Royal Dutch Shell has implemented a rule that all new legal matters must be priced using ‘appropriate’ fee arrangements (AFAs), following the oil major’s most recent panel review in April 2016.
AFAs, which include capped fees, fixed fees and contingency fees, have been in place for all litigation work since June 2014, but now apply to all legal matters. In addition, every piece of work will be put out to tender to three or more panel firms.
Speaking to Legal Business, associate general counsel for global litigation, strategy and co-ordination Gordon McCue, who led the most recent panel review, said maximum hourly rates are still used in some cases as ‘building blocks’ of AFAs, adding that it was difficult to get away from hourly rates completely because of the compensation culture within law firms.
McCue (pictured) said: ‘Law firms still compensate their associates and partners on the basis of hourly rates for the most part, so until that is changed to catch up with an AFA world, we are stuck in this kind of hybrid system where we need to have hourly rates in place with firms even when we don’t want to pay them based purely on hours worked.’
As a result, Shell ran three days of online reverse auctions for its law firms earlier in 2016, with firms entering their initial maximum hourly rate for a lawyer at up to 13 different experience levels.
Shell cut its global panel in April 2016 from 11 firms to six, as the company reorganised its legal arrangements following its merger with BG Group.
For more on Shell’s legal roster and the art of panel selection, see ‘A buyers’ market’.