The discussion continues about value-based pricing. D. Casey Flaherty (with the support of the ACC’s Legal Ops External Resources Interest Group) published a lengthy guide to getting more out of your relationships with outside counsel. Among many topics covered, value-based fees took a place on the stage. Although acknowledging the centrality of the billable hour, the ACC has long been a proponent of the moving to value-based fees.
What is Value-Based Fee?
A fee that is based on the value delivered back to you. For example, how important is it that your case settles and does not go to trial? What would you pay your firm if they could make that happen? Value-based fees come in many shapes and sizes including fixed fees, fixed fees with collars, success fees, reverse contingent fees and performance-based holdbacks.
How Can Value-Based Fees Help You?
When used in the right places, value-based fees can help (ACC Value-Based Fees Primer):
- Reduce inefficiencies
- Increase productivity
- Improve the way legal services are purchased and delivered, and
- Focus on results and outcomes
Many would not argue that value-based fees can be beneficial, but asking for them can be tricky. Importantly, you need to understand the value of the outcome you desire and/or what the work typically costs to know what “value-based” fee will be acceptable to you. How do you figure that out? In regard to outcomes, you likely have a gut feel of the downside of your case going to trial (be it cost, PR issues, etc.). It may be fairly easy to know what you’d pay to make it go away. Otherwise, running a competitive process is a great way to understand what value the market places on certain types of work.
The great news: you can easily run a competitive process AND ask for a value-based fees as part of the RFP. In one fell swoop you get a look at where the market prices your work and can compare the offers on your preferred, value-based approach. Importantly, a competitive process will also yield information about staffing, expertise, strategy, added-value offerings, technology, commitment to diversity, etc.—any of which may be material to you as make decisions about best-fit counsel for your work.
About the Author – Kathy Heafey is President of BanyanRFP, a cloud-based RFP platform that helps companies control spend on legal services. She has over 20 years of management experience working with large brands such as Pillsbury, Green Giant and Progresso Soup. A proven leader in Cost Management and Continuous Improvement, she enabled over $20MM in annual cost-savings for General Mills and is now saving in-house legal teams millions of dollars as they find best-fit counsel for their legal work. For more information, visit www.BanyanRFP.com