Client Value Update: Talk or Real Change? Association of Corporate Counsel

1. Client Value Update: Talk or Real Change? Association of Corporate Counsel CLE Program – HoustonJanuary 12, 2010

2. Panelists • General Counsel • Carla Herron, Associate General Counsel – Litigation, Shell Oil • Mark Lowes, Vice President – Litigation, KBR • Haynes and Boone, LLP • John Eldridge, Partner, Member Client Value Task Force • Steve Jenkins, Partner, Chair Client Value Task Force

3. Overview • In 2009, many legal industry experts predicted that the dynamics of the economy and market would rapidly accelerate a transformational change in the pricing and cost management of legal services . . . a change from the traditional billable hour model to client value-based models, including a very substantial increase in the percentage of matters priced on alternative fee arrangements. The industry discussion seemed to be shifting from whether the change would happen to how soon and to what extent the change would occur. • In this session, we will take a current, candid look at the extent and pace of the transformational change thus far and discuss how in-house legal departments and law firms are navigating the changing world.

4. Recent Years Future Years BTC BTC Hourly Rates/ Efficiency Expectations Hourly Rates Budgets with Implications Fixed Fees Budgets with Implications Fixed Fees Predicted Transformational Change

5. Non-Transformational Discounts Blended Rates Freezing Rates Budgets w/o Implications Transformational Change Pricing Models • Transformational • Fixed Fees • Budgets with Implications • Risk Sharing • Efficiency Expectations

6. Questions for Panelists • “Talk” or “real change”? • Are law firms proactively offering new models of pricing and alternative fee arrangements today? • What types of alternative fee arrangements would clients prefer today? • What new models of pricing and alternative fee arrangements are law firms offering today? • What percentage of work done by law firms in 2009 was actually done on an alternative fee arrangement basis? • Predictions for 2010 and beyond?

7. Questions for Panelists • Assuming that the extent and pace of transformational change thus far are significantly less than that predicted: • What are the real barriers to transformational change in law firms and what can/should law firms do in 2010 and beyond to overcome the barriers? • What can in‑house legal departments do in 2010 and beyond to facilitate and accelerate transformational change? • Beyond pricing predictability and improved efficiency, what do clients really want in terms of improved “value”? What can and should law firms do to provide greater “value” to clients?

8. Barriers to Transformational Change in Law Firms • Law firm structure and compensation systems • Lack of budgeting tools and cost data to facilitate budgeting (including phases and variables) • Lack of real time cost management tools/systems to monitor and manage costs more frequently than the regular monthly billing cycle • Lack of project (cost) management training

9. Overcoming Barriers in Law Firms • Prepare for transformational change • Build budgeting tools and database of cost information to facilitate budgeting (including phases and variables) • Develop real time cost management tools/systems to monitor and manage costs in real time • Develop and implement project (cost) management training • Identify and reward successful project cost management • Experiment now with client value-based alternative fee arrangements to facilitate development of data, tools, systems and processes . . . and to get ahead of the curve. Proactively seek opportunities with clients to work where appropriate to client on client value-based alternative fee arrangements.

10. Budget Target SetBudget Completion $100,000 10% 20% 40% 50/50 50/50 HB – 75% Risk HB – 0% Savings HB – 100% Risk Change Orders No Yes Client Value-Based Example: Risk Sharing • Material Fact Changes • “Other Side”

11. Efficiency Expectations Example : Hourly Rates with “Efficiency Focus” • When hourly rate approach is best alternative with “efficiency expectations” • Cost range • Staffing and handling • Improved use of technology • Cost transparency thru real time cost updates • Surprise avoidance alerts

12. In-House Legal Departments: Facilitating Transformational Change • Identify segments of work that are appropriate for client value-based alternative fee arrangements • Proactively communicate desire to work with law firms on client value-based alternative fee arrangements • Experiment with client value-based alternative fee arrangements • Consider developing “efficiency expectations” guidelines • Encourage two-way sharing of cost information • Debrief with law firms for lessons learned

13. Beyond AFAs: Improving “Value” • Beyond pricing predictability and improved efficiency, what do clients really want in terms of improved “value”? • What can and should law firms do to provide greater “value” to clients?

14. Thank You!