Law firms should pursue alternative pricing models, including subscription models, to increase client satisfaction with the pricing process, says Google's Aaron Boersma
Law firms and their clients alike seem to struggle to find comfort with many alternative fee arrangements (AFAs), possibly because many AFAs don’t align with the typical way of thinking about hourly billing as standard practice in the legal profession.
To shed more light on this, we spoke with Aaron Boersma, who currently serves as the Strategic Projects Lead in Global Affairs Finance at Google. In this role, Boersma is responsible for the development and execution of Google’s spend management strategy for its Legal, Regulatory, and Government Affairs teams.
Practice Innovations: Clearly, certain types of work seem more amenable to alternative pricing. What are some examples of matter types or types of work that you think can more easily be considered ripe for alternative pricing?
Aaron Boersma: Alternative pricing has always been a challenge between law firms and their clients. As someone who has spent their entire career in the legal pricing and spend management space, I have seen first-hand the discomfort that exists on all sides when it comes to new, innovative pricing structures. We are, as an industry, slow to change, and adoption of AFAs extends beyond a variance from standard practice.
AFAs, from their inception, were widely considered to be a tool for law firms to drive realization and profitability, as opposed to a way to more efficiently package legal services. Most articles and publications after the 2008 Financial Crisis touted AFAs as a way for law firms to claw back to profitability. It would naturally make sense for a legal services buyer to think twice about AFAs to make sure that these sort of arrangements are not just an attempt on the part of their outside law firms to boost profits, but that the AFAs represent a more effective packaging of services that drive better outcomes and partnerships.
I also think it’s important to level-set that AFAs do require a more hands-on management approach than you would normally see under a typical hourly arrangement in order for them to be successful. Instead of looking at the total WIP [work-in-process] spend, a law firm partner has to pay much more attention to the substance of the legal work for an AFA. They must consistently make sure that the current workload across their teams is in line with the underlying statement of work. Doing this well takes work — hours that aren’t necessarily going to be billed — but this work has the potential to pay dividends with deep long-lasting partnerships.
Practice Innovations: What would be the best way for a firm that may be unfamiliar with using AFAs with their clients to begin the process?
Aaron Boersma: For law firms wanting to get started with AFAs, I would begin focusing on areas within your practice that represent the least amount of volatility. They are relatively simple for in-house counsel to review. And only your own imagination limits the structure of these arrangements.
Practically, I have seen companies of all shapes and sizes start with straightforward litigation matters for AFAs. Instances where facts, evidence, and timelines are straightforward are ripe for AFA opportunities. Really, any situation in which law firms can provide predictability in fees is a fantastic place to start.
Practice Innovations: For these types of work, some law firms have begun to offer bulk or subscription pricing models. Can you explain how such a model would work in the context of the legal market?
Aaron Boersma: Subscription models for law firms are typically monthly or annual flat fee arrangements that allow a corporate legal department to access expertise from outside counsel in a particular subject area. This access is typically free-flowing between outside counsel and their clients within the defined scope and, once they get started, it is intended to create more of a boots on the ground partnership between a legal department and their law firms.
These arrangements could apply to any subject area, so long as the scope of what outside counsel will provide is clear. As with any AFA, the possibilities are only limited by our own creativity.
Practice Innovations: What are the potential advantages and disadvantages of moving to a subscription model?
Aaron Boersma: Subscription models are very advantageous for in-house legal teams. They remove a number of barriers to accessing outside counsel talent. Instead of opening a matter and going through an outside counsel selection process (via an RFP), outside counsel can get started on projects quickly, so long as they are within scope. This could, depending on the project, cut weeks off the time it would take to get the right partner in place. Add in predictability in fees, and there is a lot of untapped value around subscription models.
In light of the positives, these sorts of arrangements do require a lot of work. Law firms and legal departments alike will have to invest time and resources to make sure that these arrangements stay within the intended scope, and that the subscription is not over- or under-utilized. Indeed, without a tight, diligently managed scope, it would be easy for these arrangements to be over- or under-utilized. Outside counsel and corporate legal departments are partners in these arrangements, and it is the responsibility of both to make sure the arrangement is successful on both sides.
Practice Innovations: How amenable are clients to suggestions of pricing models like subscription pricing for legal work? How should a law firm go about pitching this to a client?
Aaron Boersma: Any client would be amenable to subscription pricing models; however, because they require a good bit of time and resources to manage from both sides, law firms should focus their efforts on current existing relationships that are viewed as strategic from both sides. These are not arrangements that can take a small relationship to a large one, but they have the potential to take things from strategically important to indispensable.