Holland & Knight - Legal Project Management - Alternative Fee Arrangements

"The billable hour is dying a slow death and we see increased interest in ways to move away from it."

– Financial Times, October 2019

Overview The pressure on legal costs is shining a spotlight on firms' billing rates like never before. The hourly billing model is under unprecedented challenge from clients demanding budgetary certainty. Clients increasingly expect their law firms to respond to cost restrictions with flexibility, creativity and engagement. In addition, when appointing advisors, clients increasingly apply rigorous value tests, requests for regular reporting and alternative legal operational support services.

Clients simply want an assurance that they will be charged a consistent rate, regardless of which outside counsel is appointed. You may be looking for an alternative fee arrangement (AFA) to avoid unpleasant surprises and to help you to budget. You might want to know that your lawyers are prepared to share your company's risk. You might want to be able to leverage pricing tools to compare like-for-like proposals from competing firms. Or, you might simply want to know that you can measure and rate the value you are getting, e.g., quarterly business reviews (QBRs). In each case, working with a firm that's committed to providing you with alternative billing models that match your needs is critical.

Holland & Knight is committed to providing value to clients by offering tailored AFAs that align the firm's and the client's financial interests and facilitate a stronger relationship. Holland & Knight was named by Fortune 1000 general counsels as a Standout Law Firm for the delivery of AFAs (BTI Consulting Group, June 2020). More than a quarter of the Holland & Knight’s revenue and more than 50 of all new matters are under AFAs, which some call "Appropriate" Fee Arrangements due to the benefits that they provide.

Holland & Knight has realigned, reorganized and developed a range of pricing options to meet – and in many cases exceed – our clients' billing expectations. Using legal project management and financial modeling tools, and drawing on our extensive client experience, we have developed a range of pricing options that give you the certainty, value and assurance that you need when appointing advisors. These options mostly avoid the billable hour and are detailed within this document in the categories of predictability, risk-sharing and relationship growth models.

The benefits of an AFA are:

Realigns Focus on Quality Service and Efficiency Empowers Client to Exercise Better Management, Firm Leverage and Oversight Improves Communication and Performance Tracking Creates Certainty Improves Docket Handoff - Billing Control Copyright © 2022 Holland & Knight LLP All Rights Reserved

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PREDICTABILITY (DEFINITIVE FEE ARRANGEMENTS)

Our lawyers deliver consistency and advice to their clients through a number of tailored offerings. A key factor in providing effective definitive alternative fee arrangements is Holland & Knight's ability to estimate reliably the fees on the matters we undertake. We therefore rely on a mixture of our experience in similar matters, legal project management discipline and our budgeting tools to prepare accurate cost estimates and allocate the most efficient and experienced staff for each particular matter.

Predictability: A Closer Look Structure

Description

Examples

Transactional/Project Matter Arrangements Fixed Fees

Agreed-upon fee without regard to the amount of time expended on the project. Variation includes a maximum and minimum fee.

Also can be fixed fee for parts or phases (i.e., separate fixed fees for letter of intent stage, due diligence phase, negotiations, shareholder or regulatory approvals, etc.).

Fixed Fee – Based on a Percentage of the Transaction (Percentage Fee)

Matter that is billed as a percentage of an event/target but is not contingent on an outcome.

Principal advantage to the client is that the fee is based on the value of the transaction

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Securities filings Mergers and acquisitions (M&A) Loan transactions Real estate purchase, sale, lease Antitrust counseling Public offerings, private placements Corporate formation, organizational matters Equity compensation plans Employment incentives, benefits, pension, tax counseling Patent or trademark applications Tax opinions

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M&A Loan transactions Real estate purchases Public offerings, private placements

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Litigation Matter Arrangements Fixed Fees

Fixed fees are suitable for certain individual cases and blocks of individual cases.

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Labor and employment discrimination, whistleblowing, contractual entitlements Product liability claims Commercial disputes, fraud, insolvency, regulatory, professional negligence Intellectual property (IP), media, advertising and technology disputes

Fixed Fee – Flat Annual Rate Based on Historical Total Fees and Expenses

This is the most predictable form of fixed fees for a large book of litigation with which the firm has historical experience. The pricing can be set as an annual flat rate program with monthly payments of one-12th of an agreed-upon discount of historical totals of fees and expenses incurred by the firm.

Flat-rate programs can be used successfully where Holland & Knight has substantial experience of categories of repetitive lawsuits of a commoditized nature. Examples include product liability or consumer finance litigation.

Fixed Fee – Based on Value, Risk or Complexity

The model sets a fixed fee for each matter in one of several predetermined fixed fee bands depending on the category assigned to the matter.

This model can be applied to many practice areas where the firm has a high level of industry knowledge (Financial Services, Healthcare and Life Sciences, Advertising, Technology and Media, Energy, Trade and Commodities, and Shipping).

Fixed Fee – Based on

Typical phasing for pricing purposes will include an initial phase, from filing

This type of arrangement is appropriate for many types of contentious cases .

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Phase of Case

of a claim through strategy development/case assessment, a middle phase of document and witness disclosure, and a final phase of trial preparation and trial. The phases are billed at a monthly flat fee.

Fixed Fee – Capped Fee Proposal

Under this structure, the firm works with the client to develop a “not to exceed” budget over a specified period – for example, 12 months for the litigation.

The capped fee provides the client with the same level of predictability as a flat fee. If the work as completed produces fees less than the capped amount, the client is charged the actual fees accrued at the approved hourly rates.

Note: A cap fee may be priced with "what if" factors included, reducing firm risk.

This model is used successfully in litigation matters. The cap provides predictability of the fee amount if the case proceeds through all stages of litigation and flexibility if settled or dismissed.

Holland & Knight continues to experience increased utilization of this flexible structure.

The budget for litigation matters is scrutinized more often in harsh economic environments, and early settlement is an option that's often chosen in such environments rather than the more expensive process of litigation. The capped fee supports both of these trends.

All Matter Arrangements Monthly Retainer

Blended Hourly Rates

Agreed-upon hours per month or agreed-upon scope of services. Typical exclusions for matters in excess of amount of hours, litigation, specified transactions. Possible to discount on a blended rate of the team expected to work on matters.

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Alternatives include unlimited advice provided by telephone and unlimited advice for routine matters.

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Various alternatives/combinations:

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One rate for all lawyers One rate per class (e.g., senior partner, junior partner, senior associate, junior associate) One rate per lawyer in region (e.g., U.S. rate, Mexico, London, etc.)

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Preliminary phone consultations with lawyer General corporate matters Ordinary contract review Lease administration Loan portfolio questions Securities reporting counseling Equity plan administration (grants, awards, ledger) E-commerce and data protection counseling Litigation matters for repetitive work where the Client Relationship Leader has an experienced team and the ability to estimate the proportionate time allocations.

Securities filings M&A Loan transactions Real estate purchase/sale/lease Antitrust counseling Regulatory counseling Public offerings/private placements

RISK SHARING (SKIN IN THE GAME)

Holland & Knight's goal is to deliver the best result for our clients. We are willing to stake our fees against that, whether by making a payment conditional upon success, incentivizing an outcome, deferring fee payments, setting broken deal discounts or discounting rates based on legal results. The common thread in these proposals is our willingness to share risk with our clients.

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Risk Sharing: A Closer Look Structure

Description

Examples

Transactional/Project Matter Arrangements Busted Deal Discount

Firm receives full rate if deal closes, with various discounts if deal does not close.

Various levels of discount, depending on expected deal size and complexity.

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Private equity transactions Venture capital fund investments Underwriter/placement agent representation

All Matter Arrangements Conditional Fee Agreements (CFA)

Under a CFA, if successful on a matter, the lawyers can charge their usual charge out rate plus a pre-agreed uplift or "success" fee.

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Contentious matters of all types excluding criminal and family law

Contingency Fees

The firm's fee is calculated as a percentage of damages or results obtained.

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Used only in exceptional matters due to potential for ethical conflicts

Risk Collars

A risk collar allocates the budget overage or underage between the client and the firm.

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Used in both transactional and litigation matters, often with a "dead zone" of 10 percent where no adjustment to billing is made.

BUILDING BLOCKS (RELATIONSHIP GROWTH MODELS)

We appreciate the relationships we have developed and want to reward clients who have trusted in us to serve their wider legal needs. The greater the volume, the greater the discount. We value our relationships and the opportunities we have to grow them.

Building Blocks: A Closer Look Structure

Description

Examples All Matter Arrangements

Volume Discounts

Convergence Discounts

Alternatives: Discounts for additional work above threshold for total aggregate fees received (e.g., X percent discount for amounts over $1 million per year).

• Volume discounts for transactional work after being retained for the first transaction. Discounts on subsequent transactional work. Determined by transaction and based on the size of a particular transaction.

• Tiered discounts for transactions, whereby the firm performs a percentage of the work (e.g., 75 percent) on a fixed fee basis, and remainder of work (e.g., 25 percent) on a significantly discounted hourly rate basis.

Attractive discounted rates are offered to clients that are consolidating the number of their outside legal firms to a few partner firms.

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Large clients with repetitive transactional and/or litigation matters.

Clients for whom we act on all or a majority of their outside legal work.

Large litigation matters for which our client faces a significant fee investment.

All matter types

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Approach to M&A Alternative Fees

Holland & Knight has developed a range of alternative fee pricing options that are specifically tailored to M&A work and focus on transparency, certainty, aligned interest and value. The following is a concise listing of our specific AFA types for deal work and a brief description of our legal project management best practices.

PREDICTABILITY (DEFINITIVE FEE ARRANGEMENTS) Structure

Description

Examples

Fixed Fee

Agreed-upon fee without regard to the amount of time expended on the transaction. If fees incurred exceed the agreed-upon amount, fee is capped. If fees incurred do not meet amount, the firm is entitled to retain the savings.

• M&A Fixed Fee for Total Transaction • M&A Fixed Fee by Phase  Phase 1: Analysis, structure, initial diligence and assistance with identifying various areas of due diligence.  Phase 2: Drafting and negotiation of main and ancillary agreements.  Phase 3: Full due diligence, including preparation of due diligence reports and review by experienced attorneys in regulatory, tax, IP, employee benefits, environmental, etc.  Phase 4: Preparation and completion of documentation for execution and closing.

• Collar/Savings: If, at the end of the transaction, Holland & Knight has incurred time valued at less than 85 percent of the fixed fee, then 50 percent of any such savings below the 85 percent level shall be returned to the client.

• Collar/Overruns: If, at the end of the transaction, Holland & Knight has incurred time valued at greater than 115 percent of the fixed fee, then 50 percent of any such overruns above the 115 percent level will be paid by the client.

Fixed fee for deal that mayhave uncertainty in work levels required.

The client and firm collaborate to develop the budget in advance.

If the fees incurred exceed the budgeted amount, the firm is penalized and receives a lower percentage of the excess fees over the budgeted amount.

If the firm completes the work below budget, firm receives a percentage of the cost savings, with a possible cap on the total.

The model sets a fixed Fixed Fee Based on Deal feefor each matter in one of several Value and predetermined fixed fee Complexity bands depending on criteria of the deal.

Fixed Fee with Collar

• Fee bands include criteria based on private vs. public, deal size, number of bidders and scope of representation, to include due diligence or advisor/review counsel.

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RISK SHARING (SKIN IN THE GAME) At the end of an M&A transaction, we aim to deliver the results desired by our client and are willing to stake our fees based on success. The common thread for these fee arrangements is aligned interests with our clients.

Structure

Description

Examples

Success Fee/Broken Deal Discount

Firm receives a premium if deal closes, with discounts if the deal does not close.

• The client-attorney partnership is reinforced with a mutually agreeable risk-sharing fee structures. (Example: a 10 percent success fee and a 30 percent broken deal discount.)

Premium as Percentage of Transaction

Premium over budgeted • Acquisition and Divestiture results can vary based amount based upon a on the experience that counsel brings to deal. fixed percentage of the • The percentage of premium can be constant or be final transaction amount graduated based upon an agreed-upon schedule. up to a capped amount.

BUILDING BLOCKS (RELATIONSHIP GROWTH MODELS) We appreciate the relationships we have developed and want to reward clients who have trusted in us to serve their ongoing M&A and other legal needs with discount-based pricing. When clients choose to give us a high volume of work, a volume discount model is one of the best ways for them to leverage their ongoing legal spend. As the relationship develops into additional work, discounts increase.

Structure

Description

Examples

Volume Discounts

Various alternatives:

• Clients that are converging legal work to a few key partner firms: X% for amounts over $1 million per year.

• Discounts for additional work above threshold for total aggregate fees received • Volume discounts for deal work after being retained for the first transaction (discounts on subsequent deals) • Tiered discounts for transactions, whereby the firm performs a percentage of the work (e.g., 75 percent) on a fixed fee basis, and remainder of work (e.g., 25 percent) on a significantly discounted hourly rate basis.

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• Clients that place all M&A work with Holland & Knight: Volume thresholds are based on subsequent deals in a rolling 12-month period vs. annual fees.  First M&A transaction: 10 percent rate discount  Second M&A transaction: X percent rate discount  Third M&A transaction: X percent rate discount  Four or more M&A transactions: X% rate discount

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Other Key Details AFA EXAMPLES

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For merger and acquisition (M&A) matters, we often offer fixed fees with a broken deal/success provision.

In labor and employment matters, we offer fixed fees for single-plaintiff litigation, administrative actions, demand letters and unfair labor practice claims.

For patent prosecution, trademark and immigration, we typically offer fixed fees for particular filings.

In consumer finance, we have offered fixed fees for pre-litigation tasks and arbitrations to clients with large numbers of matters.

For white collar defense and investigation matters, we often offer fixed fees for the case assessment phase.

In asset recovery, we often offer a success fee where premium rates are earned if the recovery exceeds expectations.

For data privacy projects, we often offer a menu of fixed fees depending on the client's assessment of the priorities required for the project.

For technology transfer projects, we often offer fixed fees for projects that arise because of M&A activity.

ADDITIONAL VARIATIONS

We have crafted many variations of AFAs and other arrangements that, at least in part, depend on hourly billing, including capped fees, risk collars and blended rates.

WORK PLAN CREATION

We provide assistance at the outset of each matter by creating a detailed budget and matter work plan or process map (shown below) that analyzes the scope of work at the task/timekeeper level. The process map is the basis for staffing, pricing and project reporting. It also enables early identification of out-of-scope items.

EACH TASK BECOMES A BOX Partner

Provide preemption letter/ File answer with demand for jury trial L200 Consider allegations Associate

NOTE BILLING CODES

Associate

Prepare protective L200 order

Associate

Letter to opposing counsel regarding electronic discovery L300

DETERMINE "RIGHTSIZED" STAFFING

CONTACT

Associate

Informal/Formal Discovery L300

If in federal court, formal discovery to commence beginning within 4 months of removal

CAPTURE GUIDANCE FOR COMPLETING A TASK

Vincent Cordo Chief Revenue and Legal Project Management Officer 813.739.0713 vincent.cordo@hklaw.com

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