Now in Legal Rebels:
Posted Jul 05, 2012 02:11 pm CDT
Pharmaceutical giant GlaxoSmithKline has saved tens of millions of dollars in legal fees in four years since revamping its hiring and billing system for outside counsel.
Under the watch of general counsel Dan Troy, who joined GSK in 2008, the company has eschewed “inefficient” hourly rate billing models for value-based arrangements worldwide, the Legal Intelligencer reports. Ironically, news of the savings comes on the heels of a record-setting $3 billion criminal and civil settlement over drug misbranding.
Although former U.S. litigation head Bob Harchut, who now leads the global external relations team, told the Intelligencer of his skepticism over whether alt fee arrangements could be easily applied to complex litigation or transactions, the company overcame many of those challenges with the help of two financial analysts to track metrics; a willingness to be flexible among both parties; and rewarding firms for their successes when they “put skin in the game.”
“We really were keen to experiment and do it as a launch-and-learn and continuously improve the process,” Harchut told the Intelligencer of GSK’s pilot alt fee program with 10 preferred law firms. “What we found was it is super-important to identify early on the assumptions that go into the value-based fee and agree to those with our firms because the assumptions are the basis upon which we go forward.”
By the end of 2011 68 percent of GSK’s legal spend was done on an alt fee basis, up from 3 percent before the initiative, and accounted for “extremely significant” savings of about $32.6 million in 57 matters won by outside counsel through a reverse auction system when compared to the expected hourly-rate bills for each matter.
ABA Journal: Facing the Alternative: How Does a Flat Fee System Really Work?