Lawyers changing how they work and how they are paid
“A lot of people look at a big project coming to town and how many jobs is it going to create. Well, it creates a lot of legal jobs, too.” Steve boutwell, d irector of client services for Kean Miller
The megaprojects springing up in Louisiana are altering the way law firms negotiate fees with those clients and even prompted one firm to form an economic development consulting affiliate.
Work on these types of projects probably makes up about 10 percent of the firm’s business, according to Steve Boutwell, Kean Miller’s director of client services.
“Interestingly enough, lawyers are some of the first boots on the ground for the companies looking to develop these projects in Louisiana,” Boutwell said.
Lawyers’ tasks might begin with negotiating tax, job-creation and other incentives with the Louisiana Economic Development department, involve due diligence and financial considerations, move into real estate acquisition and securing permits from the state departments of Environmental Quality and Natural Resources and their federal counterparts, and then into engineering and construction contracts.
Once the project is underway, a firm might be asked to help develop employee manuals or negotiate the contracts for feedstocks the plant will use and agreements with railroads or barge companies to ship the products.
“I guess the long story short is you’ll find lawyers and law firms involved in a lot of these big projects,” Boutwell said. “A lot of people look at a big project coming to town and how many jobs is it going to create. Well, it creates a lot of legal jobs, too.”
Kean Miller has worked on a number of projects, including Sasol’s $21 billion gas-to-liquids and ethane cracker complex in Westlake and Sempra’s $6 billion natural gas liquefaction export facility in Hackberry.
With numbers that large it’s no wonder project owners are looking to change the way lawyers bill for project-related work.
“The old formula of just billing on an hourly rate is just out the window,” said Patricia Galloway, chief executive officer of Pegasus Global, a management consulting firm with clients worldwide.
Owners aren’t looking at legal fees as 2 percent of the project costs, Galloway said. More and more, project owners seek retainer arrangements or even partnership agreements where the law firms share in profits or costs.
Some project owners want law firms to submit proposals, bidding for work the same way a construction or engineering company would, Galloway said.
Owners want to see presentations that set out who will be on the legal team and the billing arrangements. That may involve some sort of retainer, a daily rate or a blended rate for the legal team, senior partners, associates and paralegals. Clients want to know how the law firm calculates that blended rate, and they may set a limit on fees.
Bill Hines, managing partner of Jones Walker, said the firm typically gets hired in one of three ways on a megaproject.
The easiest way is when Jones Walker is already the client’s general counsel. The project comes in and the law firm is hired to handle the legal work. There’s no RFP, or request for proposal.
Other times, the project owner asks law firms to submit an RFP. In a couple of those instances, the company ended up building the project in another state but hiring Jones Walker anyway, Hines said. Those companies liked the firm’s proposal and that the law firm has offices in the state where the project was located.
Sometimes a company has its own lead counsel and is looking for a local firm to handle site selection, land acquisition, permitting, economic incentive negotiations and so forth, Hines said. Jones Walker prefers to be the lead counsel, but out-of-state and international companies are often more comfortable with the national or international law firms they’ve worked with in the past.
Boutwell said there may be another reason.
“Louisiana is cut from a little different cloth in that we have a Napoleonic Code, and that scares a lot of people around the country,” Boutwell said.
The corporate legal departments making the hiring decisions may be based in Houston, New York, Chicago or Los Angeles. Those departments are looking for some hometown knowledge and are leery of the negative publicity generated by the state’s poor rankings for civil lawsuits.
The result is that a lot of business gets driven to Louisiana law firms, Boutwell said.
O. Ray Cornelius, public finance team leader for Adams and Reese, said the firm has negotiated a broad range of billing arrangements.
But most involve a fixed price for a successfully completed project, Cornelius said. That’s a major change from billing by the hour, and it has helped Adams and Reese land a number of big contracts.
Clients like that Adams and Reese puts itself on the line and is willing to be rewarded based on success rather than time spent on a project. The firm gets paid a smaller amount that covers some of its costs if the project doesn’t happen.
Cornelius has worked on more than 200 economic development projects since 1980 for Adams and Reese. The firm has helped shepherd through the $900 million Benteler Steel plant in Shreveport; Dyno Nobel’s $850 million ammonia plant in Waggaman; and Valero Refinery’s $700 million methanol unit in St. Charles Parish, among others.
“One thing that’s different today is we’re talking about such large numbers. Our state has been so fortunate that billion-dollar projects are not that unusual anymore,” Cornelius said. “Until four or five years ago, a $200 million project was considered a very huge, mega-type project.”
Hines said the megaprojects also prompted Jones Walker to make a big change, too.
“Every time we went in on one of these deals, they (the clients) would bring in a site-selection consultant,” Hines said. “And I thought the consultant was doing things we could do and you didn’t necessarily need a lawyer to do them.”
In September 2012, the law firm formed Jones Walker Consulting, which does economic development work in a number of states. The consulting company has employees who aren’t attorneys, which means they can’t practice law. But they can put together the incentive packages clients want or strike a deal with Louisiana Economic Development.
Economic development consulting is just the latest evolution of the move to provide non-legal services through related businesses, Hines said.
For example, years ago the discovery process in a lawsuit meant locking 10 lawyers in a room while they examined thousands of pages of documents. Now some law firms have companies that put those documents into online databases, allowing digital searches of the records.
He expects the same thing to take place with economic development consulting.
“I think you will see more and more of this around the country,” Hines said.