Attorney Fees
WilmerHale Leader Is the Latest Fixed-Fees Convert
Posted Aug 24, 2009 7:59 AM CST
By Debra Cassens Weiss
Law firms shouldn’t have to be dragged kicking and screaming into the world of fixed-fee billing.
Firm leaders would do well to embrace the economic benefits of fixed fees, according to William Lee, the co-managing partner of Wilmer Cutler Pickering Hale and Dorr. The alternative billing arrangement “is an idea whose time has come,” Lee says in a National Law Journal article he co-wrote with former General Electric general counsel Ben Heineman.
Lee isn’t the first leader of a large law firm to come out publicly in favor of alternative billing. Cravath Swaine & Moore presiding partner Evan Chesler wrote a Forbes article in January arguing that the billable hour should be killed.
Lee and Heineman see benefits for both law firms and clients. “For law firms facing reduced demand and cash flow problems (if not crises), the fixed fee addresses the issues of increasing overhead devoted to the billing process, clients flyspecking bills and demanding after-the-fact discounts, and delays in payments and falling realization rates,” they write.
Clients, on the other hand, will benefit because their legal costs will become more predictable and will no longer be divorced from value, according to the story. The change will also foster better relationships—and fewer conflicts over money—between in-house counsel and the outside lawyers.
How will law firms be able to do more with less? The article suggests a couple ways: better use of technology and “selective outsourcing.”
Legal novelist Scott Turow has offered a blunter assessment of the economic incentive for flat-fee billing. He says lawyers have reached the point where they can’t bill additional hours in a year, and flat fees could help continue the income escalation.
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Comments
tim
Aug 24, 2009 8:14 AM CST
fixed fees never work - clients always change the scope or the other sides attorney draws it out way to long. You will end up eating fees left and right and overbilling to accomidate that.
It is always cheaper to bill by the hour if done honestly and fairly. You don’t need 3 associates reviewing what a partner does.
Clients only want the billable hour from our firm.
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associate
Aug 24, 2009 8:17 AM CST
What a bunch of BS. Fixed fee clients are more than willing to talk at length about anything and everything while not paying you. I dare an associate there to “foster better relationships” with those clients. They won’t be associates for long.
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B. McLeod
Aug 24, 2009 8:47 AM CST
Ask a public finance lawyer if fixed fees cannot be made to work well. It has been the practice in state and local bond issues (including IDB issues) for many decades. It is rare to find this transactional work billed any other way, yet it does not appear the lawyers who do this work are going hungry.
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Esq.
Aug 24, 2009 9:15 AM CST
Leave it to the market to decide.
At #2: I think the law firm model will be converted to a substantially flat-fee system, with sufficient contingency clauses built into every contract so that firms will not lose money when legitimately unforseen circumstances arise in cases.
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Tim
Aug 24, 2009 9:40 AM CST
#2 - your premise is all wrong. I have coffee, lunch, drinks, golf, meetings with clients all the time off the clock to foster great relationships with clients. Most small to medium size firms don’t start the clock every time a client calls to begin with.
When I do legal work, hourly rates are always cheaper and in the best interest of the client. Billable system does not work for BigLaw because they rape the client on fees. I don’t need to train 3 associates in every area of the law on every document I draft.
You can charge them a flat fee at BigLaw and the small to medium size firms will still do the same work faster and cheaper on an hourly rate. It’s not the billing system that is broken for BigLaw, it is how you do the work.
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Matt Johnston
Aug 24, 2009 10:36 AM CST
Flat fees will work if law firms do a better job at two things:
1. Data collection. How much does a given service really cost? Most firms of any size can predict how much a representation, even a lititation, is going to cost and still make money.
2. Control costs. In the age of electronic discovery, high volume scanners and optical character recognition, do you really need all that paper and copying costs?
3. Be ready to justify your fees and costs. How much of a monthly fee based on the billable hour gets reduced? If you can justify your fees, explain the likely costs on the front end, rather than the back end or at billing time, you are more likely to get a client to buy into a slightly higher flat fee.
4. All lawyers know that client communications can take up a big chunk of billable time, so build in contract clauses that help alleviate that problem. Use biweekly reports, a cap on “free” or already paid communication time, so that you can control costs and fees. If a client typically uses five hours of communication time in a month, build a clause that says after 6 hours, the client starts to pay an hourly rate.
Flat fees can work and probably will work going forward.
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associate
Aug 24, 2009 12:00 PM CST
#2 again: So I take it none of you have tried to meet a minimum billed hours requirement in a fixed fee environment. I have. It’s not a workable model unless you’re also getting some highly profitable work like hourly litigation. Associates will do everything they can to avoid the fixed fee clients on transactional work because they know they’re only getting paid for 4 days out of the 6 day work week. And that’s not including having lunch with clients or attending firm sponsored events after work.
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B. McLeod
Aug 24, 2009 12:26 PM CST
“Associates will do everything they can to avoid the fixed fee clients. . .”
Which will be nothing. The “associates” will do what they are told, trusting in the omniscience of the assigning partners. Or, they can be shown the door. they are, after all, fungible and expendable.
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Rath
Aug 25, 2009 10:46 AM CST
#2/7 What you fail to appreciate is that alongside with flat fee arrangements, BigLaw is going to have to come up with more meaningful and accurate ways to evaluate associate performance other than volume of billable hours. While on the one hand this might result in thinning the herd of associates at an earlier stage (which is not a bad thing for the firm) it could also result in better supervision and training of associates (which is not a bad thing for the associates).
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Tom Vega-Byrnes
Aug 28, 2009 6:48 AM CST
Quoting a fixed fee is not easy unless the assignment is simple and straightforward or you have lots of historical data. I’ve handled lots of construction projects and watched how major construction contractors bid on “lump sum” (fixed fee) jobs. It’s by doing an exhaustive estimating job; in construction they use “estimators” whose full time job is to estimate costs for bidding on jobs. And even with a fixed lump sum, there are always “change orders” where the contractor asks for more money because he was asked to do more work than was contemplated in the estimate. This is based on having a extremely detailed “scope of work” in the construction contract, and going beyond that scope merits a change order and more money. And even with all this expertise and effort, change orders are often a source of disputes. Except for areas that have historically done fixed fees (like muni bond work, which in Chicago and other places is politically connected and so probably overcompensated by politicians not spending their own money), fixed fees for major legal work will take lots of effort to get right, for both lawyer and client. (The discussion has been focused on lawyer’s figuring out how to quote a fixed fee, but what about clients? How do they know they are getting a better deal than if they had simply scrutinized bills and asked for one associate on a deal instead of three, one partner instead of two, questioned inflated time, etc.?)
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B. McLeod
Aug 28, 2009 7:23 AM CST
Many good points, Tom. First, clients won’t really be able to comparison shop until many lawyers are offering flat fees. For a time it will be like the old days when it was impossible to compare Lexis and Westlaw costs. However, even though the fixed fee will not initially allow the client to be certain of getting a better deal, it will allow the client to make a basic cost decision: “Is this [transaction or litigation] matter worth my spending this dollar amount?” It will work especially well for clients who are set up to pass through their known fixed costs (e.g., governments, utilities, insurers and some general businesses).
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kd
Aug 28, 2009 7:57 AM CST
Tom (#10) has an excellent point. If there is tremendous difficulty doing flat fees in construction—where you operate with blueprints, specification and building codes, all very detailed, often down to the screw—how do you work a “fixed fee” contract for litigation, packed with magnitudes more in the way of assumptions that have to be made and predictions about what the other side and the court are going to do (not to mention the changing priorities of the client as the litigation develops). Entering fixed fee contracts in that environment is more like selling the client an insurance policy. Some clients will pay premiums and never collect; other clients will reap windfalls. The law firms will have to be big and sell a lot of them to ride out the bumps.
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Bill N
Aug 28, 2009 10:00 AM CST
We have tried doing flat fees for years, and our experience has been that it is the clients who resist it. The hourly rate system that results in higher legal fees in cases where the attorney does more work also results in lower legal fees in cases which settle quickly or in which the attorney does less work. Clients like ceilings on legal fees, but do not like floors. When most of our clients retain us, they still have some hope that their case will settle quickly, and they are unwilling to pay anything more than they absolutely have to.
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Patent Lawyer
Aug 28, 2009 10:27 AM CST
I love fixed fees. I find them far more profitable than hourly work.
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Blaise
Aug 31, 2009 11:44 AM CST
This system will be fairer to women and minority lawyers who historically do not bill as many hourns. White men tend to bill hours for their research/education even thought they are not supposed to, while women and minorites are more by the book.This is better for everyone, except white men because they will no longer be compensated for their education.
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