Legal departments are increasingly asking for alternative fee arrangements, causing a “fundamental” change in the relationship between legal departments and their external legal counsel.
According to a survey by legal consultant Hildebrandt on the legal spend of major US-based and worldwide companies, more legal departments will be seeking alternative fee arrangements (AFAs) in 2010. Almost 50% of the respondents to the survey indicated that AFAs will constitute 11% or more of their external legal spending. This compares to 37% of respondents last year.
“Now more than ever, cost control is a strong management imperative for law departments,” said Hildebrandt survey editor Lauren Chung. “The survey previews changes in the way law departments operate, especially with regard to reducing and managing inside and outside costs.”
Legal departments in Asia are asking for AFAs such as discounts, fixed fees and other added-value bonuses.
“One of the most pressing concerns for in-house corporate law departments is controlling rising external legal costs,” said Karl Chong (pictured), head of legal at DBS Bank, Taiwan. “While I think many clients accept that cost is not the only factor in determining price or value, law firms should nevertheless bear in mind that clients will always look for value from them.”
Chong said firms should be responsive to client needs regardless of the financial crisis. “By and large, the financial crisis should not change the way law firms in Asia bill clients. The principle should always be to provide good service and bill in a reasonable way. That way, clients are more likely to pay bills and remain clients,” he said. “We prefer the fixed fee approach for each transaction, as with other professional services. We do not wish that law firms overemphasise the time spent [on a transaction] but rather focus on the results to be achieved.”
Firms must innovate their legal billing practices, said Nicky Mukerji, global director of business intelligence at Legalbill. “Not every firm needs to move to an alternative billing system but everyone has to realise that their clients need to be partners instead of vendors,” he said.
For more on AFAs in Asia, see ALB’s November 9.11 issue , in which leading in-house legal figures discuss how firms in the Philippines and India are the most responsive to new market needs caused by the financial crisis.
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