Lawyers have a love-hate relationship with the billable hour. As it turns out so do our clients.
Lawyers love to hate the billable hour — our days and sadly our lives have been measured in terms of our yearly, monthly, weekly, and daily targets. We know how much time we needed to bill on a weekly if not daily basis to meet our targets. These targets may be imposed by our firms (with weekly reminders) or by ourselves (with constant reminders).
The billable hour is a form of economic tyranny that has controlled most lawyers’ working and personal lives. Recording our time; getting our time in; billing out our time; collecting for time billed — these are our preoccupations. We hate reducing our relationship with our clients to billable units but are nervous about changing our billing model.
And as it turns out, for good reason. When I decided to start my own securities firm a year ago, which was in part based on the eradication of the billable hour, I felt elated, freed. Now I could have a “normal” relationship with my clients based on the services I provided and not the time it took to provide them.
The last year has provided me with some interesting insights into both lawyers’ relationship with clients and the “end of the billable hour.”
Clients don’t really care about the billable hour. They just want to pay less for the same services. They don’t really care if we track our hours or offer a flat fee for our professional services. They are looking for the same quality and firm service at a greatly reduced price (and who could blame them?).
But clients are suspicious of flat fees. They don’t believe they will get the same service for a flat fee retainer as they would if they were charged a hourly rate. This is possibly due to the fact we as a profession have done an excellent job of convincing clients we can’t do it any other way.
Clients still want a break down of how we spend our time on their matters and to know they got value for their money even if they are being charged a flat fee.
As a result, coming up with a flat fee is a nerve-racking and stress-provoking exercise for both the lawyer and the client. We need to set a fee that will compensate us for the tasks undertaken but will not result in sticker shock for the client.
As it turns out honesty is not always the best policy for attracting new work. Even a flat fee based on a discounted price over an hourly rate can result in sticker shock for a client. A detailed outline of the steps necessary to complete a task with a break down of fees associated with it can be enough for a client to reconsider their plans. It can also results in the client going across the street to a firm that charges on an hourly basis and where the need for price transparency is not as critical.
Clients are generally not pleased when they find out a fixed fee only applies to matters covered by the legal management plan and they might have to pay an additional fixed fee or an hourly fee to cover the extra services; unnecessary communications are discouraged; they have less control over who works on their files; an advance cash retainer is required; and fees are payable anyways on a monthly or interim basis.
Clients still want high-quality legal services and we have a professional obligation to provide them with the same services. The fact our fees are set or lower or limited in scope does not change our professional obligations to our clients.
In my experience so far, the success of alternative billing arrangements is dependent on a number of factors:
• Careful screening of clients. “Demanding” clients or clients who need constant hand holding will not be good candidates for a fixed retainer.
• Open and frank communication at the beginning of the retainer on all matters related to the retainer and the payment of fees is necessary. Explicit buy in by the client to the new form of billing and any impacts on the relationship is critical.
• Complete and thorough understanding of the legal issues underlying the retainer and the client’s required services before you undertake the retainer is required. Obviously this is not always possible and so fixed retainers are not always advisable.
• A carefully drafted retainer agreement that properly and fairly limits the scope of the retainer in terms of services to be provided and timelines for the completion of the services is needed.
• Having access to legal service providers who are expert or experienced in the areas of the legal services to be provided is essential. The fixed retainer model is, for the most part, inconsistent with a training model (i.e. articling students or junior associates).
• A no-frills approach to providing legal services — from the artwork (or lack thereof) to employee benefits is needed.
• A compensation structure for service providers that is tied to the overall profitability of the firm (and not tied to individual collections) is needed — eureka team work!
• An upfront cash retainer proportionate to the size of the total retainer and periodic billing as the services are provided is also critical.
We are told our clients hate billable hours, however what they really hate are the business structures billable hours have created. They actually have come to know and love the benefits and services the billable hour model provides to them.
Our challenge is to meet client demands for reduced costs and manage their expectations re service levels, all the while providing high-quality legal services in these stressful economic times.
Barbara Hendrickson is the principal of BAX Securities Law in Toronto.