No Risk - All Reward?

He who knows when he can fight and when he cannot, will be victorious. Sun-Tzu
To fully appreciate and understand the challenge of How To Alternative Bill, we should explore the various aspects of the challenge. This means we should explore all the reasons lawyers and firms have not embraced new ways of billing their services. In Jason's comment to my recent post, he made a telling comment: "The problem, as I see it for lawyers, is the fact they don't want to carry the risk that the project will cost more than what the lawyer has charged." This presents one of the more pressing challenges for firms as it is based in fear. Lawyers are by nature, more than risk adverse. Instead or measuring and weighing risk, they are trained to eliminate it. In the business world, this approach is problematic as No Risk = No Reward. Lawyers get panicked when they 'risk' not getting 10% of their billing rates. How can we expect them to risk 100%? The trick will be showing lawyers that 100% is not good enough. Risk is a two sided coin and they are only seeing the bad half of it. Put that down on the list of to do's for How To.

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Doug Cornelius said...

The other side to billing arrangements is aligning the motivation for the lawyer and the client for the case.

You want the lawyer to motivated not only by maintaining professional standards but also by financial reward.

If you charge a flat rate for a transaction, do you start cutting corners if the transaction drags on and on?

Does quality slide because of steps taken for efficiency?

Will the lawyer fight for every last point if there is no reward for the lawyer?

These types are questions that are often asked on both sides of the relationship.

Toby Brown said...

Doug - thanks for the comment and the points you raise.

First - Alternative billing should include communication with the client about whether they want to pay for "every last point" as part of their service. If they do, build it into the fee. The problem with hourly billing is the client pays for that even when they don't want it or need it.

Second - this is just the type of risk in question. Yes - there will be some instances where a lawyer may be tempted to cut corners. But just like every other professional service provider, they would be fools to do so. Any business that lacks a focus on providing good customer service will suffer.

Lawyers who want to be profitable professionals already have to make tough decisions about the financial impact of certain clients and matters. Alternative billing changes the nature of these decisions and removes the counter motivation of financial reward for inefficiencies.

Jackie Hutter, Intellectual Property and Patent Business Strategist and "Recovering Patent Lawyer" said...

True, lawyers hate risk, but so do clients. The current system puts most or all of the risk of legal fees on corporate managers, who often have the least ability to manage this risk. To better balance the risk, how about throwing out the billable hour for the old-fashioned idea of monthly retainer?

I have been practicing long enough to remember old timers saying "back in the good ole days we just wrote down the same number every month and 'said for services rendered'." When I started practicing almost 15 years ago, the monthly retainer system seemed archaic. However, I now believe it is time to revive it, especially for counseling heavy legal tasks.

The retainer system allows lawyers to better adjust the risk on both sides. If the monthly retainer amount is estimated correctly, some months the lawyer should come out ahead and some months the client will come out ahead, but overall both sides should balance. The risk is calculable on the law firm side because we lawyers are trained to keep time, therefore, the managing law firm lawyer can clearly assess the ROI of her representation from month to month. Retainers also will address a primary complaint of clients: the unpredictability of legal fees from month to month that totally messes up an inhouse lawyer's internal budgeting.

Of course, this will not be feasible for all types of legal services, but I for one would be happy to know that the clock doesn't tick in 6 minute increments when I call up outside counsel to ask a legal question.

Brett Owens said...

Jackie, very good point on the retainer - especially since it should be very doable to calculate the ROI on each deal since the time tracking methods are already in place, as you mention.

I'd be interested to hear your thoughts/experiences on how best to estimate the retainer amount initially - and other best practices that come to mind. Thanks, looking forward to your further insights.


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