Mitch Kowalski said something during his visit to our firm a while back that I feel is worth remembering.
A member of our firm questioned, legitimately so, whether the introduction of ABS would unduly chip away at the ability of smaller firms to retain clientele and keep the lights on. Mr. Kowalski replied that the purpose of law is not to provide a living to lawyers. Such a sentiment is difficult to argue against, despite the fact that we maintain an interest in making sure there is ample opportunity in this field to sustain us with a comfortable living.
It is no secret that there the traditional way of doing things is being disrupted, and that this disruption will not abate any time soon. Indeed we at L21C understand that we must adapt. In order to adapt what better way than to tackle the problem of how we price our services? The method of billing clients for the amount of time put into a file is, simply put, inefficient. Clients want to pay for a result, not time. Is it any wonder why jokes about lawyers are so prominent? Or why people dread having to hire a lawyer?
The billable hour has faced criticism lately as pitting client against lawyer. More can be read about that here and here.
As a response to growing criticisms of the billable hour, numerous proposals have been forwarded. Alternative fee arrangements (AFA’s) have sprung up and what they all have in common is that they are rejections of billing for time spent on a file.
While thinking about this problem, I considered the manner in which construction jobs are priced, which, as the vignettes point out, is generally done on a cost-plus basis. The problem, of course, is that litigation can be wildly unpredictable, and to quote based on anything resembling a flat fee might be extremely unfair for a lawyer.
When it comes to solicitor work, though, especially the kind of legal matter that is extremely cut and dry (at least, as basic as a legal service can be), I think that charging a flat fee would in fact be more in line with attacking the access to justice problem. It would provide clients an ascertainable way to know what a given legal service will cost them.
So in answering Mr. Kowalski’s question, it can be said that no, law is not there for the purpose of giving lawyers a way to make a living. But the law would not be robust, strong, and capable of helping those who need recourse to it if did not provide those working in the field with at least a decent standard of living. Great minds otherwise drawn to the practice of law might sadly not even consider it because of the prospect of low earnings.
One thing is for certain: things are going to change. Perhaps the change is not directly on the horizon. It will, sooner or later, however, arrive. We at L21C have learned about technology-driven legal service alternatives and, this being 2015, these types of information technology products will increase in their quantity and accessibility. If we wish to adapt in a way that welcomes the inevitable wave of change, we have to rethink and perhaps even discard some things seemingly held sacred in our profession, and the concept of the billable hour seems ripe for such rethinking.
What do my fellow L21C firm members think? Does anyone have any innovative idea about how we should bill clients, given the fact that the “billable hour” is reported as being a barrier to people seeking legal help?
5 Comments
I definitely agree that lawyers are going to have to change the way they bill if they want to stay competitive. However, I wonder what you think about how this could apply to different areas of law?
Charging a flat rate for writing a will seems obvious, but a flat right for a complicated litigation file seems less possible. I wonder if flat rates are more appropriate for solicitor work, where there are less variables, than it is for barrister work where a file could be settled early or go to a lengthy trial.
I really enjoyed reading your blog, Nick.
I agree with you and Sarah, that it is easier to apply a flat rate to solicitor’s work (and, countless firms are currently doing this), but it becomes far more difficult to do so in regards to barrister’s work as time and, by extension, cost can range greatly due to the unpredictable nature of litigation.
I recently spoke with a law professor, who is a former litigator from a large firm, about the cost of litigation. He told me that as a lawyer, he would not have been able to afford litigation if he needed to pursue it in his personal capacity and that a right will exist merely on paper for a number of individuals as litigation is not economically viable, which prevents them from pursuing an action. One possible solution to the cost of litigation may be to increase the small claims limit in an effort to resolve the access to justice issue. Another potential solution, which is being turned to, would be to encourage alternative dispute resolution (such as mediation and arbitration) to settle matters out of court, which eliminates the uncertainty of the cost associated with litigating. I realize both of these solutions do not directly speak to the issue of solving the billable hour problem, but they are indirect solutions to the problem.
I do not believe there is a clear answer to this problem. Perhaps different models, such as services being priced based on results or the difficulty of the task will solve the problem, but it will require lawyers, old and new, to shift their traditional mindset.
I agree with what Sarah and Neila have said: coming up with workable fee arrangements other than the tried and tested billable hour is much more challenging for complex and unpredictable pieces of work, like big litigation, or a major M&A deal with a lot of variables that might not be completed for a number of reasons, such as regulatory approvals, changes in the market, or failure to agree on price. (And, by the way, it doesn’t separate out as easily as “litigation” versus “solicitors’ work.” There is straightforward litigation. And there is transactional work that is tremendously complex and fraught with contingencies. As a former transactional lawyer, I have to make that point!)
At the same time, I think lawyers kind of need to get over themselves a bit when it comes to pricing complex work. Remember what Fred Headon said to us about his COO, Klaus Goersch, who has to run operations of almost incomprehensible complexity, 365 days a year – and do it on budget? Imagine going to someone who does that job and saying, this dispute or this deal is completely unpredictable and I have no idea what it will cost, so it will just cost whatever it costs … I don’t think that would be very well received. These are not things so mysterious, mystical and opaque that we cannot make well-informed predictions about cost.
Even pricing a significant home renovation, as in the scenario we discussed today, involves a lot of components and elements of uncertainty. And yet construction companies somehow manage to do that, as a routine matter. Are they really that much smarter than us? 🙂
There may be good reasons why the tried and true (or dreaded) billable hour makes sense as a pricing option. From the client’s point of view, there is direct comparability of what’s being offered by the lawyers competing for their business, and a degree of transparency through detailed billing records. From the lawyer’s side, it’s low risk. For both, it’s familiar and well understood.
But for lawyers to claim it’s just too complex to come up with a fixed rate for services other than the most predictable and routine matters is a bit unconvincing, and partakes of what I think of as Lawyer Mystique Talk. As one of the characters in the HLS case study suggested, you could start with just taking the last ten matters of the same nature and averaging out what they cost.
I totally agree with the points you are making Nick, specially since a flat fee would certainly work towards improving the lost trust between the clients and lawyers as it promotes honesty . The clients would know exactly what they are being charged up front and what they would receive in return.
The fee-split approach however that is being practiced by a lot of smaller firms these days perhaps is one way to encourage a more affordable legal service. This in turn would promote flat fees and the fees can be split between paralegals or support staff to provide a less expensive pricing strategy, but again as you mentioned this will not resolve the situation as a whole but perhaps a strategy that can be taken up by larger firms providing more complicated services.
Great post Nick!
I agree with you that as upcoming lawyers we definitely need to start thinking about how to cater to the market and adapt to client needs in regards to pricing. However, I also agree with your point that we still need to value the service we are providing and not undercut ourselves and the profession as a whole. I do understand that as technology is advancing, the process and procedures are becoming easier for laypeople to understand and work with, and things will only get better. So though the service we provide is valuable, it is also becoming a service that the public can navigate themselves through without a lawyer, and so I agree with what Professor Sykes mentions above. To a certain degree, we as lawyers need to get over ourselves. However, as Sarah and Neila point out, lawyers do not provide services for just one aspect of law. Our work is varying, and as such our prices should also vary. I think the faster we adapt our prices, the more our profession will flourish even though it will most definitely vary from what it has traditionally.