Canada: Pricing Legal Services In A Changing World: Part 1

Last Updated: August 22 2019
Article by Anne Ristic

In the first of a two-part series, we survey the expanded options for pricing legal services that have emerged over the last decade for clients in the market generally, and at Stikeman Elliott. Our next post will focus on how clients choose among different available pricing models in different circumstances.

In the wake of the 2008 crash, legal fees came under the microscope around the globe, and a new mindset towards pricing legal services emerged. A decade ago, the Association of Corporate Counsel launched the “ACC Value Challenge” to promote alternative fee arrangements and “value-based billing” divorced from hourly rates. Over the same period, the rise of legal technologies created new opportunities for automating services which don’t fit well in an hourly billing model.

With all these innovations and new opportunities, has pricing really changed in practice? Yes and no.

Market Surveys Show Increasing Use of AFAs, But Numbers Are Still Small

In its Value Challenge materials, the ACC identified 4 general categories of pricing arrangements: hours-based; fixed fees; contingency arrangements; and “piece of the deal”. Altman Weil reports that 64% of U.S.-based firms are using some form of AFA for some matters and estimates that up to 6-10% of overall firm revenues derive from some form of AFA. Figures reported by CounselLink are similar: AFAs were used in 9.9% of matters and accounted for 7.5% of billings in 2016.

In the Canadian market, the Canadian Lawyer's Corporate Counsel Survey for 2018 shows that AFAs were the predominant billing arrangement with companies’ primary counsel only 3% of the time. Mixed billable hour/AFA arrangements were prevalent in an additional 28% of such relationships and, among those counsel who used AFAs to any extent, almost 45% reported that they felt AFAs were better value than traditional arrangements, as opposed to less than 5% who felt that AFAs offered poorer value. Based on a smaller sample size at Stikeman Elliott, over the past 4 years, roughly 4% of our revenues flow from AFAs. In addition, our clients are increasingly asking for budgets at the outset of more traditional hourly rate mandates that would not technically qualify as AFAs.

Clearly there are some niches for some clients where AFAs have caught on, but the great majority of clients in the market, as at Stikeman Elliott, still seem more comfortable with hourly billing for most matters, despite the range of options we offer.

Most Commonly Used AFAs at Stikeman Elliott

We find our clients to be predominantly interested in the first two types of pricing arrangements identified by the ACC - hourly rate-based and fixed fees. The most commonly-used forms of each at SE are:

  • Hourly rate-based AFA models:
    • Hourly rates with a phase-by-phase budget
    • Hourly rates with a “risk collar”
    • Hourly rates with a success fee combined with a busted deal discount
  • Fixed fee arrangements:
    • Fixed fee for a selected phase or phases only
    • Fixed fee for an entire matter
    • Monthly retainer for specified services

More recently, additional pricing complexities have arisen with the introduction of automation opportunities into many of our legal services. At Stikeman Elliott, our services are very much “bespoke”, with human labour being predominant. However, we find increasingly that aspects of the overall transaction or service, for example a particular contract or common legal question, can be automated for the client, or a particular process can be significantly streamlined with legal technology. Use of technology and automation does require time, effort and adaptability to change on all sides to implement successfully. Despite the proliferation of “off the shelf” legal technologies, it is still very labour-intensive to introduce and customize the technology to the needs of the client and team, and to make the coding work with the legal nuances as part of the broader matter. There is no one-size-fits-all approach to pricing as different clients have different needs, pressures and goals. To date, a relatively small subset of our clients have been interested in integrating automated products and legal technology into their legal processes, but the numbers are growing. As a result, we are still learning and are interested in feedback from others’ experiences.

Client Feedback - Most Popular Tool: Phase-by-Phase Budgets and Budgeting Software

As we focus on value-based pricing and developing user-friendly AFAs, we’ve found that one of the most popular and effective tools for cost-containment for both client and firm, whatever the nature of the AFA, is the relatively simple phase-by-phase budget. This tool can be customized to any matter, used with both hourly rate and fixed fee models, and structured as a simple paper-based template, or automated with our budgeting software, depending on the client’s preference.

To create this budget, we break the matter down into high-level phases (typically there are about 7 to 12), scope with the client what must be done in each phase, and assign each phase a budget range. Depending on the level of data we and the client have from past matters, the range for each phase can be based on detailed steps and granular costs, or it can be a high-level estimate.

Once the budget for each phase is established, we are able to track and report on our time spent on each phase and our progress opposite the total budget. In addition to improving our interim cost reporting to the client, the budget tool allows both the client and our firm to collect better data to help price future matters – whether hourly rate-based or fixed fees.

Other relatively simple measures that respond to client feedback about improving the client experience with pricing are: calling first to explain that an invoice is coming, developing a more user-friendly invoice format, and providing better explanations of disbursements.

What’s Next?

As our legal world changes it’s important to keep pace with our clients’ needs in all arenas, including the pricing options we offer. We continue to believe, along with the ACC, that value is paramount and that our fee structures should be “win win” for both clients and firms. Law firms and legal departments alike have worked hard over the past decade to be flexible, to define value and to collaborate to find fee arrangements that work on both sides. In our next post, we will offer some ideas on how to decide which fee arrangement will work best in which circumstances. We will also expand on the growing challenges of pricing technology and automating legal services.

Please share your experiences – your most successful arrangements, your biggest pain points – so we can all continue to learn and improve.

Other Resources

Altman Weil, 2019 Law Firms in Transition: An Altman Weil Flash Survey.

Association of Corporate Counsel, “Value Challenge” (website with resources).

Amy Larson, “Alternative Fee Arrangements: Why and When?”, Above the Law, December 15, 2017.

Aidan Macnab, “Partnerships Key for In-House Success”, Canadian Lawyer (November/December 2018), 36-43.

Kris Satkunas, 2017 CounselLink Enterprise Legal Management Trends Report.

Richard Stock, “The five pillars of performance for the legal department”, Canadian Lawyer, May 13, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions