Fixed Fee Billing and Other Legal Red Herrings

September 1st, 2009

There has been a great deal of talk this year about fixed fee billing as way to address problems in lawyer-client relationships, starting with major clients like Cisco and major firm leaders like Cravath Swain & Moore’s presiding partner Evan Chesler.  Richard Susskind also talk a lot about the idea that fixed fees align client and firm interests better by encouraging efficiency.

I have no doubt this may be true.  Flat fees can reduce double-billing, the multiple rounds of review that occur as documents are prepared by junior attorneys, then reviewed by mid-level ones and then senior partners.  Legal invoices generally don’t relate time spent to specific goals or deliverables either, so they can leave the reader/client confused about what has been accomplished in the time spent.  Flat fees could make that clearer.

Or, flat fees could simply be a way to throw a thicker blanket over firm billing practices.  I wish I could find again the cynical viewpoint I read recently about how large firms have gotten about as big as they can get and the lawyers physically can’t bill more hours in a year, so they have turned to fixed fees to continue to increase partner profitability.

I have never worked in a large firm, never mind managed one, so I won’t presume to know what drive’s any firm’s billing practices.  I will say, though, that there are not many clients sophisticated enough to know that XX transaction should cost $YY.  Most clients simply need to take the firm’s estimate at face value, or solicit multiple bids.  A firm that wished to could certainly estimate the likely cost of a matter, round up slightly, then streamline its internal resources in order to bill the fixed-fee equivalent of 10 hours for work that can be performed in 8.

The point here is not to accuse any person or firm of bilking clients, but merely to note that the discussion of billing practices *per se* is a red herring.  It is just as easy to obfuscate and pad a fixed-fee invoice as an hourly one.

So what, I was asked over the weekend, is my approach?

The Grand Scheme
The master plan includes initiatives like the ones Mark Chandler describes in the ILTA speech linked at the top of this post.  He talks about letting Cisco attorneys dive into outside-firm knowledge management systems directly, reverse auctioning patent prosecution matters and a service level agreement that requires Cisco to take back low value-add (but expensive at outside firm rates) matters from outside counsel.  My firm is developing technology that will let us collaborate more closely with our clients on many matters.

The Day to Day
In the meantime, there is the day-to-day process of meeting new clients, assessing their needs and getting the work done cost-effectively. Every client wants to know how much the work is going to cost so it can budget appropriately.  Here’s the simple, low-tech approach that works for me:

  • Listen carefully to what the client needs and ask a lot of questions
  • Be honest with the client and with myself about how much time a transaction will likely take
  • Communicate regularly about progress.  If something major happens that seems likely to increase the scope of a project, work through it as early as possible
  • Strive to show that each invoice shows value provided, whether the bill is broken down hourly or on a fixed-fee basis

In the end, it’s developing relationships of trust and mutual advantage with clients.  Billing practices are a means to the end, not the end itself.

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