by Dave Bilinsky, Practice Management Advisor
The ACES billing model
There are many ways to gain perspective on how lawyers are seen by their clients. In the case of corporate clients, one of the more insightful ways is to talk to in-house counsel who constantly work with outside law firms. In 2002, the American Corporate Counsel Association, in conjunction with American "matter management" software consultant Serengeti (www.serengetilaw.com), did a detailed survey on "managing outside counsel." According to in-house counsel surveyed, law firms should pay greater attention to these top five goals:
1. Be more concerned with costs
2. Be more practical
3. Solve problems more creatively
4. Respond more quickly, and
5. Understand business better.
While very few lawyers would find cause to complain about these goals, the devil is in the details. How do you effectively rejig the dynamics between a client and a law firm when that relationship is largely a legal one and therefore driven by legal considerations? Jeffrey W. Carr, Vice-President, General Counsel & Secretary for FMC Technologies, Inc. believes he has a solution. He advocates reworking the lawyer-client relationship to bring the law firm's interests into alignment with the goals and economics of the client. FMC has a patent pending on their system, called the ACEST Model - for "Alliance Counsel Engagement System."
What does ACES comprise? There are four parts:
- Aces (Litigation and Project Base Case) is designed for litigation matters or engagements in which there is a definable outcome and time is of the essence. The system is designed to reward the outside law firm for efficiency and for achieving the client's success objectives.
- Aces LT is for longer-term retainers without a task-specific objective where the primary objective is high-quality service in a specific area or over several objectives.
- Aces² (Aces for Aces) is for cases in which multiple law firms are involved or for multiple cases of a similar type.
- Inside Aces is a teamwork-based bonus system for in-house counsel.
What do all four parts share in common? An economic incentive for the lawyer or law firm to meet or exceed stated criteria for success by placing 20-25% of billings in a "success bucket." If the matter is resolved according to defined success criteria, the lawyer or law firm receives the amount in the bucket and, in some cases, a defined bonus as well.
So what devil is in the details? Take Aces (Litigation and Project Base Case). This model is used for engagements where the client has a definable outcome and where time is of the essence. The client defines the success criteria. Then the law firm and the client develop a budget, by grouping the major activities on the file into four or five major steps, such as initial pleadings, discovery, mediation/settlement, pre-trial prep and trial.
The overall budget breaks down into target budgets for each major step. For each step, while it is below budget, the law firm is paid 75% of its normal hourly rates, with 25% of the hourly billings being placed in the success bucket as a form of contingency. If the budget for a step is exceeded, the proportion of payment to the bucket is reversed for that step (that is, the law firm receives only 25% of its hourly billings, with 75% placed in the success bucket). If the success criteria are met for the file, the law firm will recover the amount placed into the success bucket; if not, that amount is forfeited.
If the success criteria are met for the file overall, a bonus is paid to the law firm. The bonus consists of the amount in the bucket plus a multiplier. The multiplier declines as the file progresses - hence the incentive for early resolution. Initially the multiplier is 100% (the file's early stages before substantial expenses have been incurred), then 50% (before trial) and 25% (at trial). If rapid resolution is not a success criterion, then the multiplier can be kept constant for the file.
A second-level bonus (or penalty) then comes into play. One percent is added to the bucket multiplier for each 1% of the saving for the total matter budget (i.e., if only 40% of the file budget was expended, then the law firm would be entitled to a further 60% bonus points added to the multiplier). However, if the total budget was exceeded, then there is a point-for-point penalty, reducing the bucket multiplier by 1% for each percentage point of total matter overage.
Note that this system can be adapted to time-sensitive transactional matters also - the stages being initial discussion, buyer's selection, due diligence, contract execution and closing.
For retainers that are not time sensitive or longer term retainers, Aces LT comes into play. In this case, a 20% bonus is based on a report card provided by the client to the law firm on a periodic basis. The evaluation criteria are agreed on with the firm and are based on such matters as quality, practicality of advice, reflection of business objective, communication, knowledge leveraging and sharing, timeliness, and efficiency. The "grades" are Acceptable, Outstanding and Exceptional.
The Aces2 (Aces for Aces) model adapts this system to situations involving multiple law firms or similar cases or projects.
Finally, the Inside Aces model provides a bonus incentive to in-house counsel by incorporating a 0-20% bonus of base salary based on a "report card," graded on the same basis as Aces LT.
What are the advantages of this system for the lawyer or law firm?:
- There is explicit discussion and agreement on the desired outcome on the file and the time scale for its completion.
- The bonus or success criteria are agreed to up front.
- The law firm is brought into the economic equation - thereby focusing the lawyer's attention not just on the legal outcome of the file, but also on the timing and financial outcomes. This gives the lawyer an incentive to achieve successful outcomes on each.
- Rapid payment of the law firm accounts is assured.
- Teamwork and collaboration are encouraged between the law firm and the client.
- The law firm has incentives to examine the total costs of the file and to take an active interest in driving down, not only third-party costs, but internal costs as well to keep the file on budget. In this model, the very fact of establishing a budget for a file is instructive - as it forces the law firm to explicitly face the issue of its own costs of handling the file.
- The law firm explicitly knows the bonus to which it may be entitled, over and above its billable hourly rates and can see how action or cost reduction will affect the equation.
- By accepting an Aces engagement and completing it successfully, a law firm positions itself for future engagements by the most basic of marketing criteria - doing a good job as judged from the perspective of the client.
Are Canadian firms starting to adopt Aces? Yes - Calgary's Reynolds, Mirth, Richards & Farmer has accepted an Aces retainer.
Law firms today are finding that, if they want to find a partner for the dance, it is the clients who are insisting on taking the lead. If you would like more information on the Aces billing system, contact Jeffrey W. Carr, Vice-President, General Counsel & Secretary, FMC Technologies, Inc., Tel 281 591-4585, email@example.com.
Practice Q & As
What does a lawyer do if a computer is stolen or hacked?
Q: What are the obligations of a lawyer when his or her computer is stolen or hacked?
A: One consideration is the Legal Profession Act, Rules and Professional Conduct Handbook. Chapter 5 of the Handbook states:
Duty of confidentiality
1. A lawyer shall hold in strict confidence all information concerning the business and affairs of the client acquired in the course of the professional relationship, regardless of the nature or source of the information or of the fact that others may share the knowledge, and shall not divulge any such information unless disclosure is expressly or impliedly authorized by the client, or is required by law or by a court.
2. A lawyer shall take all reasonable steps to ensure the privacy and safekeeping of a client's confidential information.
3. A lawyer shall not disclose the fact of having been consulted or retained by a person unless the nature of the matter requires such disclosure.
4. A lawyer shall preserve the client's secrets even after the termination of the retainer, whether or not differences have arisen between them.
Is there a resultant or concurrent duty to inform the client when there has been a breach or possible breach of the duty of confidentiality, such as when a computer is stolen or office network hacked? Is there possible civil liability where this occurs? Cordery on Solicitors, para - states:
A solicitor is under a duty to take reasonable care of all documents entrusted to him by the client and will be liable if he loses or mislays them (Wilmott v. Elkington (1833) 1 Nev & MKB 749; Reeve v. Palmer (1859) 5 CBNS 84) or fails to deliver them up in reasonable condition so as to be fit for use (North Western Rly Co. v. Sharp (1854) 10 Exch 451).
Chapter 9 of Barristers & Solicitors in Practice [Butterworths] entitled "Professional Liability," paragraph 9.25, states:
Although failure to comply with one of the rules of professional conduct may not lead to civil liability, in an appropriate case the particular ethical standard may be used by the court in the course of identifying and imposing a specific legal obligation (referring to Chrysler Credit Canada Ltd. v. 734925 Ontario Ltd. in which the court looked to the Rules of Professional Conduct to ascertain lawyers' obligations to the court and other professionals).
In the circumstances, as part of the duty of confidentiality owed to a client, it is suggested that there is a duty to inform the client when there has been a breach or possible breach of the duty of confidentiality, such as when a computer is stolen. It is suggested that a lawyer consider notifying clients that a possible disclosure of their confidential information has occurred and also set forth any mitigating factors - such as whether or not the computer was password protected, whether or not the data was encrypted and the extent of the confidential information that was stored. In this manner, the client is able to take steps to prevent identity theft or misuse of the information, particularly where that information may include social insurance numbers, credit card information, personal banking information or sensitive personal information.
A second consideration is whether the law firm is considered to be doing any work in California. California's Senate Bill 1386, which takes effect on July 1, 2003, requires companies to disclose security breaches that involve unauthorized access to personal information. It is designed to apply to any firm, anywhere, doing business in California. The code now reads:
Any agency that owns or licenses computerized data that includes personal information shall disclose any breach of the security of the system following discovery or notification of the breach in the security of the data to any resident of California whose unencrypted personal information was, or is, reasonably believed to have been acquired by an unauthorized person. The disclosure shall be made in the most expedient time possible and without unreasonable delay ...
California law gives companies several options in notifying customers, including placing ads in newspapers. It also permits anyone whose personal information has been disclosed to file a civil suit against the company that suffered the security breach. An important proviso - the law does not apply where a company encrypts its data, although the law does not set forth what is an adequate encryption method. This may have been a deliberate choice as encryption methods keep changing - suggesting that the standard imposed would be based on what is reasonable at the time of the breach.
Should a lawyer disclose testator communications in a later estate litigation?
Q: I have been contacted by counsel who is acting in an estate action. He wishes to discuss my communications with the testator at the time of making his last will. What are my obligations relative to solicitor-client confidentiality? Do I need the approval of the executor before speaking to counsel?
A: The Supreme Court of Canada in Geffen v. Goodman Estate,  2 SCR 353 states that there is an exception to the general rule of solicitor-client privilege when dealing with the "execution, tenor or validity of wills:"
... the common law has yet only recognized an 'exception' to the general rule of the privileged nature of communications between solicitor and client when dealing with the execution, tenor or validity of wills and wills alone.
A summary of the above exception is provided in Solicitor-Client Privilege in Canadian Law, Ronald D. Manes and Michael P. Silver (Butterworths, 1993) at 177:
Privilege and death of the client
Generally, privilege survives the death of the client and may be asserted by the solicitor on behalf of the deceased client and on behalf of the deceased client's beneficiaries, or by the representatives of the deceased client with respect to litigation involving the client when the client was alive.
However, with estate cases involving the intention of the testator or the existence of the will, the rule that privilege survives a client may be relaxed. This relaxation of privilege applies to situations in which the beneficiaries are contesting the deceased client's will and the execution, tenor or validity of the will is in question.
You should satisfy yourself that the questions you are asked properly fall within the solicitor-client exception with respect to the execution, tenor or validity of the will.