Litigation Cost Control : Civil Litigation Lawyer & Attorney : Fred Fresard Law Firm : Alternative Billing, Retainer Contracts

Robert C. Mattern of Mattern & Associates LLC has an excellent piece on Law.com about how well-managed firms can survive and thrive in the current climate.  In his article, entitled How to Face a Triple Threat: The impact of economy, cost recovery and alternative billing on Big Law, Mr. Mattern outlines the three threats facing firms today, and how a nimble management structure can allow a firm to take advantage of these challenges:

While everyone is talking about the current economic situation and the impact it has had on attorneys, it is only one facet of a three-pronged attack on the operational side of law firms and how they manage the practice of law. The other issues law firms are facing are the changes in the cost recovery landscape, and the increase of alternative fee arrangements. As with the current economic situation, both of these areas represent opportunities for the firms that embrace and adapt to the changes that are occurring in the marketplace.

Mr. Mattern notes that in the current economic climate, firms must gear their services and use of technology to respond effectively to the ups and downs of turbulent financial conditions.  He also points out that while many firms have moved to scanning and printing documents rather than copying them, most firms have failed to institute new cost recovery programs to recover the cost of scanning and printing.  Finally, he discusses the challenges in dealing with cost recovery under flat fee and performance-based billing arrangements.

Mr. Mattern's article captures three of the serious challenges being faced by law firms today. Add to these burdens inflated associate compensation structures, ever increasing outside vendor costs and decreased matter volume, and it is clear that law firms have their management hands full.  

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In my July 9, 2009, post Overbilling Is Billing Fraud And It Hurts Us All, I lamented the fact that clients who trust their lawyers to handle their most sensitive matters do not trust their lawyers to be honest in their billings. Lawyers, on the other hand, do not believe their clients' justifications for refusing to raise their hourly rates. This mutual distrust is one of the greatest downsides of the hourly rate billing model. As clients are under greater pressure every year to cut their outside counsel costs, they feel they have no choice but to hold the line on hourly rates.  In response, many firms with outdated business models find themselves tempted to double bill and impose minimal time entries for routine tasks. As I noted in my July 9 post, nearly half of all lawyers surveyed do not believe practices such as double-billing are unethical.  So the game goes on.  

But it's a game that is damaging our profession. Outside lawyers need to change the way they do business so that clients trust them again. Clients need to be open to new fee arrangements that eliminate the cat-and-mouse games. Alternative fee arrangements can go a long way toward restoring this mutual trust and building a true team spirit. Alternative fee arrangements such as annual retainers and per-matter flat fees eliminate any temptation to engage in "creative billing." An attorney handling multiple matters under an annual retainer, for example, has no incentive to double bill. If he writes the brief for the Burns case while flying to a site inspection for the Smithers case, it does him no good to bill both files.  In fact, the incentive is quite the opposite. The lawyer needs to maximize efficiency, so working on the Burns case while traveling for the Smithers case actually increases his profitability. And the client has predictable, controlled litigation costs.

Getting to that point of mutual trust, however, takes some real courage and a willingness by the lawyer and client to trust each other as they never have before. Negotiating an alternative fee arrangement that works, and doesn't result in disaster for the client or the firm, requires a level of candidness unfamiliar to either party. The most successful alternative fee arrangements begin with the firm and the client showing their books to each other.  The client needs to openly show its historical billing data, and frankly discuss its cost-savings goals with outside counsel. The firm needs to be willing to take risks, to change its business model, and ultimately to provide billing data so both parties know whether anyone is getting gouged or getting a windfall.  

In her June 9, 2009, The American Lawyer article, GCs, Law Firms and Flat Fee Arrangements: A Matter of Trust, Amy Miller gets insight from several DuPont outside counsel on the need for openness between the client and the law firm to make alternative fee arrangements a success. As she says at the beginning of her piece,

Making such agreements work for both the company and its law firms takes more than an innovative proposal and a solid pitch. The success of any alternative fee arrangement depends on mutual trust...

In my experience, the mutual trust and openness required to even begin discussing an alternative fee arrangement immediately strengthens the attorney-client relationship. By the time a deal is inked, both players have everything riding on each other.  Both the client and the law firm now need to work together to make the fee arrangement work. You are a team in every sense of the word. And it's a a wonderful feeling to not only exchange high fives after big wins, but also when you both close your books at the end of the year.

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Imagine you need to hire a courier service for your law firm.  A business associate gives you a name, and you call the courier in for a meeting.  He tells you he is the best courier in the business.  You ask how much to deliver a package across town.  This is where is gets weird.  He says he can't tell you.  It's too unpredictable.  He could get caught in traffic.  The recipient office could be closed, and he may have to go back twice.  He might have other jobs that day.  But, he says, if you agree in advance to pay him whatever it ends up costing, he'll send you an invoice after he does the job.  You, of course, are outraged.  Does he not know his business?  Does he not know his overhead so he can calculate a fair price?  You throw him out of your office and call someone else. 

When clients hire you, why should their expectations be any different?  Why can't they get a handshake and a price up front, before they hire you?  Without a doubt, managing complex litigation requires hard work and exceptional management skills. Those of us who are hired to handle such cases must manage our case team, our client, our witnesses, our judge, our opponent, the avalanche of documents, and ultimately the jury.  Historically, we had the luxury of not having to worry too much about the fees and expenses. After all, this was a huge case for our client, and they knew lawyers were expensive. They wanted to win, whatever the cost.

Those days are gone. No client who wants to stay in business in this era of global competition will give you a blank check and send you to war.  Our well-managed clients know that lawyers are no different than anyone else from whom they buy services – whether they be plumbers, paper suppliers, or couriers. Just as when they hire any other supplier to provide goods or services, our clients are entitled to a price from us up front.  It is our job to then manage the case in a way that gives them superior legal representation at the price we accepted when we looked them in the eye and shook hands.  

“But litigation is too unpredictable!” you say.  “I don’t cheat my clients and I don’t have time to spare. Every hour I bill to that file is legitimate,” you contend.  “Our firm can’t operate without tracking billable hours,’ you argue.  Objections noted. Overruled. Clients want predictability, accountability and reasonableness in their legal bills. Give them a firm price and firm handshake, or watch the work go to someone who will.  Is it easy?  Not by a long shot.  Do you have a choice?  Not at all.  But don't take my word for it.  Look into the Association of Corporate Counsel Value Challenge, and take a peek at how Burger King and AT&T are managing their legal costs.  

It's not easy, but it can be done.  I've been doing it for years.  And that's what I blog about on this site.  This blog is devoted to lawyers who, like me, have to manage and win high exposure, complex cases while keeping a vigilant eye on what the client is spending to get there.  I look forward to sharing my experiences with you, and learning from you how you do it in your practice.

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