Alternative Fee Program Data Shows As Program Matures, Clients Realize Savings On Outside Legal Expense

efficiency

Here is an actual set of alternative fee numbers I’ve just happily provided to update one of the insurance clients I represent, demonstrating that an alternative fee program is saving them money on outside legal expense.  Real money.

Listed below are data for seven insurance related  cases I am handling under a monthly flat fee program (with a cap on the number of months the flat fee can be charged, so as to encourage efficiency).  First a look at the numbers, and then a few quick observations.   Only the case names below are changed to protect identities.  The numbers are 100% actual  and show actual flat fees paid by the client versus what they would have paid under an hourly rate agreement.  Green numbers in the Net Diff. column represent savings to the client.

Case            Hourly Fees      Flat Fees       Net Diff.

Smith        $17,218.50       $25,350.00       $8,131.50

Jones         $30,433.00        $13,650.00     -$16,783.00

Ajax           $2,212.50         $2,775.00         $562.50

King          $4,781.00          $1,950.00       -$2,831.00

Queen       $2,157.50         $895.00            -$1,262.50

Western   $4,074.50         $2,925.00         -$1,149.50

Atlantic   $351.00            $2,775.00        $2,424.00

Total         $61,228.00     $50,320.00     -$10,908.00

Client Savings:            -17.8%

Before the observations, a caveat:  This data, at any given time, is a snapshot in the life of an assignment, and/or group of assignments.  The data changes, but as the assignments mature in terms of their life cycle, a clear picture emerges:

  • Overall the client savings in this alternative fee program approaches 20%.  As the data set increases, the savings  ratio will stay relatively stable, but the real dollars saved in outside legal expense will grow, and grow, and grow.  A company with a million dollars a year  in outside legal expense based on hourly engagements would spend only $821,846.21, a savings of nearly $200,000.00.
  • The insurance clients are “winning” more fee agreements than they are not “winning.”  This is a sign that the alternative fee program is rightly priced so that it is both 1.) an real financial benefit for the client, and 2.) not a financial hardship for the outside law firm.
  • The program retains extreme flexibility, as each assignment is quoted independently (although the quotes generally do cluster closely for similar type cases) and either side retains the right to seek adjustment as the matter proceeds.  Clients also reserve the right to request the traditional billable hour arrangement for any case which they feel does not suit the alternative fee program.
  • There are and there will be outliers in any alternative fee program.  But as you can see from the data, the outliers are rare — in the two cases with  more than a $5,000.00 difference between what the client paid and what the client would have paid, one benefitted the client, and one benefitted the law firm, but the client benefitted twice as much as the law firm when the two outliers are aggregated.  Win-win-win.
  • The program provides simultaneous double benefit to the participating client:  1.) the client gets the benefit of outside counsel with local knowledge and expertise;  and 2.) the client secures this quality at less than hourly rate pricing.

I cannot think of any CEO’s, CFO’s or any other XXO’s who would not like their General Counsel to approach them with an immediate simple way to give their outside legal expense a 20% haircut, while at the same time retaining the right to assign any matter under a flat fee or traditional billable hour arrangement.

I also cannot think of a General Counsel for whom I have ever worked who would not want to take the alternative fee arrangement mechanism I’ve  outlined above for a spin, if it meant retaining the desired law firm at reduced cost.  There is literally nothing to lose except 20% off your outside legal expense budget.

CJH

 

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Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

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