Corporate Counsel - March 2010 (Sample Issue)

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QUESTIONS AND ANSWERS ❘ RICHARD BAER

The GC of Qwest Communications explains why he isn’t switching to alternative fee deals.
KEEP YOUR CHANGE

BY AMY MILLER

RICHARD BAER, GENERAL COUNSEL OF QWEST COMMUNICATIONS INTERNATIONAL, INC., DIDN’T GET THE MEMO.
Practically everyone in the in-house bar seems to think that alternative fee arrangements are the future
of the legal marketplace. Baer, however, doesn’t. At a December conference in New York, he said that
trashing the billable hour hadn’t worked out for Qwest. In fact, he said, “alternative fee arrangements
have been a colossal train wreck for us.”
At Corporate Counsel we’ve been impressed with Baer and his department—so much so that Qwest
won our Best Legal Department competition two years ago. So we were curious to hear more from him.
In a follow-up interview with staff reporter Amy Miller, Baer explained why he thinks that billing by
the hour will—and should—continue. An edited version of their conversation follows.

>>>

Q: Why haven’t alternative fee arrangements worked out for Qwest?

A: The first issue is, everyone these days hates the hourly billing arrangement. They say it gives incentives for outside lawyers to bill as many hours as possible. And we can’t debate that—we can’t say that this doesn’t create misalignment between clients and outside counsel.

But we actually don’t think it’s as big an issue as people make it out to be. Really great lawyers aren’t trying to bill as many hours as they can to maximize their profits. They want to get retained again and again in the future—and the only way to do that is to deliver great value.

Q: What’s the second issue? A: Fixed fees just create a different misalignment. If you set up a fixed-fee deal with a law firm, then the misalignment is caused because the firm wants to do as little as possible to maximize its profit margins. Or else they will use people who may not be qualified to do the work.

Outside counsel are also going to be motivated to resolve cases quickly, to increase their profit margins. That may be good for the client, and it may not be good for the client. In order to settle a case early, I may end up having to pay more than if we waited.

And I’m concerned about where they’re going to cut corners in order to maximize their margins. I don’t know necessarily where they are cutting corners. I just know that they are.

Q: What have you used alternative fees for in the past?

A: Our employment cases, because we had a high volume, and they were similar in scope and issues. So we could come up with a better sense what they should cost. Fixed fees only work if you know what the hourly rate is going to be—you have to have a price point to compare to.

Q: And after that experience, you decided not to use a fixed fee for other types of cases?

A: Yes. About 70 percent of our legal spending is on large, complex litigation. And we don’t know what those cases should cost because they are all so different. Once you get into these complicated matters, they can be all over the map.

Q: So now you’ve stopped using alternative fees altogether. Are you pleased with that decision?

A: Yes. We are very active in our management of cases. If we make strategic decisions up front, we feel we can actually achieve significant savings. We work closely with outside counsel to make cost-benefit decisions, such as we’re not going to depose the sixth person at a meeting, or we’re not going to review with lawyers these categories of documents.

And then we also have cut costs through technology. We unbundle a lot of the work firms do for us and give it to contractors that provide legal services, then apply technology to get that work done more efficiently and at a much lower cost.

Q: Has the strategy paid off? A: We’ve been able to reduce our legal costs about 10 percent from 2008 to 2009.

Q: You’ve participated in panel discussions recently with some strong supporters of alternative billing arrangements, such as Jeffrey Carr, general counsel of FMC Technologies, Inc. They’re pretty persuasive. Have they been able to change your mind at all? A: I’ve got the utmost respect for Jeff— he’s doing some terrific things. But I have not yet been convinced that alternative fee arrangements would work for us.