The Greatest American Lawyer

Attorney Collaboration? Yes, attorneys in the same office can work together

One of the downsides of hourly billing is the disincentive to collaborate. Clients don’t want to see multiple lawyers showing up on their hourly bill. Law firms and lawyers are sensitive to having collaborative work sessions where multiple people might show up on the time sheet.

We are doing a project for a start up company which involved approximately $20,000.00 worth of drafting projects, including license agreements, intellectual property creation and intellectual property protection. Our deliverables included a list of specific documents. The client had hired other firms over the last several years to achieve the deployment of the business model which he was tinkering with. But none of the lawyers were able to capture the business model with any specificity, and he simply threw out the documents paid for on an hourly basis.

On Friday, the three partners of our law firm sat in a conference room together with the client and collaborated over the first draft of our master licensing agreement. We had already had several face-to-face meetings with the client, had visited the client’s initial deployment in order to better understand the software itself and had been working within the extranet to identify key issues. We had developed a master Mind Map document identifying all the different stakeholders, potential licensees and intellectual property hurdles.

It occurred to me during the middle of this brainstorming session designed to spit out a solid first draft of the master licensing agreement that collaborative brainstorming sessions almost never happen in a traditional hourly billing law firm. And yet the value of that meeting and the key issues we identified and resolved can not be understated. On a flat fee basis, the firm has an incentive as a group to perform the promised deliverables in as efficient manner as possible. The hourly billing model treats collaboration as inefficient. The flat fee billing model treats collaboration as a valuable approach to focusing on and deciding key issues.

At the end of the meeting, we asked the client whether or not we were outperforming his prior law firms. He noted that the business model and approach of the firm was delivering exactly as promised. He stated his belief that our business model was in fact the one that would prevail in the market in the end because it is the one that made perfect sense. The client wasn’t blowing smoke. Everyone in the room knew that value had not only been promised but was being delivered.

Cost-Certainty is the Number One Factor Driving Clients towards Flat Fee Billing.

We are currently involved in some fairly complex Anticybersquatting Protection Act litigation across the country.  We’ve been closely monitoring the hourly bills (we sometimes start litigation on an hourly basis until we see where it’s going).  The client is an international company that is used to paying hourly fees.  The complaint in one case is filed and early motions in play.  The client actually requested the other day for the flat fee alternatives.

As we discussed with the client, it was clear that one single factor was driving the client’s decision concerning an appropriate flat fee level.  That single issue cost-certainty.  Over the next few posts, I will be talking about the flat fee process for complex litigation.  Many lawyers say the flat fee model doesn’t or can’t work with litigation.  Quite simply, they are wrong.  Most likely, they’ve never tried.  They’re smatter than they think and the variables really are fewer than most people pretend.

Delivering Results Every Single Day

Lawyers who bill by the hour typically spend their time thinking about hours rather than results. Few hourly billing attorneys tell their client what they will be delivering and the costs upfront.

Once deliverable are defined, a value billing attorney simply asks himself/herself the same question each moment of each day: "how do I deliver the deliverables I have promised the client?"

Instead of cases just meandering forward, each day the lawyer’s required to think strategically. The lawyer has to anticipate what moves on offense need to occur in order to achieve the result. The lawyer has tremendous incentive to achieve that result sooner, rather than later. This is because hours of time now count against him/her in contrast to the hourly billing approach where hours count against the client.

The best part about value billing is that it requires the lawyer to think strategically, offensively and proactively every single day. A value billing attorney constantly reviews their case to see what can and should happen next.

The Biggest Mistake of Value-billers

One of the big mistakes that people who attempt value billing make is that they attempt to keep the bill down. Instead of providing value, their goal becomes doing less.

Value billing is not, under any scenario, about doing less. Value billing is about providing more value. In many instances, it may involve doing much more than a traditional hourly billing firm.

We are all aware that hourly firms sometimes just go through the motions. Because the emphasis is on billing an eight to ten-hour day, lawyers get lazy. They don’t stop and focus on what is important. They don’t have a sense of client goals or documented deliverables. We are all aware that many clients spend tens of thousands of dollars and yet achieve little if anything at the end of a case.

In contrast, a value billing approach ensures that the clients’ goals are fully documented at the beginning of the matter. Further, a return on investment matching those goals against the documented costs (preferably on a flat-fee basis) of the attorney’s services is analyzed at the outset. Sometimes, a value-biller will do more work and charge more money than an attorney simply going through the motions on an hourly basis. The difference is the end zone. A value-billing attorney knows exactly where the end zone is, understands the value that end zone provides to the client and gets the ball in the end zone at the end of the day.

Why lawyers love hourly billing

One of the issues, which is repeatedly overlooked in the discussion concerning hourly billing, is the fact that many law firms prefer it. Think about it. Hourly billing is the perfect vehicle to obtain the first retainer check from a client. An average retainer ranges between $2,500 and $7,500. The hourly billing model allows the lawyer to focus on determining whether or not the client can come up with that initial retainer check without discussing:

• What results might be achieved in the matter;
• Whether the client will receive any real value from the legal services;
• Whether the client can afford the next payment of money beyond the retainer;
• What the plan or strategy is concerning the matter;
• What the client’s goals are in the matter.

Hourly billing is the perfect model for avoiding any real substance concerning the client retention conversation. Many lawyers don’t know answers to many or any of the questions implicated above. It’s not that they are not smart enough to think of answers in formulate opinions. But it does take work and effort to define the legal project, set a budget and fully understand and appreciate client goals. The hourly billing method allows lawyers to be lazy. All they need to do is confirm that the client can come up with the initial retainer and sign them up to an hourly billing system based on the single premise that "I’m a lawyer and you’re not."

The best benefit provided by value billing is that it forces lawyers to not only think about the above issues but also define them for the client and obtain agreement and consensus with the client. Value billing shares the risk between client and counsel putting them in a partnership on the specific legal matter at hand.

Can you think of other reasons why lawyers love the hourly billing system?

What is Value Billing?

Value billing is a phrase which is often used in relation to professional services such as law. Value billing means different things to different professionals.

We are at a stage in our firm’s growth where hourly billing is becoming less and less apart of our model. While many of our legal projects are purely flat fee, we continue to do hourly billing on a modified and "value" basis. We always talk about and obtain approval on monthly budgets from our clients even on those matters where we are billing by the hour. On many matters, we agree to a maximum spend by the client or charge the hourly fee, which ever is less. This maximum budget or hourly fee approach ensures that the firm has the proper incentives to get the job done efficiently, but also caps the cost to the client for the services. A key part of this approach is documenting the tasks and deliverables, which are going to be performed by the firm on the front-end. Setting the client’s expectation by documenting those expectations is a key feature of our billing system.

The next step for us is to move more of our work into a pure "value-billing" system. This involves defining the client’s subjective goals, analyzing the value of obtaining those goals from the client’s point of view and putting a correlated value on the legal services driven by client value. Essentially, the client agrees to pay a flat fee over a period of time for a given project irrespective of hours. While this sounds traumatic to many law firms, let me assure you it is both achievable and preferable. It results in benefits for both the firm and the client.

When law firms start talking about hours and start focusing on results, good things happen. Lawyers can document and define legal projects upfront, measure the value to the client for those defined services and charge a defined fee for performing the same.

For those interested in taking a look at our firm's current "value-billing" statement, it is set forth below:

Value-Based Billing Policy

Some of Traverse Legal's customers prefer to be billed on a time-based system, where hours are tracked and billed to the client at a specific hourly rate.  Some cases are best suited for time-based billing.  Unlike most other firms, Traverse Legal does not bill for every activity and task associated with the handling of a matter for a client. 

The following is a list of items that we do not charge to clients:

·       Transmittal letters which do not contain significant legal analysis or recommendations.

·       Short phone calls that do not lead to immediate legal work.

·       Update or general information calls to or from client.

·       Any activity that does not add value to client’s immediate matter.

·       Any activity which deals with general information about the client.

·       Any activity which does not work towards resolution of the client’s problem.

Things that we do bill for:

·       Any activity which provides specific value to a specific client problem.

I would be interested in comments concerning this billing statement from the audience, please.  Does this statement comport with the billing model of your firm? 

Talking Value with Clients

One of the many evils and pitfalls of hourly billing is our tendency to talk to clients about hours. Clients don’t care about hours. Clients don’t care about hourly bills. Clients will never understand and appreciate the hourly billing system. The uncertainty of the hourly billing method is a big part of this perception. When a client doesn’t know what the bill is going to be until it arrives, the client is almost always left with sticker shock and the anxiety which comes from the unknown.

We project monthly budgets for our clients and get their approval ahead of time. This removes the sticker shock factor. It also means that the client has already bought into a monthly spend before the month begins. Many projects in which we handle are purely on a flat fee. Thus, there is no sticker shock because the price was set up-front.

With any billing model, we as lawyers need to learn to talk value rather than budgets and time. Subjectively analyzing the value of your legal services for any particular client is critical. This process involves understanding the monetary and non-monetary benefits that would come as a result of your involvement in the client’s problem. While we often dabble in such discussions, lawyers need to learn to prioritize these issues in virtually every conversation with the client.

By talking "value" with the client at every opportunity, you not only create a set of expectations but reaffirm the value of the services that you are providing. The moment this conversation becomes difficult, is the moment you should realize that you may not be providing the value which makes sense from the client point of view. This is the same moment you should revisit the project with the client and discuss whether or not your involvement continues to make sense.

One of the real detriments of the hourly billing system is that it drives the focus and terminology of law firms. The entire culture of the firm becomes "hourly billing." This makes it extremely difficult to instill a culture which focuses on the value proposition to each and every client of the specific services which are being provided by your firm.