Lawyers Need to Ask “Why Not?”
Using Mindjet Mind Manager Software as a Case Management Tool.

Value Billing Requires Attorneys to Define and Deliver Benchmarks.

Every time I sit down with a client, I tell them what we achieved since we last met, what we’re going to do next and I remind them exactly what we have promised to deliver in their matter. Yes, even in litigation, we define very specific benchmarks and then set out to achieve them. The vast majority of the time we deliver on our promises. In fact, our ability to get paid is at least, in part, dependent on delivering agreed upon benchmarks. Yes, we wake up in the morning thinking about how we will make good on the benchmarks we have identified for the client as deliverables.

So what is a benchmark? In a contract case, it may be negotiating a contract which includes the three key terms that your client must have in order for the deal to make sense. Your risk is that the other party won’t like the language you’ve proposed. Your job is to make sure that they do agree with your language.

Yes, this involves a lot more than marking up a documenting and emailing it to the other side. It requires the attorney to think outside the box. If you have to deliver a non-compete clause and exclusive dealings provision in favor of your client, you better figure how to make those terms acceptable to the other party.

If you didn’t get paid if the other party didn’t accept, how much time do you think you would spend in the morning strategizing about achieving that benchmark? You would not be merely marking up documents in "track changes" mode in Microsoft Word. You would be on the phone educating the other attorney about why the provision is important and fair. You would be imbedding audio comments in your PDF markups explaining how provisions work and why the deal made business sense for the other side.

If you had no idea whether the other side would be agreeable to a non-compete and exclusive dealings contract, the first phase of your project would be ensuring that those provisions would be generally acceptable to the other side. You wouldn’t spend one ounce of time drafting an arbitration clause until you knew that the three most important items which your client required were acceptable in principle before spending the time drafting.

I hear attorneys say that the value billing approach won’t work because there are too many variables beyond the attorney’s control. In many ways, this is an incredible cop-out. First of all, the value-billing project can be defined in a way which accounts for those variables. Second of all, I will guarantee you that if you take risk on those "unknown" variables, you will spend a lot more time in your client’s shoes sharing the risk and, as a result, focusing on achieving your benchmarks.

Comments

Peter Olson

GAL, might you discuss value-billing "benchmarks" in the context of litigation. That's our struggle...not to repeat the "cop out" but how does one deal with the real uncertainties of opposing clients/counsel and the courts?

Jeff Donner

Exactly. I have found that this approach truly does work. My goal from now on is to handle all matters on a fixed fee/value billing (by stages) basis, no exceptions. Simplified pricing too. To the extent I let any "time-based-billing" thinking creep into my mind, I determine my fee for each stage using daylong increments as opposed to tenths of an hour. But it is better to really think about the "value" of a stage or result, not the time it takes the lawyer. Of course, one cannot agree to do something that will take 25% of the lawyer's working year for $5,000, so the time to be expended by the lawyer has to be "a" factor, but not the exclusive factor.

GAL

Peter:

Value billing in a litigation context can be a bit more challenging. The way we do it is to break the case up into pieces. No clients can be willing to spend $250,000 on a flat fee basis, broken down by monthly payments if the numbers don't add up at the end of the day. The early phases of litigation are designed to determine what value, in money and other intangibles, are potentially obtainable.

For instance, the first phase of any litigation project is to obtain background information necessary from the client to identify possible theories of liability and the facts and documents which support that theory. Designing a case strategy document, using the MindJet Software or other documentation tool, is always an early phase. Those projects are extremely easy to budget. Depending how much is at stake, you assign a number, $5,000, $10,000 or $15,000 to obtain the information necessary in order to get through phase one. At the end of phase one, you've already told the client you are going to provide deliverables which might include viable legal theories, possible risk items, monetary and other value which might be obtained, etc.

I think your question really goes to "what happens once you are in litigation." If you've done your homework upfront, you will know what value you mjght provide to the client before you step into court. If the client has identified $1 million worth of value in obtaining a particular litigation goal, then putting a flat fee of $250,000 on the table makes great sense from the client's point of view. The client agrees to pay you that fee on some form of payment schedule. You spend all your time, energy and focus delivering the desired outcomes.

For instance, I just finished a case wherein the client had a million dollar value proposition. The goals identified as a result of our presuit "phase" process were to remove the other attorneys from representation based on conflict arguments, forcing the sale of the company to an independent third in order to ensure proper value to the minority owner, obtaining a minimum sale price of 12-14 million dollars and obtaining a total payout for the client in the 4-5 million dollar range. Over the course of the last year, we obtained each and every one of those goals, hitting a grand slam home run on the client's value proposition.

The client had budgeted $250,000 for the matter and obtained a tremendous return on investment. Do you think the client cares how much time we spent working on their case?

What if we had not been able to deliver on the value proposition we laid out for the client at the beginning of the case? There are two ways this could have happened. The first is that we could have proceeded all the way through litigation to verdict without spitting out an order of judgment which accomplished our goals. The second is that the client could have decided to settle the case without obtaining their goals. In either instance, the lawyer takes risk. Contingency fee lawyers do it every day. Business lawyers insulate themselves from this risk by counting hours. Good lawyers not only beat their hourly billing numbers using their value billing model on regular basis, thus increasing profit margins, but build strong relationships with their clients by obtaining their client's goals along the way.

The comments to this entry are closed.