The Billable Hour Questioned

Today’s Wall Street Journal must have read my last blog post that legal costs are controllable.  Flat fee pricing is the model that is discussed in the WSJ article.  The assertion is that flat fee agreements will result in lower costs for the client … and less revenue for the law firm.

I’m not yet convinced.

The flat fee provides the client with the ability to better budget the cost of legal services. This is important for the client. It also allows the law firm with the ability to be more efficient (better staffing and use of technology) in the delivery of legal services … and therefore more profitable.  Lower costs to the client will come when there is a competitive environment and another law firm underbids the flat fee of the first law firm.

Of course, we have the same issues. Listening to the client; collaboration with the client; and loyalty from the client. Changing the pricing model does not automatically change the need for these items to create a successful, long-term attorney-client relationship.

When clients impose strict guidelines on the law firm in terms of staffing, for example, the law firm may not be able to adjust. The theory is that once the client, the major corporate client, gets a flat or fixed fee, that client should no longer care about anything but receiving a quality final product. The intricacies of get that final product should then be left to the law firm. If that happens, then the law firm can use less or more expensive staff, less or more technological improvements and younger or more experienced lawyers. The client should not care.

The undercurrent, I fear from listening to corporate counsel, is that their time has come. They want to reduce legal costs at the expense of the law firms. Partnering and collaborating, many law firms believe, are euphemisms, not reality-based. If so, the current change will be a fad, not a sea change.

Categorized in: Cash Flow - Finances