1. California | Illinois | Michigan | North Carolina | Texas | Washington, D.C. www.dykema.com Exceptional service. Dykema delivers. 21 ST CENTURY LEGAL FEE ARRANGEMENTS A Brave New World

2. Exceptional service. Dykema delivers. 2 TRADITIONAL FINANCIAL RELATIONSHIP BETWEEN ATTORNEY AND CLIENT IS CHANGING Billable Hours  Novel fee arrangements “Whatever it takes!”  Budgets The pyramid  Customized staffing –partners –associates –paralegals Budgets

3. Exceptional service. Dykema delivers. 3 WHY? 2000 – 2009Costs20%Legal costs 75%* 2009 – 2010Outside Counsel spending worldwide 3%** Reducing legal costs continues to be a high priority. * ACC Value-Based Fee Primer citing Corporate Executive Board, 2009 ** HBR Consulting Law Department Survey 2011 1

4. Exceptional service. Dykema delivers. 4 LEGAL ECONOMICS 101 Total legal spending  Flat + Law firm overhead expenses  Increasing = Something has to give!

5. Exceptional service. Dykema delivers. 5 THE CHOICE Law firm profits  OR More efficient and productive delivery of legal services.

6. Exceptional service. Dykema delivers. 6 NOT JUST SYMANTICS Alternative Billing Arrangements vs. Value Based Billing

7. Exceptional service. Dykema delivers. 7 TRADITIONAL ALTERNATIVE BILLING ARRANGEMENTS Flat fee Success fee Blended rate –Problem: Often just reshuffling the deck – not finding a solution.

8. Exceptional service. Dykema delivers. 8 GOAL Lower legal costs to client while maintaining or improving law firm profitability. Improve efficiencies Increase productivity Change method of purchasing and delivering legal services Focus on results

9. Exceptional service. Dykema delivers. 9 Value Based Billing Linking traditional hourly based billing to novel fee arrangements. Attorneys still bill by the hour. Contain overall cost of legal services. Take into account quality and results. Introduce Incentives.

10. Exceptional service. Dykema delivers. 10 FOUNDATIONS OF VALUE BASED BILLING Define success Disaggregation of work Project management Evaluation Risk/Reward

11. Exceptional service. Dykema delivers. 11 WHAT IS SUCCESS? Winning? Cost effective resolution? Gaining experience/knowledge? Factors  Short term vs. long term  Level of risk

12. Exceptional service. Dykema delivers. 12 DISAGGREGATION Breaking the legal assignment down into component parts. Identify potential efficiencies in staffing. Eliminate redundancies. Utilize technologies/outsourcing opportunities.

13. Exceptional service. Dykema delivers. 13 PROJECT MANAGEMENT Understanding work flows Prioritizing deliverables Implementation and coordination Accountability Client reporting

14. Exceptional service. Dykema delivers. 14 EVALUATION Provides continuous input to improve processes and decision-making. What works, what needs to improve – both outside and in-house. Promotes collaboration and team work.

15. Exceptional service. Dykema delivers. 15 RISK SHARING Role of incentives You get what you incentivize True win – win!

16. Exceptional service. Dykema delivers. 16 EXAMPLES Incentive Fee success fee hold-back contingency Fixed Fee fixed fee per deliverable fixed fee per matter fixed fee per period global fixed fee Hybrid

17. Exceptional service. Dykema delivers. 17 Holdback Fixed Fee for assignment is established. Percentage paid when billed. Percentage “held back” – into “Bucket.” The Bucket grows over time. Bucket may be earned based on result obtained.

18. Exceptional service. Dykema delivers. 18 Modified Fee Cap Hard Fee Cap established. Target Fee Band established. If Target Fee exceeded, client pays only a percentage of excess. If fees are lower than Target, law firm shares part of savings. Creates incentive to beat or at least not exceed Target.

19. Exceptional service. Dykema delivers. 19 Fixed Fee with Success Fee and/or Carve-Outs Fixed Fee (by stage, time period, or entire case) established. Success Fee awarded based on result. Carve outs are agreed to in advance (e.g. number of depositions) CAUTION! - Unintended Consequences.

20. Exceptional service. Dykema delivers. 20 CONCLUSIONS