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Flat-Fee Arrangement Benefits Both Client and Firm

By Jennifer J. Salopek

Since October 2004, Tyco and Kansas City-based Shook Hardy & Bacon have partnered in the nationwide defense of the company's entire product liability litigation docket in a flat-fee arrangement with a collar that includes local counsel fees. They share a single objective: to reduce the company's exposure and control costs while protecting quality service, responsiveness, and results. Since its inception, the program has garnered praise for its innovative approach that abandons the traditional billable hour model.

The outside counsel selection process had just been completed, and implementation was underway when Dennis Lynch joined Tyco as chief litigation counsel in the fire and security segment, which represented about $12 billion of the company's $42 billion in annual revenues. Lynch had logged eight years in private practice before going in-house at Unisys.

Dennis Lynch

"I had had one-off experience with alternative fee arrangements on a case or two, but had never bundled hundreds of cases under a flat-fee agreement," he says. "Tyco was very lean in its law department to begin with. We had no internal litigation group, so were under-resourced to manage so many law firms. The national counsel approach was driven by practicality as well as a desire to get a handle on costs."

At the start of the relationship, the docket consisted of more than 500 cases. In the first five years, Tyco's product liability case docket was reduced by 55 percent; new case filings declined by more than 65 percent; and case cycle time was reduced by 40 percent. More than half of the company's cases are resolved with no indemnity cost to Tyco.

SHB conducts shadow billing, using standard ABA codes to determine where time and money is being spent and where they can extract the greatest efficiencies. "That gives us a database of more than eight years of metrics," says Lynch. "That track record is informative to us for other RFPs we have sent out. We have changed our mix of litigation."

The firm's philosophy is to identify how to get out in early case assessment: "What is our exit strategy, and how do we get there?", as Paul Williams, partner at Shook Hardy & Bacon, describes it. Case count, cases filed and cycle time are important metrics; the longer a case is open, the more it costs.

"Tyco wants resolution of risk. The firm and Tyco are both motivated to resolve cases as quickly as possible," he explains. "This restructures how resources are spent."

There's a psychological advantage to the setup, says Lynch. "Adversaries representing insurers in a subrogation scenario know it will not cost us more to go to trial."

Paul Williams

SHB routinely provides feedback from the field on process improvements to enhance the services provided and to provide lessons and advice for the Tyco businesses. "We track recent filings and conduct regular reviews of lessons learned. We use these to educate our internal clients on improving operations and limiting exposure, as well as cutting costs," Lynch says. The flat-fee amount has steadily decreased.

The longevity of the relationship benefits the company. "Our lawyers are interested in learning the business and, with turnover on the corporate side, we have become the repository of institutional knowledge," says Williams. "We retool our philosophical approach to each case to use available resources and to learn from the past."

Two years ago, Tyco merged two additional litigation dockets with its product liability docket, and SHB now handles all three under the same alternative-fee arrangement. Tyco has also called upon SHB to assist in other areas of practice, including prelaunch product and literature evaluation, product recall advice, records retention counseling, employee witness training, e-discovery advice, and training, and intellectual property protection and enforcement.

Lynch's best advice? "Flat-fee arrangements, if you have the right firm and the right relationship, are a great way to achieve cost certainty—as much as you can get in corporate America—and a comfort level that comes from knowing that firm, its lawyers, and their experience."

From the Judges

"One of the great strengths of Tyco's projects is that they've been underway since 2004. It shows that value-based arrangements aren't a short-term fad. And they are doing all of this with a flat fee arrangement, demonstrating that a firm that puts its mind to it, and a focused in-house department, can make major improvements in how legal work is handled. Note that the annual cost is routinely coming down while outcomes are continuing to improve."

"I was impressed by Tyco's long-term relationship with Shook Hardy in partnering to manage a product liability docket on a fixed-fee basis."