Recently, I posted on the need for lawyers to think like attorneys but bill like consultants. The Great Recession has increased the pressure on law firms to come up with more predictable ways to bill and the consulting industry provides a good model.
The tie in with this blog is that many LPOs are able to offer fixed fees for certain services and this in turn can help law firms to get a better handle on what to charge (other than simply setting an hourly rate). That is why I continue to write about alternative billing in this space.
IPEngine, the sponsor of this blog, offers one example. In working with law firm and corporate clients, IPEngine develops an understanding of client expectations. IPEngine will then quote a client on a project basis (e.g. by the patent, by the prior art search, by the office action, by the freedom to operate study, etc.) and over time, the price for future projects will be adjusted based on actual experience with the client.
While the whole idea of project billing may seem mysterious to most lawyers (many will assert that law is different and that the practice of law is too unpredictable and too idiosyncratic to reduce to flat fees) a recent experience I had with a home contractor highlighted for me that the legal industry really has it wrong.
Several weeks ago, I met with a contractor to go over some house projects. While in theory, it would have been easier to simply get bids on painting the whole exterior of the house, we decided to address those areas of the house that were in the worst condition. This included some sections on the outside and some rooms on the inside.
The contractor did what any good contractor would do: he came by the house and we walked around together and discussed what work needed to be done. He asked questions about our expectations and noted that by not painting the entire exterior, that we needed to be clear that we had shared expectations.
Next he wrote up an estimate describing the project (which included replacing rotting wood in a number of areas and several other handyman projects). We also agreed that he would paint over a wall papered wall rather than attempting to remove the wall paper (which might unleash a big mess since our house is old and the wall was likely to be damaged if the paper were removed).
Once I had the written estimate in hand, I discussed it with my wife and rewrote it in order to clarify certain things and to make some changes (additions and subtractions). I sent the estimate back to the contractor who called me to discuss the changes and then set up a time for him to get going on the work.
On the morning that he started, we again went over the project list to make sure we were both on the same page. As it turns out, there were a few more things that needed to be corrected on the estimate, but finally, we were ready to go.
The work is now in progress and both my wife and I continue to monitor the work flow. We understand that if in removing rotted wood, he discovers some unexpected additional rot, that we will have to renegotiate the price if we want that additional work done. The same is true if the painting prep work reveals any out of the ordinary items that need to be addressed.
The key to making the whole relationship work is good communication and good communication takes time.
Lawyers are not accustomed to working in this way, though increasingly, in-house counsel are requesting that outside firms figure out how to move away from the billable hour. The change that needs to occur is that lawyers need to be more willing to spend the time and energy scoping out a project and learning over time what clients expect.
This means that like contractors who develop a sense of how long certain types of projects take, lawyers need to develop better processes for litigating matters or closing transactions. Contingencies need to be built into fee agreements (if the company being acquired reveals a previously undisclosed subsidiary, then the firm representing the acquirer will obviously need to spent more effort in the due diligence process; if the counsel to the opposing party in a litigation turns out to be obstreperous, that will of course impact the amount of energy that the firm needs to devote).
And perhaps there are some types of high level advisory legal work that should continue to be billed at an hourly rate.
Lawyers who adopt these billing methods will find very happy clients.