GSK moves away from hourly billing as alternative fees account for 84% of 2015 work

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Eighty-four percent of the work GlaxoSmithKline (GSK) assigned to law firms in 2015 was done through an alternative fee arrangement, the pharma giant has revealed.

The figure was announced by Bob Harchut, associate general counsel at the company, in a recent interview. In 2011, the number was 68%, while in 2008 it was just 3%.

Dan Troy, GSK’s general counsel, began a company-wide initiative to phase out hourly billing back in 2008, after he arrived from Sidley Austin. “Dan joined the company during the recession, so he was tasked with significantly reducing outside counsel spend while continuing to get excellent legal representation,” Harchut said. “The mission was to dramatically change the paradigm by which GSK paid for legal services,” Harchut recalls.

Troy asked Harchut, who had been the company’s director of litigation, to carry out this mission. “I was really sceptical,” Harchut said. “It was pretty radical to say we’re going to move every new engagement around the world, whenever feasible, to an alternative fee arrangement,” he said.

GSK has pulled it off by making the shift worthwhile for the firms. “Dan was insistent that this be a win-win initiative for the firms. He was very willing to reward them for the value they provide to GSK,” Harchut said.

The pharmaceutical giant has also kept firms happy by being open to revisiting agreements if necessary, Harchut said. “We made it clear to the firms that if there’s a material change in the assumptions of the matter, we are very willing to sit down with them in good faith to look at the arrangement,” he says.

The shift has not been without its challenges. One perennial concern, Harchut said, is ensuring that the flat fees GSK negotiates with firms are reasonable. “How can we make sure we aren’t over or underpaying for value? That has been our Holy Grail,” he said.

GSK’s law firms have responded positively once they see “that we’re not doing this just to cut costs and that we’re trying to make this a win-win for them as well”, Harchut said. “They want to keep their clients happy and they’ve been very cooperative.”

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