discovery disputes • Multiple rounds of foreseeable discovery • Vigorous adversary who will not cooperate • Court-ordered hearings that are continued • Unforeseeable Risks Not Included in the Budget Requiring Prior Approval of the Client • Time related to compilation, processing, or review of electronically stored information (ESI), • Bankruptcy filing, • Removal/remand to/from federal court • Discovery of significant undisclosed facts that require a material amendment to the pleadings, etc. • Appellate work, whether interlocutory or after final judgment • Execution on a judgment

41. Monte Malone David Rueff Project Monitoring

42. Project MonitoringFulbright’s Engage

43. Project MonitoringFulbright’s Engage

44. Project MonitoringFulbright’s Engage

45. Project MonitoringFulbright’s Engage

46. Project Monitoring

47. Using LPM to keep AFAs Profitable Jan 25, 2013 Monte Malone Mike Burks David Rueff, Jr.