Several elements are essential for creating value-based arrangements for legal services that work: information on volume,
complexity and risk of matters; trust and a sense of partnership.
Having worked together for 25 years, Healthcare Insurance
Reciprocal of Canada (HIROC) and its external legal counsel,
Borden Ladner Gervais, were well positioned to take their relationship to the next level. That level represented a new configuration of business fundamentals that included work measured
by number of matters rather than hours, insourcing work to the
in-house legal team, the rigorous use of legal project management, and a multi-year fee arrangement of a base amount with
“We have taken a different approach to medical malpractice
in Canada. We wanted expertise rather than an area of geographic concentration. We offered steady, ongoing work, which
allowed us to attract the best and the brightest defense counsel,”
says Michael Boyce, vice president of claims at HIROC.
“We compared our costs to settle claims with doctors and
with other insurers; ours were usually lower,” he continues. “But
we are always looking to see how we can improve and simplify,
and we wanted to make use of the fact that we could predict the
number of claims very accurately; and how long it would take to
settle most of them.”
To arrive at that knowledge, HIROC brought in Catalyst
Consulting of Vancouver, British Columbia, to conduct an
in-depth analysis of four years of litigation matters and to
study average and total hours and staffing patterns for each
level. To this was added a five-year forecast of the demand
and growth in matters by level of complexity. Richard Stock
is principal with Catalyst.
“We do the technical work that provides the information [for
these innovative arrangements],” he explains. “We gather the
data, make linkages, give it a different interpretation. We urge
our clients to challenge assumptions and old practices.”
In August 2011, HIROC issued a request for agreement for
legal services only to BLG. The scope of work included slightly
more than 300 new matters per year across five levels of com-
plexity. The request detailed criteria for the configuration of a
team of about 20 lawyers and 10 paralegals, rigorous protocols
for the preparation and approval of matter budgets, and the use
of legal process management methodologies. Compensation
would be in the form of a base fee combined with a perfor-
mance fee determined by such value criteria as process manage-
ment, responsiveness, predictable costs and results delivered.
“In today’s terms, the most progressive arrangements are
those that are based on billing for service rather than hours. We
can’t predict every matter but we do have a good sense of what
is a reasonable fee. In HIROC’s case, the volume makes it easier
to predict,” says John Morris, a partner at BLG who works
closely with Boyce.
The base fee includes all professional fees; all office-related
expenses such as binding, copying, courier and postage; and
increases for timekeeper experience and inflation.
“BLG has always been incredibly efficient at having the right
level of lawyer do the work and the strategic use of paralegals.
We saw the new agreement as an inducement to be even more
efficient, and as a learning experience,” says Boyce.
HIROC now enjoys greater predictability in areas other than
budget. The agreement allows both client and firm to retain top
legal talent, address succession issues and minimize bureaucracy
to support the new working arrangements.
Such arrangements are organic, says Stock, who is currently working with HIROC and BLG on improving the agreed
performance evaluation process in 2013. “You are changing
behaviors and practices, and adopting new ones. You’re picking
up new skills and techniques. Such arrangements should not be
mechanical but rather we must continue to make adjustments.
“A lot can happen in six years.” vc
HIROC and Borden Ladner Gervais LLP
Achieving Predictability and Pay for Performance in Long-Term Client/Firm Arrangement
From left to right: John Morris, Borden Ladner Gervais LLP, Cindy
Clark, Borden Ladner Gervais LLP, and Michael Boyce, HIROC
FROM THE JUDGES
“This one makes the point that alternative
value arrangements deliver predictability to
the client, which is important for all corporations
and their budgeting. It diminishes the notion
that the only reason clients pursue alternative
value arrangements is to reduce costs. Also
the partnership provided a number of benefits
to the law firm.”
“Good use of analytics to look at existing body
of work before negotiating an AF arrangement.”