- Fixed not capped
- Price the deal
- Timing is relevant
- If you want extras pay for them
- Cash flow quid pro quo
1. Fixed not cappedWhen you ask me for certainty don’t ask for a capped fee. That is akin to having your cake and eating it. A capped fee seeks to keep the hourly rate open for your benefit but shut for mine. It is not risk sharing but rather placing all the risk on the law firm for no upside benefit. At the end of the day agree a price that you are happy with for the transaction. If your numbers work at that price don’t look to eat away at the potential benefit to me by effectively denying my ability to use efficiencies where I can so that I can try and increase my margin. It is important to recognise that time specifically spent on a deal may not be reflective of the cost especially where there are efficiencies that I have introduced. There is an R&D cost to those efficiencies. If you truly want lawyers to become more efficient and invest in developing processes then the carrot approach will work far better than the stick.
2. The fee is for that dealIn order to price things we need to know the scope and then once the scope is agreed don’t expect work outside of the scope for free. Now I admit that law firms can often be their own worst enemies on this front. There is the tendency to quote on the basis of assumptions or scope that do not really reflect the likely work involved (e.g. when quoting for a property acquisition assuming there will be one turn only of the sale agreement). We need to be more honest and use our experience to quote properly for the deal; that is a legitimate expectation of our clients.
3. Timing is relevantJust because a client is not paying on the basis of hourly rates does not mean that the length of time a deal actually takes is no longer relevant to the quote given. The longer a deal lasts the more resource it is likely to use up or require to be kept available. Therefore it is legitimate to quote a price based on the assumption that the deal completes by a given date. Again the date should be realistic and assume some slippage from the timings given in any agreed heads. Further the lawyer should seek to agree a fixed fee for each time extension there is not hourly rates for any such extension. There can be caveats to this such that, for example, a ‘down tools’ period only qualifies for a percentage of the ‘extension fee’. This needs to form part of the pricing at the outset.
4. If you want extras pay for themClients want pricing certainty and, more often than not, they want the cheapest quote. To achieve this I need to be able to work in the most efficient manner possible. Therefore, nothing destroys the pricing relationship more than when a client demands a cheap quote and then insists on the matter being ‘partner-led’. Partners are more expensive because of seniority. If you want a ‘partner-led’ transaction you have to be prepared to pay for it. Again not on an hourly rate basis but rather on a higher fixed price basis. Clients are entitled to expect their work to be done properly by those qualified to do the job; senior input may be necessary but how much may be a matter of choice rather than need. If you want the cheapest price this has to come at a cost – you will get less experienced people doing the work.
5. Paying the bills
So hopefully you have made it through my thoughts on the brave new world lawyers and clients are now entering in the billing arena. I welcome the need for greater certainty on fees. I believe it is in both clients’ and lawyers’ best interests. But if clients truly want to see the end of hourly rates and lawyers to embrace the idea of pricing certainty they need to come to terms with what lawyers need in return. I do not think that I am asking too much. I am just a businessman seeking to have an honest and open discussion in the hope that together we can build a new future in the provision of legal services. As such I would welcome and actively encourage others to express their views. I openly admit my bias on this subject but do not feel I have been dishonest in my approach; if you disagree then please let me know and why.