United Technologies’ path to alternative fees began in 1999 with the initiation of the U TC Outside Counsel Management Program. Featuring engagement guidelines, matter management, spending analysis and an approved network of law firms, the program has enabled UTC to transition away from the billable hour for more than 70 percent of its external spend.

“Buying legal services based on an hour-
ly rate rewards inefficient law firms; the price for any particular
task shouldn’t increase simply because it took longer to perform
the task. True value is performing the same service at a lower
price, more efficiently, without sacrificing necessary quality
or accepting increased risk,” says Charles D. Gill, senior vice
president and general counsel.

Kimberly Townsan, senior manager of Legal Administration, was brought in to assist in implementing UTC’s new counsel management program.

“We have taken a real building-block approach of continuous improvement and evaluation,” she says, noting that refinements have been made in three key phases. Engagement guidelines became standards that emphasized value billing and included a chart of alternatives. They were initially distributed to 800 to 900 firms; “There was some pushback,” Townsan says.

Next came convergence: a concerted effort to reduce firm count. “Even as our revenues more than doubled, we were able to cut our firm count in half,” she notes. “While we have grown through acquisitions, we didn’t let the number of firms increase.” Rather, U TC implemented a process for reviewing requirements to leverage existing preferred and recommended firms within the network.

Third was the adoption of new key metrics, which included reporting AFAs at the business unit level, individual attorney level and firm level. “This was more of a challenge with our activity outside the United States, but we’ve definitely achieved momentum there,” Townsan says.

To educate firms and expand use of value-based fee arrange-
ments, Associate General Counsel Paul Beach conducted train-
ing sessions in the United States, Europe, and Asia. Providing
the “U TC Alternative Fee Toolkit,” he highlighted examples of
successful arrangements, and recognized attorneys and firms
who had implemented them. The training sessions communicat-
ed these key principles:

■ ■ Quality comes first, commensurate with risk.

■ ■ Early case assessment is crucial.

■ ■ Play fair and respect relationships.

■ ■ Bonus opportunities reflect risk.

■ ■ It’s OK for firms to make more profit as long as UTC achieves lower costs.

Since 2011, business unit attorneys have collaborated with Steven Greenspan, associate general counsel for Litigation, on strategy for all significant litigation. His experience as a partner in a major law firm has enabled rigorous evaluation to determine appropriate firm selection and fee arrangements. UTC also worked with matter management vendor LT Online to incorporate specifications into the Lawtrac application that facilitate the tracking of alternative fee statistics at the firm level.

In 2012, U TC announced to outside firms that the percentage of firms’ billings under value-based fee arrangements would be a major consideration in granting rate increases. “If at least 60 percent of their billings, on a dollar basis, were under AFAs, we would grant reasonable rate increases,” says Townsan. If not, increases would be limited to the wage inflation rate of the firm’s jurisdiction.

“If firms can’t meet the requirements, they are evaluated
for removal from the network,” Townsan continues. “It really
emphasizes the importance of value-based billing to U TC.
We must have a commitment from external counsel that they
are willing to invest in this relationship. In return, we make a
commitment to them that they will get the work.”
UTC Legal has found that AFAs provide sustainability (the
effect of personnel changes is minimized) and internal time
savings — reduced non-value time spent on invoice reviews,
budget reconciliations and discussion of invoices. Because
U TC commonly rotates attorneys, use of AFAs ensures that
the project plan and agreed-upon costs are memorialized in the
event there is a change of personnel, either on the firm side or
within the U TC matter team. The number of invoices has been
reduced to a fraction, and budgets are more predictable: over 70
percent of UTC’s outside counsel spend in 2011 and 2012 was
under alternative arrangements.

“There is risk, but firms have the opportunity to improve their margins. AFAs drive efficient project management on a matter,” Townsan says.

New attorneys who come to work at U TC receive training
on the Outside Counsel Management Program as part of their
onboarding experience. It’s likely that they also learn of Gill’s
quote from U TC’s 2005 meeting of their worldwide attorneys:

“Billable hours are the last resort.” vc

United Technologies Corporation

Top-Down Focus and Training Leads to Eye-Popping 70 Percent of Spend on Value-Based Fees

Charles Gill

FROM THE JUDGES “This example underscores that this is really a journey and every point is progress, but the progress doesn’t end. The commitment to the journey was remarkable.”