Jason Anderman’s presentation at the IACCM Americas show Thursday echoed Nick Cherrone’s recent series on addressing legal spend. Like Nick, Jason thinks most companies are spending far too much on their legal services and that addressing the billable hour - by focusing on alternative billing models geared towards results - is the way to drive better ROI.

What’s the replacement billing model and how can that cut costs, improve results and provide some degree of predictability? Jason, a former inhouse counsel who focused on procurement contracts, had plenty of ideas.

Primarily, Jason urged the audience to rework the incentives for their outside legal counsel. Between Jason and a few of the lawyers in the audience who were willing to share their experiences, we heard horror stories about how some firms really hit their billable targets. Let’s just say, if you structure the compensation and KPIs for associates and partners around hitting billable hour targets … they’ll “hit” those billable targets. But does anything in that comp plan sound like it encourages high quality, efficient use of client time (billed at several hundred dollars per hour)? Of course not. Results for the client aren’t part of the incentive and therefore become secondary. Couple that with the fact that legal services spend has largely been written off by companies as a necessary cost of doing business, no matter what that cost adds up to, and you see why legal spend is such an opportunity for savings.

To capture some of that spend and have better legal representation, Jason recommends negotiating “incentives that motivate people to do better”. Meaning, structure your relationship with outside counsel so that there are either caps on fees for specific, clearly defined projects OR include “efficiency bonuses” that reward the firm for coming in under budget.

Jason provides templates of these contracts, complete with incentive clauses, on his website - whichdraft.com. I encourage you to take a look … and then begin the dialog with your counsel. If you can cut costs, improve service and capitalize on market conditions in the legal field, it’s certainly worth a conversation.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.