|image [cc] Karan Jain
It may appear I am on some Defend BigLaw run with my recent posts. It’s actually not that, but merely some pent up pet peeves I need to air. This one addresses the attack on law firms for how they come up with matter budgets and fixed fees.
The scenario goes something like this: When a client asks for a fixed fee (typically with little to no scope) and the law firm calculates that number by adding up the number of hours and multiplying it by hourly rates, they apparently are committing some act of near-fraud. The audacity of a firm to just add up hours to give a fixed fee to a client. How stupid do they think the client is?
My response: How exactly is a firm supposed to develop a budget or a fixed fee? Should they just make up a number? Or should they put on their value thinking caps and derive a number that way? Even if they look up fees from past, similar matters, those numbers will be based on … hours.
Now I realize the client is attempting to limit the number of hours a firm might utilize in providing a service and shift fee risk to their outside counsel. And that is definitely one of the outcomes of using a fixed fee. But a firm still needs a method for determining what the fee should be. And hours times rate is the most practical method for doing that.
Once you have the fixed fee, or even just a budget, the goal of limiting hours has been met. So why would you attack the firm for using time and materials to derive a budget? If a client has an issue with a proposed fee, they may want to negotiate.
I believe this tension is symptomatic of the market-level breakdown of trust between client and lawyer. This issue is a pet peeve because I think the concern is seriously misplaced. If clients and firms want to better align cost and resources, instead of attacking the number of hours, they should be sitting down,setting strategy and prioritizing resource allocation (can anyone say Legal Project Management?). This type of approach drives a clear alignment of law firm effort with client needs and goals. I suggest fewer hours should be an aspect of the clients’ cost management goals, but not the only one. As my mentor used to say, “If reducing outside legal spend is your only goal, stop hiring lawyers. Just pay the settlements and move on. Your cost will go to zero.”
If you truly want to meet cost management goals while continuing to meet the legal needs of your clients (internal clients for in-house lawyers, external clients for law firms), then: Have The Conversation. Throwing stones only leads to shattered glass.