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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Lesson in Legal History and Negotiation – John Adams and Samuel Quincy

August 29th, 2009

Boston - Freedom Trail: Old State House
Image by wallyg via Flickr

I grew up outside Boston, though I have not been back there in a long time.  Last week at the tail end of a family vacation we stopped in Boston to follow the Freedom Trail and show my kids a slice of American history.

On the trip, we walked past Boston’s old State House, the site of the Boston Massacre in 1770.  Five civilians were shot by British troops following a riot and the event is cited as one of many that led to the American Revolution.

The soldiers were arrested and brought to trial.  I find it fascinating that the political environment was so charged that no lawyers could be found to represent the defendant soldiers.  Colonials were already bitterly divided between those loyal to England and Patriots seeking a higher degree of autonomy or outright independence and apparently even the Loyalists feared collateral damage to their careers if they took the case.

The solution was an elegant exercise in negotiating strategy.  John Adams, whose credentials as a lawyer and a Patriot were unimpeachable, represented the soldiers.  Loyalist Samuel Quincy, the colony’s Solicitor General, acted as prosecutor.

The legal history here is interesting.  The compromises required to get the case to trial are fascinating.  Adams the Patriot defended the British soldiers; Quincy the Loyalist worked to convict them.  The trial depended on both men putting their full efforts into pursuing cases that (on some level, at least) ran against their personal convictions.  I’m sure that must have been a tremendously difficult assignment for both sides.

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Urgency vs. Panic in Bike Racing and Software Licensing

July 17th, 2009

At the beginning of this year Brad Feld posted a terrific piece on the Difference Between Panic and Urgency.  The concept- that urgency is the steady, relentless pursuit of a goal while panic is overwhelming fear that causes irrational behavior- has been stuck in my head ever since and has begun to influence how I look at a number of situations.  Here are a couple:

#1 Bicycle Racing.  I race bicycles in my spare time.  I entered a race recently that I thought I could win if everything went well.  It didn’t and I had a mechanical problem that caused me to stop my bike while the other 35 people in my race kept on going.

I checked out my bike methodically and quickly, then hopped back on and tried to catch up by riding a little faster than the group.  I knew that if I went all out I might catch up, but would probably run out of gas before the end of the race and finish poorly.

I didn’t catch everyone, but managed to pass a bunch of people and finish ninth.  I would have liked to finish higher, but I was proud of myself for riding steady, smart and salvaging a result from a bad situation instead of surging forward and then blowing up before the finish.

#2 Software Licensing.  I work with a lot of software companies that sell products in negotiated transactions- i.e. ones where I get involved to help work through agreements.  Deadlines are always tight and sales personnel are under constant pressure to close deals.

The salespeople that impress me most in this environment are the ones who view each transaction as essential and work hard to keep things moving quickly, but without creating a fire drill every time or sacrificing terms in order to close a deal by X date.

The people who view each deal as urgent, but not panic-inducing seem to do the best job of conveying their company’s requirements to a customer and working through the deal terms most expeditiously.  I model this behavior in every transaction I do, working through it steadily and with a sense of purpose to reach the best result in the fastest possible time frame.

As I said, the urgency vs. panic idea has been in my head all year.  It’s a great way to think about how to reach goals.

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Keeping Things all in Context

July 10th, 2009

[Note: I have taken about a 5 month hiatus from this blog and am suitably refreshed and ready to get back in the habit.  This is a copy of a newsletter I sent recently.  I hope you enjoy it.]

I worked through a complex contract recently where the other side had heavily revised my client’s standard form agreement. A number of terms were extremely important, and others less so.

I got to one paragraph about shipping requirements and rolled my eyes slightly when I saw that the other side had changed our “FOB origin” term to “FOB customer’s facility”, meaning that my client would be on the hook for lost property until the goods reached the customer’s facility.

The same day, I found the amazing photo below on the Web, courtesy of Clay Shirky‘s Twitter page.


It was a timely visual reminder that much as we might like to take things like shipping for granted, we can’t always count on them.

With that in mind, I looked at the full context of the agreement:

*Do we have insurance to cover these kinds of losses? Yes- good.

*Does the agreement have “time of the essence” language, liquidated damages clauses or other penalties that could apply here? No- terrific.

Knowing that, we determined that this point was not likely to have major repercussions and we could focus on other terms in the deal.

The lesson? Context matters, and little points can turn into big ones if we don’t look at everything together. Great photos help.

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Contract Management Strategies

January 6th, 2009

Enterprise software companies sooner or later accumulate a lot of paper governing customer contracts.  Maybe half the time customers accept a company’s standard sales or license agreement without substantive comment, but the other half gets negotiated- sometimes a little, sometimes heavily and sometimes the customer insists that its own paperwork govern.

Managing all these terms is complex and painstaking work.  I know a few large companies that take a draconian approach to the task- they only circulate agreements in pdf form (to prevent changes) and any revised terms go in an amendment instead of the original document.  The theory is that the presence of an amendment flags the fact that there are non-standard terms.

In practice this makes a giant mess.  It should be possible to draft amendments that are very specific and clear about which terms have been changed and how, but it never seems to work that way.  I think the companies that get to the stage of doing this get overly caught up in process, the lawyers making the changes are not connected to the deal being done and the terms end up more confusing than they should be.

You need to be a really big company to take that approach in any case, so what works better for the average company?  As with many other things, the answer is to make sure that the information doesn’t live only in the heads of certain people.  Write it down.  Put someone in charge of collecting signed contracts and tell that person to make up a spreadsheet (for starters, at least) that notes any variations from standard.

As the lawyer I wish I could tell the sales teams they won’t get paid until they tell the contract managers about any wrinkles, but I know I’d get overruled.  Still, collect the info right when the deal closes before everyone forgets about it, then work on keeping it up to date.  It’s an ugly “uh-oh” when you realize you have inadvertently been in breach of a contract’s terms because you didn’t know it was non-standard.

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How to Read a License Agreement

December 2nd, 2008

I read a lot of license agreements.  A few of them are concise and simple to figure out, but most are far too long and confusing.

It is not effective to read the agreements straight through from start to finish.  My eyes usually start to glaze over after about page 3, and after page 6 almost anything else within reach seems more interesting than the line I am on at the time.

A better way to read is to take it apart into sections.  Figure out the important points you need to know and go find those first, then go back and see how all the other words come together around the important elements.

I made a checklist to help me do this well.  When I get a new agreement I print out the checklist, then comb the agreement looking for all of these parts.  With that basic information in hand I can go back to the whole thing and pay attention to all the picky details.  As a bonus, once I force myself to find and write down the key terms I tend to understand them much more deeply.

Note that my checklist has lots of extra blank lines.  It is a work in progress and should ideally be modified every time to cover the special attributes of each deal.  Try it out and let me know what other essential terms should be included as “standard”.

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The Tumbling-Around Space in My Head

June 21st, 2008

Anyone who has talked to me for any length of time knows that I am nuts about bikes and cycling.  Getting out regularly is incredibly important for my mental as well as my physical health and well-being.

It helps in my work too.  I realized today that I have puzzled through a remarkable number of work problems out on my bike.  Being in the office involves so many distractions that it can be hard to find time to think straight through one topic for very long.  Once I get out on my bike I usually end up rolling around one idea for a while in my head, thinking it through from a lot of angles.

I’m not an especially fast thinker on the bike.  Traffic, stop lights and navigation all take pieces of my attention.  Somehow that helps too, perhaps because those distractions are transient compared to the demands of multiple long-attention-span projects I face while sitting at my desk.  I let an idea bounce around a bit, set it down to focus on getting over a certain hill, then pick it back up.

Sometimes I get lucky and it seems like the idea has kept tumbling on its own and some new angle appears that I hadn’t considered before.

I find this all fascinating.  Some problems can’t be muscled through.  They just need time and quiet space in my head, and then the path to a solution start to lay itself out.  Cycling is how I make that space.  It sure beats lying awake at night stressing out about them.

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Lawyers Catching Up with the Real World: You Mean People Really Use Email?

June 19th, 2008

File this under pet peeves:  I work through a lot of agreements of all different kinds.  Every single one has a “Notices” provision.  The purpose of this language is to avoid arguments about whether notice was properly given of certain events.  It only becomes an issue when the relationship has broken down, and basically serves only to avoid arguments about the terms of the argument.

That said, 95% of the agreements I get say that notice may be delivered (i) in person, (ii) by Fedex or registered mail, or (iii) by fax with a confirmation copy by mail.

How often do you communicate by fax with people compared to email?

It’s not a huge point, but one of the items on my transaction-document checklist is to make sure that the communication methods reflect the way we actually communicate.  I have a standard paragraph I drop in to agreements that says people can provide legal notices by email (with a confirmation copy).  It takes about 30 seconds of extra time on my part and has saved a bunch of running around on the few occasions I have had to actually follow the notice procedures.

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Empathy With My Clients on My Second Anniversary

May 30th, 2008

June 1 marks the two year anniversary of starting my solo law practice. Recently a friend asked if it was what I expected, and it has taken me until now to think about how to really answer the question.

The answer is yes and no (you expected something different from a lawyer?).

Yes, the work itself is what I expected. I do more or less the same thing I did when I worked in larger law firms- a mix of (i) brand-new startups focused on getting off the ground and raising money and (ii) later-stage companies concerned with negotiating and signing revenue-generating deals as efficiently as possible.

The no has to do with the structure of the business itself. Working for yourself means wearing lots of hats.  The other day someone called and asked for the “billing department”, which interrupted the “maintenance department” in the process of changing a light bulb in my office, both of which stopped the lawyer from doing the actual work of my business- advising companies and negotiating transactions.

I knew that part intuitively, but experiencing it firsthand is totally different. I have advised startups and company founders for ten years now, and having been through the startup process myself I have a *far* deeper understanding of how hard it can be to juggle all the balls that need to stay in the air to keep a business running.

So to all my past and present founder clients- nice job keeping it all going, and keep up the good work!

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