When flat or fixed fees started to be bantered about in the last few years, partners in several of my firms said: “Won’t work for litigation, since it is too unpredictable.”  Well, welcome to the new world.

A recent article by Catherine Ho that appeared on The Washington Post’s “Capital Business” raised the question about the death of the billable hour. She pointed out that five years ago only 28% of law firms “believed that non-hourly billing would be a permanent change in the legal industry.”  That is according to the Altman Weil’s “2013 Law Firms in Transition” flash survey. In 2013, that percentage had grown to 80%.  Amazing, even though there are those (yours truly being one of many) who believed that it was a definite trend just waiting to be fully realized.

Ho also pointed out how some large firms – Holland & Knight and McDermott Will & Emery – “have even ditched the billable hour model altogether for entire teams of people.”

What is the point? you may ask.  The point is that offering fixed fees is smart marketing. Firms that do will have an advantage over law firms that don’t.  Those that won’t offer fixed fees may just be sending a message to potential clients that includes: (1) we may not have enough experience in the practice area to predict how a case is likely to proceed, (2) don’t have a history of similar cases so we don’t know how much it will cost, and (3) are not willing to share in the risk.

So, law firms that are prepared to offer alternative fees, including fixed fees, have a jump on the competition IMHO.

It’s been awhile since I wrote about flat fees as an alternative fee arrangement.  I’ve covered the topic many times on this blog.  I don’t see it as a current hot topic in the legal marketing press, but IMHO it is one that clients (at least non-BigLaw clients) are most interested in.

Think about it.  Who likes surprises?  No one, unless it’s the lottery winning kind. I don’t like bombshells when it comes to auto mechanics, plumber, electricians, or even lawyers I’ve retained in the past.  I want to know what things cost, or least a damn good estimate.  Fixed fees are one way to avoid unpleasant surprises for your clients.

So, I was taken with Patrick Lamb’s contribution to a free download on Attorney at Work entitled “New Math, New Money: A Lawyer’s Guide to the Changing Business of Law.” Lamb is a pioneer when it comes to opposing the billable hour.  In the aforementioned download, he points out five client benefits with the use of fixed fees:

  1. Saves client/in-house lawyer’s time in reviewing bills;
  2. Increases predictability in the cost of legal services;
  3. Simplifies the client budgeting effort, particularly where the business and law firm have different fiscal years;
  4. Increases client trust that they are not being taken advantage of; and
  5. Clients don’t worry about the number of lawyers or that too senior attorneys are working their matter.

In today’s incredibly, competitive legal marketplace, it would be wise to improve your clients’ experiences by offering fixed fees.  They’ll be a lot happier, at least most of them!

If you still don’t like the idea of offering clients alternative fees or value pricing options, then how about just letting the client decide how much they want to pay for legal services? WHAT!!!, you say. A pretty far fetched (or ludicrous) idea, right?

Not so fast. CMS Cameron McKenna, a UK firm with more than 1000-lawyers, is offering that as an option to “3500 existing and prospective clients” as part of its alternative fee program, according to an article on The Lawyer by Gavriel Hollander. They are also offering an oil company fees based on the price of oil, and another a “no questions asked” fixed fee for a “one-stop deal.”

To be eligible clients must agree to the majority of work being managed by an associate, and agree “to give Camerons more than a third of all legal work.”

Thanks to Gerry Riskin for the heads up on this and weighing in with some very wise advice

“… Those other law firms who ignore Alternative Fees and Value Pricing because ‘they just won’t ever take hold’ are in grave danger of playing catch up or even missing the boat altogether. You don’t need your own pricing team today but what you do need is a team within the partnership to start exploring how your firm will enter this game and when (not if).”

I couldn’t agree more, Gerry.

While one recent survey says that “reducing spending (with outside law firms) is a top priority for corporate legal departments”, another says that regional firms may be in position to gain more work over BigLaw. Both surveys were reported by Law360, the newswire for business lawyers.

Last week Robert Half Legal’s 10th Future Law Office survey was released; and 25% of in-house counsel expect to reduce work with outside law firms. As Charles Volkert of Robert Half put it, there is “the increasing need for law offices to provide more value-added and cost effective legal services.”

Who is in a better position – taking into considering agility and less bureaucracy – than regional firms to do just that? That’s were the second survey by the Corporate Executive Board Co. and CT TyMetrix comes into play. Although only in summary form at this stage, and not due out until September, it does provide some valuable insight nonetheless.

This latter project involves evaluating rate structures, and rate variations in what some firms charge clients, as well as other billing “red flags.” According to surveyors, the final report will “give corporate counsel insight on ways they can save money, including using regional firms.”

Most regional firms already know that, as I’m sure do many in-house counsel. So, why wait. Let them know that your small to mid-sized regional firm can help them start saving money now.

During Jackson Lewis’ annual corporate counsel conference, as reported in The National Law Journal and on Law.com’s Small Firm Business, alternative fees are “putting down deep roots.”

This got my attention, because although there has been much written about the subject including on this blog, it hasn’t seemed that alternative fees were catching on all that quickly. Percentages of law firm fees, other than the billable hour, have ranged from as low as 2% to as much as 20% over the next ten years.

Accordingly, the panel on “The Death of the Billable Hour?” at the Jackson Lewis conference struck me as particularly interesting based on the report that “many companies and law firms now report that as much as 40 percent of their work is billed on alternate billing arrangement that include flat fees, phased billing and contingencies.” That comment was attributed to Michael Roster, chair of the Association of Corporate Counsel’s Value Challenge. If anyone should be getting accurate percentages, it seems to me that would be the ACC.

So, if that percentage is attributable NOW to value billing, what can we really expect in ten years? And, if it is only going to increase, there are two points I’d like to make:

  1. Don’t get left behind. Make sure your business development efforts include offering value billing asap; and
  2. Start looking into project management trainings also asap, so that your firm is managing its matters efficiently enough to ensure that alternative fees will actually work in your firm. For more on that, take a look at my post of last week on what my colleague Jim Hassett over at LegalBizDev is doing and written on project management.

According to a feature article in this month’s InsideCounsel one consultant who helps clients structure alternative fee arrangements "estimates that only about 2% of total legal billings currently are being done on alternative basis – but he contends it’s an increasing trend." That certainly isn’t a surprise.

He goes on to say "I’d expect that almost 20% of all billings would be on alternative billing in eight to 10 years…" According to the article, 35% of respondents to Fulbright & Jaworski’s Litigation Trends survey said that the down economy has pushed them "to increase their use of alternative fees.”

Based on that, I guess I’m just surprised to hear that it’s going to take close to a decade for alternative fees to get up to 20% of billings. I’m just not sure I buy that. I believe that there will be quite a bit more than that by then.

InsideCounsel reports we’ll hear from law firms in Part II of the article next month. If you don’t want to wait that long, and want a more in-depth viewpoint from law firms, get a copy of my colleague Jim Hassett’s survey report of his interviews with more than 1/3 of the AmLaw 100 law firm leaders. It was released recently, and only costs $395 (no, I don’t get a penny of that). Find out more about it on Jim’s Legal Business Development blog .

So, if it does take awhile for alternative fees to hit main street, it still gives small and medium-sized firms plenty of time to make inroads into the world of larger companies by offering alternative fees now, especially in the current economy.

Don’t get left behind. My colleague Jim Hassett has talked extensively about alternative fees over on his Legal Business Development blog for months. Jim conducted interviews this year between June and September with many high level people at 37 of the AmLaw 100 law firms. He will publish his survey report next month. You can learn more about his survey, its modest cost and how you can get a copy by reading his post of yesterday.

I have seen a Preview Edition of the report and one statement struck me as quite interesting:

“Some large firms are aggressively pursuing the development of alternative billing, while others are taking a much more conservative approach.”

That led me to consider the advantage that small and mid-sized law firms still have over those taking the “conservative approach.”  Smaller firms are still  in an excellent position to make in-roads into larger corporations by offering alternative fees while many of the larger firms are still contemplating their navels.

Since many BigLaw firms have a real hard time adapting to a changing environment, more efficient, flexible small and mid-sized firms have a real opportunity to pick up work traditionally “belonging” to larger firms.

You might just want to pick up a copy of Jim’s survey report when it comes out next month. In the meantime start planning to let your corporate contacts know just how adaptable your firm is to these changing times.

For those who rushed out this past weekend to take advantage of the “Cash for Clunkers” program (like my son), now it is time to rush to offer fixed fees. According to a front page story in today’s Wall Street Journal the “’Billable Hour’ (is) Under Attack,” and more and more companies are demanding fixed fee arrangements from their outside law firms. BigLaw is beginning to get the message.

Additionally, my colleague Jim Hassett has written extensively about alternative fees on his blog, Legal Business Development. He is currently conducting a survey of the AmLaw 100 firms’ practices in this area, and the survey should be completed in the next few weeks. The results will undoubtedly shed light on the views regarding alternative fees among these firms.

Since smaller firms are more flexible in terms of changing their billing structure than are the more bureaucratic, large firms, there is still time for small to medium-sized firms to take advantage. So, don’t wait.

Time is of the essence as they say. Call your key clients now to let them know you are willing to discuss flat fees before you get left behind. It won’t be long before the big guys get that huge tanker turned around.

If you are interested in reading some of my posts on alternative fees over the past 4 years…

Continue Reading Offer Fixed Fees NOW!

It was reported in Law.com’s In-House Counsel back in 2007 that small firms were using flat fees to gain an edge in taking corporate clients from larger firms.

That is still the case. As reported in a post on the Desert Law Blog citing the now famous New York Times article quoting Evan Chesler of Cravath, Swaine & Moore denouncing the billable hour, small firms are still ahead of large firms in going to flat fees. In fact, the post points out how difficult it will be for large firms to make the shift to alternative fees in spite of Chesler’s comments.

Now there seems to a new twist. In light of the economic realities of 2009, smaller firms are not only taking clients from larger firms, but their taking BigLaw’s lawyers too. A recent article by Lynne Marek in The National Law Journal that appears on Law.com’s Small Firm Business entitled Big-Firm Partners Go Small to Keep and Attract Frugal Clients” points out that over the past four months partners from “DLA Piper, K&L Gates, Katten Muchin Rosenman and Jenner & Block” have made the move to smaller firms. It is not clear whether this movement is due primarily to the frugality of clients, or that the lawyers themselves want to offer clients lower fees and fewer conflicts of interest.  Does it really matter which?

So, my real question to small and medium-sized firms is very simple: what are you waiting for? Crank up that marketing. Let Corporate America know of the talent you already have to handle their matters at lower, alternative fees.

 

Evan Chesler, presiding partner at Cravath, Swaine & Moore shocked a lot of people within the legal community with his recent opinion piece on Forbes.com advocating the death of the billable hour.

Basically, he states that the billable hour “makes no sense.” Making more money by dragging out a matter (or in his analogy, making more money by getting “bogged down a land war in Asia”) is “frankly nuts.” Pretty strong words from a firm that doesn’t really have to worry about clients questioning their bills, I wouldn’t expect.

Even though tons of folks (too many people to mention here) in blogosphere, including yours truly, have long advocated doing away with the billable hour, Chesler’s comments, one could argue, clearly takes the debate to a higher level. Not many would expect such a position from a BigLaw firm of Cravath’s stature. Now maybe the concept of alternative fees, although not new, will take on a bit more momentum.

Although there have been many different suggestions for alternative fee arrangements (see Continue Reading below for a few of my posts on the topic), I found a couple of ideas from a named partner in a 10-lawyer Philadelphia area firm worth considering.  Gary Lentz of Bochetto & Lentz wrote an article published in The Legal Intelligencer and on Small Firm Business suggesting a couple of approaches that could attract new clients and enhance fee opportunities  in this down economy.

The following two variations on the same theme are worth consideration by firms of all sizes:

  • Multi-phased Fee Agreements
    • Phase I – an initial flat fee to evaluate the case, develop strategy, negotiate and “prompt resolution” (with a potential for a bonus) and drafting complaint, if necessary;
    • Phase II – a mix hourly, fixed fee and/or contingency, if necessary to file and pursue the matter in court.
  • Blended Contingency Fee Agreements – an initial flat fee to cover the evaluation of the case and drafting the complaint, followed with a contingency fee based on outcome of the matter.

Take a look. They may just work for your firm, particularly with clients who are encountering their own uncertainties in the current economy.

Continue Reading Now Is The Time To Consider Alternative Fees