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Distributed Fee Concept
Introduction
Scope and Purpose
The purpose of the conflict distributed fee concept is to support the firm’s commitment to the native distribution of fees billed, credited, collected or written-off to the hour worked.
As an integral component of the firm’s financial risk management strategy, the scope of the distributed fee concept includes the granularity and controls to protect the fees billed, credited, collected and written-off, per hour worked. These measures are designed to provide a clear picture of the cost and contributions of work concluded for clients by areas or practice, client industry as well as other client, matter, and member relevant attributes.
The model can also be leveraged to obtain working-member fees billed, credited collected and written-off measures which are not compromised by manual or formula-based fee allocations.
Distributed Fee Highlights
Organizations licensed with the distributed fee engine, benefit from a more granular and precise productivity timekeeper-based measure resulting from the allotment of fees-billed, fees-credited, fees-collected and fees written-off to the specific hour worked. This productivity measure is applied to timekeepers based on their value worked for the time records included within the invoice in context of specific intent on one or more entries, in which case the formula prioritizes the intent of action taken.
The working-member-based measure, is designed to capture the intent of the options selected during the invoice process and the priority of entry-level fee-overrides which may apply to many members, as once applied these entry or member specific fee overrides are excluded from the distribution of global fee overrides and/or similar options like hide.
Discounts, premiums, and similar options like combined for presentation only functionality, also play a role, however as these options are not subject to specific entry modifications, the impact on distributed fee is always based on the worked value.
Use-Case:
The premise of the distributed fee model is to provide client, matter and working-member measures – detailed or summarized by their respective attributes; that are not compromised by the manual or formula-based allocation of fees billed, credited, collected or written-off, to members with or without hours worked on the posted invoice.
This measure is designed to support matter profitability measures where we use the hour worked as the basis for calculating per time-entry costs and their value-worked for allotting fees billed, credited, collected and written-off to the time record. This direct link between hours worked and fees billed, credited, collected and written-off allows for precise measures when evaluating the timekeeper’s contribution.
As these measures are based on the time entry’s value worked, they are calculated independently of fee allocation decisions and exclude fee-values with no corresponding time records.
Hold Vendor Payments Until the Related Matter Disbursement is Paid BPR Rule:
The same engine is required to enable the implementation of the hold vendor payments until the related matter disbursements are paid BPR rule. If used, the vendor payments are held until the client pays the affected invoice, at which point the hold on payment to the vendor for the disbursement affected is released.
Other Fee and Receipts Allocation Models
Acumin supports three models for analyzing fee allotments – shared, allocated and distributed. The last two models extend beyond fees billed and credited to the allotment of fees collected and written-off.
Depending on the allocation formula used, the allocation-based measures can provide reasonable relevance in context of hours worked, however as the results are calculated at the allocated-member level and not the hour-worked, the effectiveness and granularity of the measure is limited.
Allocated Fees Billed, Credited, Collected and Written-Off
Allocated Fees Billed
The allocated-fee-billed model allots the net fees billed of the affected invoice based on the allocation formula applied at the time the invoice is posted with all resulting values stored at the allocated-to member level.
Most law-firm clients traditionally applied a true “pro-rata” net fees billed allocation formula based on value-worked by the timekeeper to invoices with time records, and “member responsible” allocation formula to the occasional “no-time” invoice
As time went on, the need for more presentation billing options to satisfy the requirements of the firms’ clients paralleled the implementation of additional allocation formula attributes to support more complex allocation requirements, typically leveraged to facilitate the management of exceptions affecting annual compensation measure. This included the ability to directly allot specific entry or working member write-ups or write-downs to the timekeeper differentiating from fee discounts which applied to all based on worked values.
Unlike other member-based measures, in addition to having the ability to build formulas, based on role, or reporting classification for members to receive allocated fees based on the value-worked of others and/or for fees billed without a time-record; the calculated fee allocation for an invoice was made available for modification by authorized users. As a result, it is possible to allot fee allocation values automatically or manually to a member that never actually worked on the file.
Due to the many attributes fundamental to the allocation formula offering and the flexibility of allowing for manual overrides, there is no direct link between the timekeepers’ hours worked or their value and his or her allocated net fees billed included in the affected invoice, rendering any comparison between the two potentially misleading when not considered from this perspective.
Allocated Fees Credited, Collected and Written-Off
Fees credited, collected and written-off are allocated based on the final fee allocation position of the affected invoice. In addition, recent versions provide users with the ability to modify the default allocation of fees credited. In this case the credit note can be assigned its own fee reduction allocation formula or be subject to a manual fee-credited override. Both will supersede the default allocation calculated in context of the final allocated fees-billed for the corresponding invoice.
Partial payments are applied to sales tax and disbursements before they are applied to fees. As a result, any ensuing credit note or AR write-offs against sales tax and/or disbursements considered paid, triggers an allocated fee collected record per affected allocated-to member on the transaction date of the credit note or AR Write off that triggered it. Authorized users can also modify the default allocation of fees collected and written-off. Adjustments to the calculated allocated fees collected and written off can be completed by accessing the Cash & AR WO allocation form. Appendices.
Shared Fees Billed & Credited
As the use-case of allocated fees billed and credited is not always consistent with a true pro-rata result based on value-worked, Acumin offers the shared-fee billed reporting perspective.
Whereas the allocated concept stores the allocated-to-member values, the shared fee concept calculates the shared-value. This calculation is completed independently of timekeeper-specific gains or losses and/or fee allocation decisions, therefore the shared-fee value reported represents the fee-contribution by the timekeeper based on his or her value worked for the affected invoice without any other consideration.
Although there is no direct link between the hour worked and the corresponding shared fee value, the basis of the shared fee billed calculation is the value of the hour worked, resulting in an unadjusted allotment of fees billed or fees billed net of fees credited for the affected timekeeper. As a result, fee-billed values with no corresponding time records are excluded from this measure.
As shared fees billed and credited values are not stored, they cannot be overridden and have as their lowest level of detail “the member that is the timekeeper”.
Distributed Fees Billed, Credited, Collected & Written-Off
The distributed fee model provides a more precise productivity timekeeper-based measure resulting from the allotment of fees to the hour worked. As these measures are based on the time entry’s value-worked, they are calculated independently of fee allocation decisions and exclude fee-values with no corresponding time records.
The model supports matter profitability measures and summarizations thereof subject to client, matter and member attributes used, where the hour worked is used as the basis the calculation for entry costs across multiple perspectives.
Version 14.0 Release
New to this version, this initial direct link between hours worked and fees billed, credited, collected and written-off allows for a more precise measure for the evaluation of client, matter, and timekeeper contributions. Although this initial phase of the model does not offer the level of refinement impacting the hour-worked otherwise included in Acumin 2.0, the measures offered provide a granular allotment of fees billed, credited, collected and written-off in context of most billing decisions for licensed environments.
Version 2.0
Further refined within this version, this productivity measure is applied to timekeepers based on their value worked included within the invoice; unless there is a specific intent on one or more entries, in which case we prioritize the intent of action taken. Although the distributed-fee model allows for the calculation of member-based measures, the formula is driven by the time-entry record, therefore it is influenced by the intent of the functions applied at invoicing and the priority of any entry-level overrides, both which may apply to more than one timekeeper.
To maintain consistency with billing decision intent, once there is a specific entry-level override, the entry is excluded from distribution of global fee overrides and/or similar options. Invoice discounts and premiums and similar options like combined for presentation only, are not subject to specific entry modifications, in which case the impact on distributed fee is always based on the value worked of all timekeepers.
Functional Impact on the Allocation & Distribution Models – Version 2.0
Entry Specific Modifications
Entry-specific modifications directly affect the time entry and as a result the timekeeper with a direct impact on his or her distributed fee. The impact on allocated fee is dependent on the content of the allocation formula.
These specifically modified entries indicate intent; therefore, they have priority in the calculation of distributed fee measures. The options that are expected to generate a direct impact to the affected member are: Specific write-up, write-down affecting individual entries or using the grouped member option; as well as their individual write-down to 0.00. Once these options are applied, the affected entries will not be further overridden because of global fee overrides applied. The values stored in the entry adjustment table will facilitate the calculation of allocated fees in accordance with the formula applied.
Hide
When we hide an entry, the intent is to include the entry value in the total of the printed invoice without showing the entry, making this an invoice presentation option that does not impact the basis for calculating allocated nor distributed fees. As a result, the original worked value of the hidden entry is to be considered as the basis of other invoice modifications in the same way as any other time entry implicated in the calculation of adjusted entry values and distributed fees.
Presentation Only Time Entry
Although the creation of presentation only time entries for a specific member does not affect his or her distributed fee on the basis that there is no relationship to a time record, their creation may affect the allocated fee value and therefore, from this perspective these entries are subject to consideration as a worked-value when applying total fee or total invoice fee-override options.
From a distributed fee perspective, independent of the values needed from a fee allocation perspective, the value of presentation-only time entries is considered as non-entry specific global fee override, akin to total fee or total invoice overrides. As a result, the calculation of the distributed fee measure allots its value based on the value worked of the time-entries included in the invoice.
Combined for Presentation Only
When we “combine for presentation only”, we are completing a presentation requirement which has nothing to do with a valuation of the hour worked, therefore everyone who is participating in the combination retains its worked value as the basis for the allocated and distributed fee calculations that ensue. For example, if a member has one entry with a worked-value of 100.00 - representing a ¼ of the total worked-value being invoiced - which is then combined for presentation purposes with another entry, so it shows as written down to zero, and where the invoice includes a subsequent premium of 100.00 for a total value of 500.00, then the distributed fee for this member is 100.00 + 25.00. If instead we generate a discount of 60.00 then he or she gets 100.00 – 15.00. With respect to allocated fees the 125.00 or 85.00 needs to be identifiable because fee override functionality can be specifically applied or globally allocated based on the settings of the allocation formula.
Non-entry Specific Fee Overrides
Non-entry specific fee overrides are applied to ALL non-specifically modified entries – regardless of member – based on their value worked. The global fee override options like total fee override, total invoice override and for presentation only time entries are subservient to entry-specific ones.
Discounts & Premiums
Discounts and premiums are the result of pricing decisions and not productivity gains or losses, therefore their distribution affects all working members based on their value worked, independent of any entry-specific or global fee override decisions made. In other words, discounts and/or premiums are applied across all time entries included in the invoice based on their value worked to a minimum value of 0.00.
For example, if a member has one entry with a worked-value of 100.00 representing ½ of the total worked-value being invoiced which is written down to zero and the invoice includes a subsequent premium of 125.00, then the distributed fee for this member is 0.00 + 125.00. If instead the invoice includes a subsequent discount of 50.00, the working member still only gets 0.00.
With respect to allocated fees the discount and/or premium needs to be considered in relation to the value of the fake entry because these applied values may be allocated to the working member of the presentation only time entry based on the settings of the allocation formula.
Different Outcomes Based on Model Used
Using the following example, we can see a difference in the allocated, shared, and distributed fee values reported under their respective methods.
John is a partner of the firm and has recorded one time entry for 1 hour. His rate is $200 per hour. He is the responsible member at the matter level. Janet is a paralegal of the firm and has recorded one time entry for 1 hour. Her rate is $100 per hour.
The allocation formula states that only lawyers are allocated fees, and all fees worked by paralegals are to be allocated to all timekeepers that have a reporting classification of partner or associate based on credit work (their worked values). Janet’s time has been written up to $150 and the total fees billed are set to $400.00.
Allocation: The allocation formula will apply the fees billed after fee-overrides affecting paralegals and distributed them to Partners and Associates based on value-worked. In this case we would have the following outcome:
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Allocated fees for John: $400.00
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Allocated fees for Janet: $0.00
Shared Fees: Independent of the allocation formula, the $50 write-up for Janet and the global fee override resulting in an additional $50 are distributed to John and Janet, pro-rata based on value worked
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Shared fees for John: $266.67 = ($200 + (($50 + 50)(200/300)))
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Shared fees for Janet: $133.33 = ($100 + (($50 + 50)(100/300)))
Distributed Fees: Since the $50 was written up specifically for Janet’s time entry, it will be applied to Janet whereas the total fee override of $50.00 will be applied to John and Janet based on their value-worked
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Distributed fees for John: $233.33 = ($200 + ($50 (200/300)))
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Distributed fees for Janet: $166.67 = (($100 + $50 )+($50 (100/300)))
Allocated & Distributed Fee – Points to Consider
Entry-Value Modifications at Invoicing:
Modifications affecting entry values completed in invoice properties are applied to individual entries (directly or through the working member grouped entries fee override option) with priority and therefore are not subsequently modified because of entry value modifications applied globally - total fee and/or total invoice override or the allotment of for presentation only time entries.
In this case, we expect that these fee modifications are applied across multiple remaining unmodified entries, and where there are no remaining entries, based on current messaging we apply the global fee override based on the value worked across all entries (ignoring the individual modifications – completed directly or through the working member grouped entries fee override option)
Applied to individual entries (directly or through the working member grouped entries fee override option) or applied globally across multiple entries (total fee or invoice override), the entries have their respective values stored within the “adjustment” associated to the individual entry record table so they can form the basis for allocated and distributed fees billed measures respectively.
Discounts and/or Premiums
Discounts and/or premiums are always distributed based on the value worked of the entries affected. For allocation purposes the discounts and premiums are applied to presentation only time entries based on their value.
Functionality and Impact:
Computation rules for presentation purposes as well as decimal constraints in the presentation of time can trigger a difference between presentation values and entry values stored in the entry adjustment tables to be leveraged with the corresponding allocation formula.
In this case the fee modifications resulting from total fee override and/or total invoice fee override and/or the inclusion of presentation only time entries, will trigger values stored in the entry adjustment table which may not be equal to those presented on the invoice. These same rules once applied can trigger a new total fee value to be presented on the invoice resulting in an additional variance from the intended total fee value. This last variance or remainder is added to the entry with the highest absolute fee value for presentation purposes only. These last steps will not affect the values in the entry adjustment table sourced for allocation and distribution of fees. Despite entry-level differences, the total fees for internal and external purposes will equal each other.
When the user applies the “Hide” option, the worked value of the hidden entries is not considered individually modified. As a result, these entries remain available for consideration in the calculation of the entry adjustment values and the distributed fee value based on their worked value with or without the impact of additional fee overrides and/or distribution of discounts and/or premiums.
When the user applies the option “New – Presentation-Only Time” we create a “fake” entry for the affected member that will show on the printed invoice document. In this case, the value of the entry is distributed in the same way as a global fee override resulting in 0.00 value in distributed fees for the affected member. However, from an allocation perspective, it is possible that the value of the entry is allocated to the entry’s working member as the allocated-to member, therefore for allocation purposes if specifically assigned to the member bearing the entry, it would be considered as time entry subject to global fee overrides with resulting values stored in the entry adjustment table as this is the source for the fee allocation calculation.
When the user applies the option “Combine for Presentation Purposes” we create a “fake” entry for the member that will show on the printed invoice document and write-down to zero all the entries it replaces to facilitate the intended presentation decision. In this case, the real time entries are not considered individually modified nor is the fake entry considered valid. As a result, the former remain available for consideration in the calculation of the entry adjustment values and the distributed fee value based on their worked value with or without the impact of additional fee overrides and/or distribution of discounts and/or premiums, whereas the latter does not.