PART II:VALUE LEVERS IN EUROPE
Chapter 7. Effective fee approaches – value-based fees and
7 A. Set the stage for effective fee arrangements with your providers
When you have implemented some of the ideas in Chapter 6 to improve management of
service-provider relationships so that they are increasingly effective, you have the groundwork set to
look at alternative fee arrangements and other incentives to manage costs of external providers. Every
corporate law department that has been effective at reducing external legal costs through value-based
fees will tell you that there are a few elements that are nearly always required, including:
•;existing relationship (e.g., you have worked together on at least a few matters);
•;legal service provider has good working knowledge of your business;
•;provider understands your law department strategy and objectives;
•;provider has experience using budgets and project plans;
•;good communication has been established among the in-house and outside team; and
•;in-house counsel and outside provider regularly scope assignments together.
If you don’t have a well-established working relationship, don’t worry: you can begin briefing
your provider on your legal function strategy and objectives while you define roles and responsibilities
for employing value-based pricing.
An important note: Discounting of fees does not count as a value-based fee arrangement.
While it can be a short-term tactic to reduce external legal costs, it makes no progress towards moving
up the value chain and away from the billable-hour model.
TIP: One way to reduce external legal costs in a sustainable way is to conduct the analysis at the
start to look at legal services delivery, knowledge management and budget. After determining
a reasonable external budget, you can then work with a law firm to develop an approach to
provide enhanced service and increase business-client satisfaction. Often, you can do this across
many jurisdictions. Many external providers are willing to agree to a fixed fee for services within
a pre-defined scope (usually based on type of work rather than number of hours). One such
approach is described in the case example in 7C. In this case, legal work assigned to the firm
that is not in the retainer scope receives a fixed fee quote, giving certainty of cost.