1. What is Quality?

    May 9, 2013 | Author: admin | Category: Uncategorized | Comments (0)

    Several posts to this Blog have discussed the concept of “quality”, in referring to the quality of legal services. Generally, comments involved the fact that almost all law firms market predominantly on the provision of quality services. In general, the quality of legal services, if one believes multiple surveys of general counsel over the last 10-12 years, is now more or less assumed. There are very good reasons for this assumption, which is actually not the topic of this posting.

    The question here is whether there are general distinctions in quality which are inherent in the delivery of legal services. If a law firm has developed, over a period of years, a sophisticated and experienced capability in a particular area of law or industry, then some reasonably high level of quality in a related engagement can be assumed. But is the delivery of the services, the “final product”, negatively impacted by the way in which the engagement is managed by the law firm?

    Consider two simple examples, the first of which is more traditional and more typical. In this example, the engagement (litigation or transactional) is staffed by a lead partner (in current popular vernacular, the “project manager”), who then determines the analytical and document needs of the assignment and assembles, by various means, a number of lawyers and legal assistants who she believes will be sufficient to complete the engagement. Because of the way law firms are staffed by lawyers, a number, perhaps a majority, of the lawyers will be associates, or junior lawyers. It is usually a requisite that these relatively inexperienced lawyers be utilized in an engagement (and bills sent to clients for their time), since they are paid substantial salaries and the overhead costs to maintain each of them is not insubstantial (in general, about the same as for a senior lawyer).

    These associate attorneys are generally assigned, depending on their seniority, certain legal research, document drafting and document review responsibilities. Because of their inexperience, however, they will naturally make mistakes that more senior lawyers would avoid, and therefore their work product must be closely monitored and reviewed by senior lawyers. This takes time, and it is not unusual for the second round of effort to produce or identify additional errors. This is of course an inefficient process (which takes time and therefore, if billing by the hour, more expensive), and it is inherent, notwithstanding various monitoring efforts by senior lawyers, that not all mistakes will be identified and then rectified. As a result, quality suffers.

    Contrast the foregoing example with an engagement in which the only lawyers participating at every level of work are more senior (or at least senior to associates). Assuming that the senior lawyers have the requisite experience, fewer mistakes or errors will occur and less time will be expended in the course of performing various tasks, and, because experienced lawyers will be the only providers of the services, the quality will be greater.

    This very simple example indicates that quality can be affected by staffing. What is not discussed in this posting are the long term impact of not having inexperienced lawyers assigned to the engagement for the purpose of gaining experience and the importance of the project manager having experience in recognizing how to staff and manage engagements. And, of course, there is the issue of the impact of the use of this system on price. Those are topics for another day.

    [The author of this post is Wynne James]

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  2. Is HELO what it’s all about?

    February 25, 2013 | Author: admin | Category: Uncategorized | Comments (0)

    Posts to date on this Blog have focused on some of the structure and operational mechanics of traditional legal service organizations, particularly law firms. While the HELO website contains explanations of how HELO works in providing services, the underlying rationale is not discussed in detail. This post will provide additional insight with the goal of imparting a better understanding of the acronym “HELO.”

    HELO is intended to be a simple organization, both for HELO participants and for their clients. HELO lawyers have analyzed the traditional ways by which legal services have been delivered by large law firms and determined to design and implement a services delivery vehicle which addresses two primary concerns of any client – quality and price. Lawyers have traditionally marketed their services on the basis of quality, but not on price. There are valid reasons for the prior failure to market on price, but those are now of little import except to the extent that this previous behavior has resulted in organizational structure which is difficult to change. Law firms are now scrambling to learn how to factor price into their marketing and services delivery, but because of their general structure and organization, it will not be easy.

    HELO is organized to deliver high quality services at very competitive costs. How this is done is the product of the analyses of the HELO lawyers. First, unlike traditional law firms, HELO requires a minimum experience level for its lawyer participants. This means that only experienced lawyers, who will not spend as much time on research, document preparation and negotiation, will provide services. The result is increased quality and greater efficiency in the provision of services. Since HELO participants do not have the pyramidal structures of traditional law firms, with highly paid, inexperienced associate lawyers, there are no fees which result from their efforts (and the efforts of more experienced lawyers to manage them). Second, because HELO participants are not located in a single location (resulting in lower space costs), do not employ significant numbers of support staff or associate lawyers (if any), and take advantage of advances in information and communications technology, it is not unusual that the overhead of the average HELO participant does not exceed 20% of the overhead of many large law firms. Since large law firm overhead expenses can be 50% or even 60% of revenues, this factor alone provides HELO participants with a significant pricing advantage.

    If there is a weakness in the HELO model as presently constituted, it is in the inability of HELO participants to assign significant numbers of service providers to large engagements. This inability, however, is more perceived than actual. HELO participants, to augment the number of service providers necessary to complete an engagement, access experienced lawyers and legal assistants provided by independent providers of legal personnel at a fraction of the costs of inexperienced associate lawyers. The costs of these service providers are passed along to clients at significant savings. However, the question of whether a lack of a sufficient number of service providers is a real problem should only apply to few extremely large transactions or to a legal field significantly out of the ordinary and for which demand is rare. HELO participants, for example, have completed complex corporate transactions of over $60 million without the need for more lawyers than are available within HELO – and at substantially lower costs than large law firms in those transactions.

    So that’s it. Very simple, and if you think about it, it’s just a slightly detailed explanation of “High Experience and Low Overhead” – HELO.

    [The author of this post is Wynne James]

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  3. The Clarion Call for Inefficiency

    February 5, 2013 | Author: admin | Category: Uncategorized | Comments (0)

    I was recently informed by a friend, a lawyer, that the true measure of productivity is the number of billable hours a lawyer can generate within a given period. This can be accomplished in at least two ways: (1) a lawyer can have a great deal of work and put in a substantial number of hours necessary to accomplish the requisite tasks and (2) a lawyer can have too little work and pad his hours in order to achieve annual billable hour targets. Would a lawyer stoop to such an egregious possibility? Let’s dispose of that nonsense immediately. Of course not, even if his annual compensation and position in the firm are contingent on it.

    There is, however, a third way, and it is that the structure of the law firm and the “normal” way in which legal services are delivered result in the necessity of the expenditure of a large number of billable hours. How does this work? Let’s consider a transaction in which I have experience – mergers and acquisitions. Assume that the transaction is the merger of a privately held corporation with a new subsidiary of a private equity firm.

    In this simple transaction there is the possibility of corporate, tax, lending and collateral, accounting, intellectual property, employee benefits and other issues related to the industry in which the corporation operates. The law firm for the privately held corporation will likely not assign a partner to oversee the management of the project but rather the partner who got the call from the client will have that responsibility. Hopefully, that partner has sufficient experience to handle the job, and it’s reasonable to expect that to be the case. However, what does “handle the job” mean? It actually means, in the popular idiom of today, that he is the “project manager”. It does not mean that he has the technical experience or knowledge to perform all of the work required to analyze the transaction, identify the issues, create and communicate solutions and draft and review documents. And he should not be expected to do so – modern transactions can be complex and often require the skills of more than one person. At this point in every transaction, the beginning, almost all law firms are in the same position – that of considering the various structural alternatives for the transaction and how the various duties will be staffed. And it is here that the specter of inefficiency raises its head.

    In the typical law firm, there exist lawyers commonly characterized as “associates”. These are usually younger, inexperienced lawyers who are compensated handsomely and must provide services for which they are paid by clients in order to earn their keep. The amounts paid by clients for the efforts of associates are at least equal to the proportionate amounts of their salaries plus their shares of other law firm overhead. So, it must be recognized that, regardless of the lack of experience of these lawyers, they will be utilized in the project even though they may contribute to the project only services which often could be provided by a non-lawyer paid considerably less. In addition, they will be utilized to review existing client documents for certain content, in the process known as “due diligence”, even though they may have little understanding of the information they may discover. They will also be requested to do “research”, the review of applicable law in the circumstances relative to the transaction, and to provide research memoranda – even if the result of the research is “yes” or “no”. These memoranda will be reviewed by the project manager and perhaps other lawyers as well. Now consider the compounding of inefficiency resulting from replicating this service process over the various areas of law and different documents applicable to the project. Can you hear the cash register – ching ching?

    This simple example describes only a few of the inefficiencies inherent in the delivery of legal services. There are several structural aspects of the law firm highlighted by this example that drive up the number of hours, and hence the cost, of the services. These include the use of inexperienced but highly paid young lawyers, the time required to perform research and document preparation and the meetings and conversations inherent in managing those activities.

    Most law firms are structured and organized to deliver services in this manner, and for those firms to change the way in which they deliver services – and thus to provide services at more reasonable costs to clients – is extremely difficult. If, however, the law firm is structured very differently, with less emphasis on the use of inexperienced personnel, the time expended for the project, and thus its cost, can be considerably less.

    I have written elsewhere that the billable hour is the archenemy of efficiency, but in this posting I point out that the billable hour is not the only enemy – the structure of the law firm and the manner in which it staffs projects are contributors as well.

    If the measure of lawyer productivity is the number of billable hours generated, and if those hours result from inefficiencies inherent in the structure of the law firm, are the interests of the law firm and the client, who pays the bill, in alignment? Think about it, and while you’re at it, think about alchemy.

    [The author of this post is Wynne James]

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  4. More on Alternative Fee Arrangements

    January 14, 2013 | Author: admin | Category: Uncategorized | Comments (0)

    In my last posting on AFAs, I posed the issue of whether clients should care about how the fees paid under an AFA are calculated. Optimally, an AFA computation (assume a fixed fee) should consider the following components in accordance with something like the following process: 1) the issues to be addressed in an engagement; 2) the work which will be necessary in connection with each issue and to manage the engagement; 3) who is best suited to handle the work for each issue (lawyer or non-lawyer) and the amount of time it will likely take that person to do the work (note that in this situation a more experienced lawyer or non-lawyer will get the job done more efficiently and in a shorter time); 4) the costs to provide the work, including for each lawyer or non-lawyer (note that this is not necessarily a matter of multiplying anticipated hours by an hourly rate); and 5) the desired profit.

    This is not the way most law firms do it. How law firms typically estimate a fixed fee is probably a mystery, but include, most likely a) asking the question “how much did we charge for this type of work last time? The problem here is that the last time might have been an engagement for which the firm got paid by the hour and managed it without much consideration of efficiency. b) the use of a budgeting software. This might be helpful, but many available software programs work off of hourly rates – not particularly helpful. c) the use an “estimator”. This could be a reasonable approach, but there are qualitative issues here in that the estimator may not be a lawyer, may not understand the necessary tasks in the engagement and, in addition, may be under considerable time constraints to push other AFA estimates out the door.
    Almost any AFA is, of course, preferable to getting billed by the hour. An AFA may not have been estimated in accordance with any rational approach, but it at least provides certainty in that the client knows what the legal costs will be. Under an AFA, the client should also be aware of pitfalls that might endanger the success of the engagement. These include: 1) the matter might be staffed with more inexperienced lawyers whose internal costs are perceived to be less, thereby driving down the fee under the AFA and making it more likely that the law firm will get the work. This is, obviously, hardly reassuring to the client who is concerned about the outcome of the engagement. 2) if the AFA fee is later perceived by the law firm to be too low (i.e. a money loser), then the more talented lawyers may shift to other work or pay less attention to the client’s matter.

    How does a client determine if the proposed AFA is realistic? The answer to this question is to ask questions: a) how do you propose to staff the engagement? What is the experience level of the lawyers you propose to work on the matter and have they worked on anything like this before? b) can you assure me that the experienced lawyers, including specifically the lawyer in charge, will be available to handle this throughout the course of the engagement (continuity is important for quality reasons)? c) how much of the proposed fee is attributable to your overhead? This is an important issue discussed more fully below. d) can I review a copy of the proposed budget? If the answer is no, then very likely there’s no budget (and your fee estimate is a WAG). If there is a budget, can I get a monthly or periodic printout of actual costs compared to the budget (this should be easy for the law firm to provide).

    These might not be questions you’ve asked before, but in my experience many clients seem to ask fewer questions about an hiring a lawyer for an important legal matter than they would in buying a new car, the cost of which could be much lower.

    One last point. If you ask for quotes from several law firms, ask that each firm provide a breakdown of the proposed fee into two parts, 1) the percentage of the fee that is attributable to estimated profit and 2) the percentage of the fee that is for overhead. The information you get will enable you to determine several things: a) a high overhead firm may be no better than a low overhead firm – in fact, much law firm overhead is attributable to the cost of paying inexperienced lawyers. b) a low profit (see the definition of profit that follows) may indicate that your matter will not be staffed with people with substantial experience – that may or may not be important, depending on whether your matter is routine or sophisticated and complex. Because law firms may use different definitions of profit (if they use them at all), you should include in your request a definition of profit, which would be the amounts estimated to be paid to “equity partners”, and overhead would be all revenues less profit. That should be simple for the law firm to provide and provides you with some assistance in your choice of counsel. For various reasons, law firms that provide substantially comparable work can have vastly different overhead structures, with some firms having as much as 5-6 times the overhead of others.

    There is an important consideration in this discussion, and it is that obtaining quotes from multiple law firms can be very helpful. People who shop at multiple automobile dealers for a new car often never consider shopping for a law firm. Law firms can provide better quality work at more affordable costs if they know they are competing for business – it’s the American way.

    [The author of this post is Wynne James]

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  5. Alternative Fee Arrangements

    December 13, 2012 | Author: admin | Category: Uncategorized | Comments (0)

    The term “alternative fee arrangements” is the general description for the means by which lawyers charge for their services other than by the hour. AFAs are increasingly popular with clients, and law firms, in response, are routinely touting their use of AFAs. Is this just a marketing trend or are law firms now providing both certainty in billing and lower fees? Without doubt, a fee arrangement which provides for a maximum fee or a definite amount provides certainty. Certainty, of course, can be a relative term depending on how the fee is structured. So far, so good.

    Do AFAs also provide for lower fees? Only if negotiated by a client. Many clients want both certainty and lower costs in their fee arrangements. It’s generally easier for a law firm to provide certainty than a lower price, or at least a substantially lower price. It all depends on how the law firm is structured. If the law firm has a traditional structural model, using a pyramidal structure of lawyer seniority (with a substantial number of inexperienced lawyers) and a considerable support staff, then overhead can comprise a substantial part of any fee, whether computed by the hour or subject to an AFA.

    Law firms which estimate AFAs should logically take into account both overhead and the amount of desired profit. When the overhead is large, the amount of the AFA will of necessity be larger. Do law firms compute estimated fees for AFAs or just wing it (also known in less privileged circles as a WAG)? Many law firms do not have the experience or database information to forecast fees within some desirable range of certainty. The message to a client which wants AFAs is to shop for fees with law firms which have the reputation (usually a manifestation of experience) for providing on-time services and quality work in the area of law or industry affecting the client. It’s up to clients to drive quality improvement and lower costs – just another manifestation of the law of supply and demand.

    Also important – it’s not all about fees. It’s also, as mentioned above, about on-time delivery and quality. Should clients care about how AFAs are calculated or determined? Absolutely, if they care about anything other than just price. But that’s a topic for another day (also known as a teaser).

    [The author of this post is Wynne James]

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  6. Welcome to the HELO Blog

    November 28, 2012 | Author: admin | Category: Uncategorized | Comments (0)

    This is our first posting, and we decided to open by discussing the intent of the Blog. We hope that the Blog can be a forum for the exchange of ideas related to the delivery of legal services. HELO is a group of Nashville, Tennessee lawyers who have analyzed the legal services market and organized to deliver services by applying principles based on the law of supply and demand. If you want to know more about HELO and its service delivery philosophy and capabilities, please see the HELO website at www.helolawgroup.com.

    If you have experience in law firms (and even better if you’ve been in several) or in purchasing legal services, you know that the legal industry is intensely fee focused, with fees primarily determined by the hourly rate and the number of hours applied to each assignment. You may not have considered that the structure and operations of law firms are predominantly influenced by that billing method. In what other industry, whether producing tangible products or providing services, are operations driven by the way clients (also known as customers) are billed?

    Our analysis of the many issues which arise from seeking an answer to that simple question led us to wonder about alternative service delivery structures. Note that we are not here discussing alternative fee arrangements – that would lead us into the same trap of allowing the billing method to guide structural, organizational and management considerations. It is not that billing methods are unimportant – just ask clients – but can you imagine going to your physician and asking how much his or her fee will be and getting the answer that it will depend on how long it takes to do the physical exam and testing? Actually, forget about what you imagine, and think about how health insurance companies would react. How could they price their policies?

    We have read and heard a great deal about the future of the legal industry, but what we read and hear focuses more on effect than on cause, with the principal effect being that legal fees are too high. Our view is that high fees are a symptom of something more basic – the nuts and bolts of the structure, management and operations of law firms. The legal industry is the only substantial industry of which we are aware which depends almost exclusively on increased revenues for increased profit. In almost every other industry (manufacturing or services), increased efficiency plays an integral and necessary role. Not so in law firms. Until that issue is resolved, and it won’t be easy, the client complaints will justifiably continue.

    So, there’s a short version of what we hope to achieve in this Blog – candid (and relatively gentile) discussions and comment about the real issues facing law firms and their clients. We hope you participate and enjoy the Blog.

    [The author of this post is Wynne James].

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