The COVID-19 pandemic and its economic fallout have driven legal departments to turn to their law firms for help. With a toolbox of old and new ideas at their disposal, firms are showing that they’re ready to listen.
At McCarter & English, chief operating officer John Brefach feared an onslaught of client inquiries about reducing rates or deferring work in the early days of the pandemic. He told partners to be sure to contact him when these calls came in.
“But there were very few clients who actually reached out to us to talk about discounts or payment deferrals,” Brefach says.
McCarter & English chief client value and practice management officer Alex Macdonald says that as the firm proactively pushes alternatives to clients—a strategy that’s resulted in one of its five biggest clients operating on a fixed fee arrangement across multiple matters—they are receptive to predictability and risk sharing, but uncertain about the details.
“We need to spend more time walking them through these, and how it’s not just a scheme for the firm to get them to spend more,” Macdonald explains.
That means clients might be learning about “risk collars” for the first time. Here, after scoping the matter, the parties will agree to a fixed fee with a margin (usually 10%) on each side. If the fee is set at $100,000, and the work falls within the collar, the firm will earn $100,000. If the actual work needed comes to less than $90,000, the firm will be paid for the time, plus an efficiency bonus. And if it goes above the threshold, based on an expansion of the scope or a collective misjudgment of effort, the client will pay at a discounted rate.
Clients with substantial transactional work might find broken-deal discounts appealing. Here, if a deal falls through, the firm will take a discount of 30% to 40%, while a completed deal will earn it a bonus of 10%. No one wants to pay full freight for a busted deal, so this one’s an easy sell.