DealLawyers.com Blog

March 1, 2010

The Growth of Fixed-Fee Plans for Law Firms

Last summer, we held this popular webcast – “Alternative Fee Arrangements for Deals: Little Less Talk and Lot More Action?” – and based on media reports, like the two ABA Journal articles below, it looks like the trends discussed during that webcast are continuing.

“Mayer Brown and Reed Smith to Roll Out Fixed-Fee Plans for Corporate Clients,” by Martha Neil

In what may be a signpost to the future for other BigLaw firms, two major legal partnerships are planning to implement fixed-fee payment structures for corporate clients. Mayer Brown is working on a plan to offer fixed fees for all transactional work, and Reed Smith has set up a committee to develop a plan to increase the use of fixed and capped fees in transactional matters, reports Legal Week. The changes are in response to client demand for more value and certainty concerning legal bills, which has been exacerbated by the global ecoomic troubles of the past year.

“If we are to build our client relationships, we have to develop pricing structures which meet these priorities,” says executive partner Jeremy Clay of Mayer Brown. “There seems little doubt this type of pricing is an important factor when getting and developing new client relationships.”

– “O’Melveny Aims to Become Fixed-Fee Leader, Leaked Plan Says” by Debra Cassens Weiss

O’Melveny and Myers acknowledges problems with its business model and unveils plans to become a fixed-fee leader for high-end legal services in a confidential five-year strategic plan leaked to a blog.

Above the Law obtained a copy of the plan, released to the firm’s lawyers about a month ago, and published the highlights. A law firm spokeswoman contacted by the ABA Journal did not comment on the report. The aim, according to the plan, is to become “the leader in providing high-end legal services on a fixed fee basis, reducing costs to clients and achieving superior economic performance through practice management oriented toward cost-effective client service.”

The plan outlines the firm’s intention to offer volume discounts and “appropriate alternative fee arrangements,” according to ATL’s account. On the fixed-fee side, the firm plans to adopt a single rate card by fiscal 2012. The plan acknowledges that O’Melveny’s current business model has yielded disappointing financial and practice growth results. The firm’s litigation model “which depended heavily on high charge hours levels by associates, counsel and partners to offset the impact of discounted rates and increased write-offs of expenses and time, has been under pressure for at least three years,” the plan says.

Under the new plan, the firm is seeking to lower associate-to-partner leverage to “as low as 2 to 1 in some practices.” Associate work is being reduced, according to the plan, because document review and production “have been outsourced altogether or client-directed to contract attorneys.” The plan also emphasizes O’Melveny’s core values and commitment to pro bono work and diversity, according to the blog’s summary.

Above the Law calls the plan “an impressively broad overview” of the legal market and the law firm’s position. “This is not a plan designed to allow the firm to merely hang on and weather the economic storm; instead, the firm is taking proactive steps to make itself more competitive into the next decade–and beyond.”