The billable hour isn’t going anywhere any time soon, but that’s not deterring innovative law firms from tilting at that windmill.
Today I’m featuring some Don Quixotes of alternative fee arrangements I encountered this week:
- radiant.law [sic], a UK virtual law firm specializing in technology, outsourcing and commercial transactions, takes square aim at the ROI sensibilities of potential clients by placing fixed fee pricing at the center of its brand in a unique way. While their value proposition dutifully invokes tropes like experience and value, the real differentiator is price certainty. Finance people on the client side LOVE that kind of stuff — predictable expenses and no surprises.
“For each project we will give you a fixed price. You will not have to worry about hidden assumptions or cost over-runs. Our pricing is not based on time estimates or trying to retro-fit the billable hour into a fixed price. Instead we will agree a price with you for a clearly defined scope of work. If you then decide to change the scope of work, we will agree a revised price based on any changes you require in advance. Fixed prices give you more control and oversight of your project at every stage.”
- A Martindale-Hubbell post this week profiled how UK firm CMS Cameron McKenna is approaching alternative billing. Judging from the accompanying video, the initiative seems more like marketing hype than a rigorous business plan at this point, but you’ve got to start the discussion somewhere.
“Essentially, the firm has gone back to the drawing board in terms of the pricing options it offers to its clients. Some of the firm’s ideas are pretty left-field, such as offering to charge for its services by reference to the price of commodities. But other ideas it make a great deal of sense – such as breaking down legal tasks into their component parts, to allow the firm to produce viable fixed price quotes.”
- That Jay Shepherd of The Client Revolution blog fame has an ax to grind with billable hours is not news. But his post this week asserting that there are only two types of law firm fees — time-based pricing and solution-based pricing — is notable for the discussion thread it inspired. Commenters pointed out that client financial management models and contract law are more nettlesome impediments to widespread adoption of solution-based pricing than inertia and lack of innovation by law firms.
Nick White said…
“I’m a great supporter of [solution-based pricing]. The main problem I see is getting clients to catch up. I offer a number of alternatives to time based billing but clients are so conditioned to the traditional approach that they find it almost impossible to get to grips with alternatives, when the focus is just the pricing.”Jerome Kowalski said…But life is never simple.
As much as I admire Tom Bowden the inherent issue I take with his analysis is the premise of a firm “requiring” a minimum fixed number of hours from time keepers. That requirement sets the stage for inefficiencies and too often puffing by timekeepers who are incentivized to do so merely to hold on to their jobs. The basic premise of value billing, AFA’s or solution based billing is to promote and reward efficiently delivered quality work. Minimum annual billing requirements has the exact opposite effect.
And to make our lives even more complicated, recently, a New York real estate developer was shopping around for a law firm to handle two lawsuits. One firm agreed to take on both cases for $300,000 as a fixed fee, payable in three installments. The client presumably thought this was the best deal around since the law firm would take all of the risk if the fees exceeded the $300,000. That, in Jay’s terms, was what the client thought the solution was worth. Well, the firm, Meyer Suozzi, apparently did a bang up job and its hourly charges were substantially less than the $300K. the law firm sued under the agreement and the trial court held “The Retainer Agreement that Meyer, Suozzi, English & Klein, P.C. seeks to recover on is a non-refundable retainer agreement and as such, is unenforceable [under New York Law].” See http://www.nylj.com/nylawyer/adgifs/decisions/020211lally.pdf and http://www.law.com/jsp/nylj/PubArticleNY.jsp?id=1202479960587 .
Bad law? I certainly think so. And probably reversible on appeal. The trial court did hold that Meyer Suozzi could sue under quantum meruit and hornbook law holds that the best evidence of quantum meruit is a price set forth in an agreement, even if the agreement might be unenforceable for other reasons.
Nonetheless, until and unless overturned, this case may well long be an 800 pound gorilla sitting in every fee negotiation involving a fixed fee arrangement.