As service providers in an ultra-competitive market, lawyers are at their clients’ beck and call. I’m sure every partner reading this story will have had to cancel at least one family engagement due to an urgent client request.
But are firms too quick to satisfy their clients’ every whim? It’s a question raised by a recent article in The American Lawyer, which pondered whether law firms should refuse to hand over time-entry data to clients when working on a fixed fee.
The death of the billable hour has to be one of the most consistently over-hyped nonevents in the history of Big Law.
The shift to alternative fee arrangements (AFAs) has been heralded for decades, but for the majority of high-end matters, the simple truth is that lawyers are usually still working on the clock.
Things are beginning to change, however, with companies like Microsoft and GlaxoSmithKline among those demanding that advisory firms take a fresh, more innovative approach to pricing.
But it seems that, in some instances where clients and firms have switched to AFAs, the nature of their relationship hasn’t adapted to follow suit. And this potentially has worrisome, longer-term consequences.
Firms have been providing clients with detailed time-entry data ever since the advent of electronic billing in the 1990s. For many clients, it is a requirement laid out in what are now incredibly comprehensive and sophisticated outside counsel policies.
That makes perfect sense when matters are being carried out on an hourly basis. But what about when a firm is working to a fixed fee?
The main argument against hourly billing is that the client assumes all of the pricing risk, while the law firm is directly rewarded for inefficiency.
A well-designed AFA is one that shares the risk and reward between both parties, while also providing a greater degree of budgetary certainty to the client. That requires a high level of trust on both sides: For the firm, that the matter and its scope will be as described; for the client, that the firm won’t staff the work more cheaply or otherwise cut corners in order to maximize its profit.
It could be argued, therefore, that there should be full transparency between a firm and its clients, no matter what the method of payment.
But it could equally be argued that, under fixed-fee contracts, clients should trust law firms to provide the agreed service for the agreed price. As long as the quality is as expected and the outcome as desired, how firms deliver that service should be theirs to decide. If they can do so by being more efficient and having fewer lawyers work fewer hours, good for them: that’s the whole point.
That isn’t to say that disclosing time-entry data to clients should necessarily result in undue scrutiny of a law firm’s profits on a particular matter, of course. But the very real danger is that clients will crunch the numbers and use their analysis to drive down future fixed fees. That’s called having your cake and eating it, and by bringing the focus back to chargeable hours, undermines the very purpose of utilizing an AFA in the first place.
It’s little wonder that the move to alternative pricing has been so slow when some clients seem unable to drop the concept of hourly billing, even on fixed-fee arrangements.
So, how do firms avoid being sent down that slippery and ultimately damaging slope? As always, in any client relationship, communication is key.
For a law firm relationship partner, broaching the possibility of not adhering to a client request is delicate ground indeed. But this needn’t be cause for tension or ultimatums.
“So many law firms struggle to really negotiate with their clients—they’re afraid to—but there is a way to present a business rationale as to why they shouldn’t be providing time-entry data on fixed fee matters,” says Kristin Stark, principal at professional services consultancy Fairfax Associates. “If you can convince clients that doing so would hinder efforts to create efficiency, that will resonate.”
That means speaking to the right person—someone with the power to actually affect change. Ideally, this would be the general counsel or a senior member of the procurement team, although these are admittedly not always a law firm relationship partner’s first point of contact with their clients.
In-demand practices and those with a long-standing and strong relationship with the client will obviously find themselves in a stronger bargaining position. But firms can only push things so far. The balance of power between lawyer and client has irrevocably shifted since the recession. With many core jurisdictions over-lawyered and showing next-to-no growth, it’s now clearly a buyer’s market.
In the end, if a client is determined to stand their ground, the law firm will be left with little choice but to accede to their demands or risk losing out. But, if sensitively broached and appropriately framed, firms might find that clients are more receptive to negotiation than they think. You know what they say: If you don’t ask …