Category: Cash Flow – Finances
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.
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In a recent conversation between Inside and Outside Counsel, Inside Counsel expressed their concern over the escalating cost of legal services.
They seemed to concur that the greatest impact on cost is not the hourly rate being charged; staffing has the greatest impact on the overall cost of legal services. The next element with the greatest impact is strategy.
Starting with strategy, if you have a "scorched earth" approach, this contentiousness will result in higher legal fees. Appropriate sometimes and not at other times. Pick your poison … and then look at the cost involved. Next is the staffing; who you have working on a matter is significant. Is this a partner with a higher rate but greater experience who can rip through the analysis and work? Is this a young associate who will take longer to get up to speed but whose rate is lower? And what is your fee arrangement, a blended rate, pure hourly or a variation alternative fee? These are factors that general counsel are reviewing.
Another tool used by Inside Counsel to control costs is to get a budget from their law firms. In litigation matters, almost 100% are budgeted. Quite a change from the time when lawyers were saying they couldn’t predict what the other side was going to do and therefore couldn’t project the cost of litigation. If you can build the Empire State building on a fixed fee contract, you can budget for litigation. And that is now happening with great frequency.
Clients are wanting to assure that the legal fee is justified in relation to the value of the matter. Thus, the budget is a tool not only for the client to decide whether to go forward, but also to make sure the law firm does not get out of control.
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A very interesting question was asked today on our Forum about how high one’s retainer should be in order to assure payment of your billing.
The answer, I believe, is to focus more on the intake process and to assure that the client has the principal to pursue his principle; then, it is a question of educating the client sufficiently that he understands he has received what he has asked for …. in other words, that the client has received the value he bargained for.
What do you think? Share your comments.
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President Obama said yesterday that "If you want health care, you should be able to get affordable insurance."
This should be the same for malpractice insurance. If bar associations want lawyers to have malpractice insurance, they should provide affordable opportunities for lawyers.
Why don’t our bar leaders see this? Is it that they’re not walking in the shoes of their members?
My wife made an interesting observation: Pass an insurance health care bill that gives Americans the same health care that they receive. After all, don’t they work for us? Why should they have better health care than they’re willing to provide us? Hmmm. President Obama said as much yesterday in his news conference. Our leaders aren’t listening.
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In a conversation today with a client of mine, he presented me with an interesting dilemma. He is a sole practitioner with two associates. They both acknowledged that they were down to 50% capacity.
His dilemma now: What is his best choice?
1. Fire one of the two lawyers
2. Take work from his desk and transfer it to them … this would give him more time to market the firm or more leisure for himself, but it wouldn’t immediately increase the firm revenue
3. Have the two associates begin to focus more on practice development efforts that are within their comfort zone to take up the slack time and hopefully succeed in additional revenue
What are your thoughts? Are there other options you can suggest?
He would like to keep both associates fully occupied. But, if he can’t, it’s like choosing between food and rent. You need both but can’t afford to pay full boat to do so.
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A new proposal, supported by the Board of Governors of the State Bar of California, appears to make it illegal for a lawyer to charge and accept an advance retainer in matters involving loan modifications. Do you think that, after the work is completed, the lawyer will be able to get the client to pay the fee?
How similar is this to the new San Francisco City ordinance that forces landlords to reduce their rent if a tenant loses his/her employment?
I thought these matters were the government’s responsibility or charities? Perhaps lawyers and landlords are being conscripted now as charities.
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Wilmer Cutler Pickering Hale and Dorr has told some of its more experienced lawyers that they will not have a future with the law firm. Without knowing more, it’s difficult to come to any conclusions about why there will be termination notices, and why those notices will be directed to more senior or experienced lawyers.
(more…)
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It’s "never pretty" to sue a client. One could be brougt before the state bar disciplinary board, could face a counterclaim for malpractice, and could find one’s malpractice insurance premium increased, not to mention bad publicity.
That is why it is so important that the lawyer be ever alert. That means that the lawyer must carefully go over the engagement agreement with the client during the intake session, including having the client acknowledge that the client has an obligation to pay the billing timely and that the relationship is a two way street.
Also, it means that the lawyer should not continue to work for a client who doesn’t honor this commitment. As I said to a group here in New Orleans today, your first loss is your best loss. When you see that the client isn’t paying timely, why would you continue to work.? Withdraw! (In accord with the RPC)
Otherwise, you’re rewarding poor behavior. Would you do similarly with your children? On second thought, perhaps that’s the problem. But, in this case, you must ask the question: Would you rather work and not get paid, or would you rather not work and not get paid? The choice is yours.
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I just met with my banker and she told me of a new program that is very significant for many.
As you know, FDIC insurance protection was available up to $100,000 per customer; for the first time in 28 years, Congress changed this to $250,000. And then, for clients trust accounts, the FDIC instituted a new regulation that stated all clinets’ trust accounts, under certain guidelines, could be insured without limit.
Now, the FDIC has instituted yet another change … only for certain banks that make application and are approved. The FDIC will insure all non-interest bearing accounts without limit. This will even allow you to transfer funds from an interest bearing account to a non interest bearing account, and then be protected for the full amount.
Check with your bank to find out if you can get this added protection in these uncertain times. The program is scheduled to extend through December 2009, though it’s suspected that the program will be extended further.
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It looks like The Business of Law® is no longer an afterthought to the big firms.
Seyfarth Shaw recently announced that its profits in 2009 will fall by 5 to 7%, less than the estimated 10 to 15% projected for the legal industry, that is the large law firms.’
Usually a very private matter, this law firm with a nationwide work force of about 1600 made the announcement after also announcing the layoff of a third layer of people. Why? One guess is that the firm wanted to suggest that it is dealing well with economic realities and that the remaining members of the firm will be in good financial shape. Giving some reassurance is very appropriate since people usually fear the unknown more than the known, no matter how bad it may be … And in this case, the downturn is better than the expected industry average.
But, making this information public is unique, the American Lawyer notwithstanding. This is like the public stock market. And the audience is more than the "public." The audience is its clientele, to reassure them that the firm is economically viable … and to potential lateral partners, telling them that the return to equity partners will remain substantial, as well as to placate current equity partners who may fail to pay attention to the periodic financial reports issued by management.
While unusual, this simple announcement may have been unique … and may have achieved much goodwill for the firm.
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