The great fixed fee debate - the lawyer's argument

It has been quite a while since I last blogged and even longer since I blogged about a potentially controversial subject so why not kill two birds with one stone.  2013 has been a year of two halves for the legal profession.  The first half of the year firms had it rough and indeed some did not make it through the whole year as a result.  The second half was much more positive overall – deal volumes were up especially in the real estate market in which I largely operate.  Lending has returned partially from banks but also from alternative sources. However regardless of how much improved things are or indeed how much more they might improve there is one thing that is not going to change – the demands for greater price certainty from clients.

First I would like to dispel some myths that many of those not in private practice seem to believe – lawyers do not love hourly rates; most transactional lawyers I know hate the billable hour.  It is seen as a noose around the neck.  We know clients hate it; believing that it encourages us to be inefficient since the more time we spend on something the more we bill.  However, I have never spent more time on a matter than I believed necessary to achieve the result the client required.  Frankly, I rarely have the spare time to time dump.  Even if I did I recognise that there are more valuable things to be doing than being inefficient.

Therefore I welcome the end of the billable hour – it creates a barrier between client and professional; it creates distrust and an assumption that there is padding in any quote given.  But my welcome comes at a price – I am happy to take on more risk in terms of pricing; I am happy to give my clients price certainty.  But I am also a businessman.  I hate to break it to my clients but I am in business to make a profit.  That really should not come as a surprise to many, if any, of my clients since they are all in business for the same reason.  That being said sometimes it feels like clients do not recognise that ultimately law firms exist to make profit.  We do it by providing a service but if the provision of that service is no longer profitable then the ability to provide it disappears.

So what does this all mean in the context of the end of the billable hour and the demands for greater price certainty?  Well here are, what you might call, my wish list of requests to clients when it comes to agreeing price certainty on a deal.

1. Fixed not capped
2. Price the deal
3. Timing is relevant
4. If you want extras pay for them
5. Cash flow quid pro quo

1.  Fixed not capped

When 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 deal

In 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.

Further lawyers are always reticent to raise the fact that something is out of scope and the additional charge for doing it.  Part of the reason for this is the response that is often given when this point is raised – the lawyer is made to feel guilty for seeking an additional fee.  But why should they?  If they have scoped the work honestly and legitimately at the outset and something unusual arises resulting in a whole different work stream why should the lawyer not be able to agree a fee for that new work stream?  If I specifically exclude tax from my fixed fee and then the client seeks tax advice because it thinks there might be a VAT angle it is legitimate that as a firm we can agree an additional fee for that advice – it can still be a fixed fee.

Using a non-law example, I ask a stationer to provide me with headed notepaper for which he provides a quote; then I ask him to provide envelopes in addition I would expect him to charge me more.  No one would argue with this because people physically feel the extra envelopes.  The problem is in the legal context clients don’t necessarily see the ‘benefit’ as they picture the legal advice as a single unit.  Fixed price quotes demand the clients change their perceptions as well as the lawyers changing ours.

3.  Timing is relevant

Just 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.

Often time extensions may be associated with or run in parallel with changes in scope.  No one is suggesting you can charge twice for the same thing but the pricing needs to reflect both the resource required and the length of time for which it is required. 

4.  If you want extras pay for them

Clients 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.

If you book and pay for a Superior Room at The Dorchester you don’t turn up and demand the Presidential Suite.

5.  Paying the bills

My final point is probably the most important but also likely to be the most controversial.  If clients agree a fixed fee then they should be prepared to pay that fee on, say, a monthly basis during the transaction not merely at completion.  There can still be balloon payments at milestones or at the end of the transaction to avoid a perception of a lack of impetus to get the deal done.  Fundamentally a law firm’s biggest risk is its ability to manage its cash flow (in recent history this has been the biggest cause of law firm failures).  In a transactional department the time taken from matter inception to completion to billing and then payment can be significant.  Law firms need to be able to reduce this time period. 

Even on a transaction that takes two months from inception to completion (about the average expected for a real estate acquisition) then assuming another month for payment of the bill a firm is looking at a minimum of three months before earning a penny for its work carried out three month’s previously; bearing in mind much of the work is front loaded that is a long wait.  In that time it has had to pay all of its overheads.  In the days of hourly billing this was largely accepted as part of the quid pro quo for charging per hour. No pain no gain.  But if law firms are, rightly, to move to fixed fees it is legitimate for them to expect to be able to smooth out the cash flows.  Whilst law firms can be expected to take on the pricing risk they should not also be required effectively to finance their clients’ transactions by being unable to expect payment of anything until completion.  That’s a double-whammy.


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.

On-line precedents: Help or hindrance?

The  internet has brought many benefits to lawyers and particularly to firms who wish to avoid (or cannot justify) the employment of a Knowledge Development Lawyer (aka a Professional Support Lawyer). Whereas previously in order to keep up with the latest legal developments one had to subscribe to countless hard copy journals; constantly receive updates from publishers; then spend time updating the loose leaf guides (often a job for the unsuspecting summer student) now this all happens on-line saving significant time (and paper for the more environmentally conscious of us). None of this is a bad thing and is of great benefit to large and small firm alike. This is further enhanced by the availability of automatic updates notifying you of changes to law, recent case updates and similar.  Keeping up to date has never been easier and, frankly, I wonder how we ever managed without - perhaps we were blissful in our ignorance?!?

Courtesy of Rev Dan Catt via Flickr

However there is another development which is in my experience is less than helpful - the emergence of the on-line precedent. On the surface what could possibly be wrong with on-line precedents? Apart from anything else, I hear you say, they result in much more standardisation; who needs 10 different forms for the same transaction. Surely this is a good thing and will help save time and reduce costs?  I even suggested something similar myself in respect of standardising leases, did I not?
Well having recently run a transaction involving a significant number of properties across a portfolio with multiple other small firms involved I can say that this is not the case. Part of the transaction involved obtaining licences from landlords and due to the nature of the properties most often the landlords were represented by small firms. What we noticed was that the same clauses were appearing on almost all the licences we were receiving and the same problem clauses at that.

Why were these clauses a problem?  Let me outline the two most major issues the "standard" precedents caused:

1. In some cases the clauses were not commercially acceptable. Whilst in the context of a simple transaction involving two individuals or a company owned by its directors they were probably okay, on anything more complicated they became onerous and unworkable. The clauses were not something we as a firm or the other large firms involved have in our standard institutionally accepted forms of documentation. However by including it in their on-line resource the resource provider has created the impression that it is standard in the market. I lost count of the number of times we were greeted with a, "This is a standard requirement of our client and is standard in the market" response. If your client's precedent is an on-line resource I suspect your client is pretty oblivious to most of its terms and just because it is in a precedent does not make it market standard!
2. The guidance provided by the on-line resource can be unhelpful and, at worst, obstructive. Suggesting a clause is necessary because without it your client's insurance is at risk when in reality the clause is asking a tenant to take on a risk it cannot mitigate with no obligation on the landlord to assist when it could easily do so is hardly a recipe for productive negotiation. Whilst some firms adopt an aggressive first draft and look then to compromise that only works when the draftsman understands what is necessary and what is unnecessary. We spend a significant amount of time going through our precedents with new joiners explaining the purpose of each and every clause.  The purpose of this training is to ensure that they understand why the clause is there and, by extension, if and how it can be amended or, in certain circumstances deleted.  On-line precedents do not come with this level of training.  Therefore, when an amendment is sought, fear sets in because the lawyer does not have the confidence that they fully understand why a clause has been put into a document.  Whilst the argument we put forward may sound convincing what if we are ignoring another reason for the clause's existence?  Conceding the point might result in their client being exposed and the lawyer being negligent.  Therefore, better to resist and rely on the "it is a standard clause" defence.

There is no point complaining unless you propose a solution.  The first solution would be to get rid of on-line precedents but I accept this would be a step backwards and not particularly helpful to the legal fraternity.  If I am honest I think the issue really lies with the draftsmen of these precedents.  In some cases it is my suspicion that the draftsmen are not transactional lawyers but rather professional KDLs.  Whilst this works within a transactional firm this is because the KDLs have the benefit of engaging daily with the transactional lawyers.  This creates a necessary and mutually beneficial exchange of thoughts and ideas.  Draft clauses which show themselves to be commercially unviable fall on the lawyers' equivalent of the cutting room floor.
However, some of the on-line precedent providers loudly and proudly claim that there precedents have been drafted for them by lawyers and law firms so lack of transactional experience cannot along explain the issue.  The problem with this source of precedent is that, whereas within the law firm there exists a peer group within which a proposed amendment can be discussed, evaluated and agreed/amended/rejected with the benefit of the collective hive mind, for the smaller practitioner such support simply does not exist.  Therefore firms providing these drafts must ensure that their drafts are commercially and legally unbiased.  If the starting point is a reasonable one then the fact that a lawyer is less willing/confident to concede a point is not likely to be such an impediment.

Don't get me wrong.  This blog is not intended to be a criticism of my peers who work in smaller firms.  Frankly I think that they do an incredible job.  It is easy to forget how much I rely on the support I have from KDLs, peers and, indeed, as much on-line resource as I could possibly ask for.  Lawyers in smaller firms simply do not have that level of support and yet provide as excellent advice and client service as many a large firm.

No, my criticism is of the providers of supposed tools aimed at reducing the burden of the small firm lawyer.  As I have mentioned previously the role of the transactional lawyer (and by extension his drafting as his tool) is not to seek to screw the opposition.  Those who provide resources to enable the lawyer to do this need to ensure that those resources truly assist the lawyer in furthering his goals and do not, instead, become an unnecessary and unwelcome hurdle to be overcome.

My computer might have broadband but my brain is still on dial-up

I was chatting with a partner of mine last week who has been in practice for nearly 40 years. He made a comment which highlights a major issue facing lawyers the world over:

"Whilst the speed with which we can send and receive documents has increased thanks to the internet, the speed with which we can review them has not."

We now live in an instant society. Everything is "on-demand". Modern technology has allowed us to perform many more tasks in a much shorter space of time. Financial calculations which took hours 30 years' ago can now be done in seconds. However, one thing has not changed - the human mind cannot go through its thought processes any quicker. Despite what the Government might want us to believe, more A's at A-Levels does not mean the next generation are all super-computers.
However, it is a fact of life that clients expect that a document can be 'turned' quicker now than 30 years' ago. True, we get it quicker. True we can print it out quicker. True it is easier to create mark-ups and identify changes. However these are all time saving factors in terms of delivery and readability. It still takes the same length of time to read, digest and consider the implications of any given clause or amendment.
Modern technology is also one of the causes of another factor which affects documents of today - length. @LegalBizzle has often tweeted regarding the "mega-contract" which in his line of work does not surprise me. But even in Real Estate, contracts continue to get longer. 30 years ago the average lease was probably 10 or 15 pages maximum. Today it would be 50 pages minimum. Just reading it takes 5 times longer, never mind amending it.
So where do we go from here? Well forget about asking clients to relax.  They are under pressure internally to get the deal done and, frankly, they pay us to transact the deal for them.  But there are things that lawyers can do for themselves and here are my suggestions:

• Use plain english - too many contracts I come across continue to use complex terms for no reason other than to appear intelligent.  However, this inevitably increases the review time and the negotiation time.  Why are we so scared of using language which is intelligible to the average man on the street?
• Use punctuation - I cannot believe that there are still lawyers who believe that not using punctuation assists in interpretation.  Not using punctuation results in multiple re-reads of the same paragraph simply to grasp what it is trying to say.
• Use short sentences - there are no prizes for drafting the longest sentence in the world.  Each sentence should be trying to say one thing.  If it has to say more than one thing at least break it down using sub-clauses so that the drafting visually reflects the thought process.  This also means that any amendment can be more easily understood.
• Be collaborative - as per my previous post on the role of a transactional lawyer, our clients are paying us to get the deal done.  In most cases they view the other party as a partner in some shape or form and their aim is not to shaft them.  Therefore, drafting should be balanced and not seek to screw the other side.  If you adopt an unbalanced approach the other side will probably (i) spot the try-on anyway and (ii) adopt a similar approach resulting in entrenchment and the deal stalling.  A balanced draft is not a sign of weakness but rather a sign of comprehension and commercial nous.

We cannot turn the clock back to a time before everything became such a rush and we are not going to be able to act as if the time pressure does not exist.  So, if we are to avoid all checking in to the nearest facility for stress affected lawyers, we must find ways to reduce the time in negotiating documents.  There will always be negotiation but we should make sure that it is as straight forward and painless as possible.

Legal Process Outsourcing: A crime against . . . ?

The news that Herbert Smith and Allen & Overy have opened offices in Belfast followed by further news that Addleshaw Goddard is opening a depot in Manchester to do due diligence and less complex legal tasks has resulted in a tumult of comments across the twitter- and blog- sphere.  Everyone is entitled to their opinion on this subject but I take issue with those whose opinion is that the only reason that these law firms (or indeed any law firm) undertakes a form of outsourcing is to cut costs and line the partners' pockets as if that was a heinous crime.  All businesses must manage their cost bases in a sensible way in order to remain competitive.

Let's be a bit more analytical about this. The UK does not lack law firms and, whilst this might surprise some, competition between firms is pretty fierce.  Whilst repeatedly in surveys of buyers of legal services pricing is not at the top of the list of reasons for choosing a law firm personal experience tells me that in reality price is often the factor (it's just that price knocks you out before the race can even start!). Therefore firms must be competitive and that means cutting costs so that fees can be maintained at a level the market will bear.
 

Because it is a market, lawyers will charge what they believe their services are worth. Where a law firm has a recognised niche it is normal market forces which allow them to charge more. This is no different to Apple setting the price of its iPad - set it too high and only the die-hards will buy it.  Therefore, the so-called Magic Circle can charge more for services which the market perceives only they can provide.  Proving that the perception is wrong is a completely different point but simply charging less is unlikely to win over those clients.

The second point is that law firms are not only competing against each other for work but also to hire and retain talent. A firm which fails to maintain its PEP is going to start losing its higher billing partners and seem less attractive to associates and even prospective trainees. Again this is no different to any other business seeking to attract the highest quality staff.  The argument regarding banks and bonuses is not a million miles away.

Therefore to attack Legal Process Outsourcing on the basis that the sole purpose is to line the pockets of partners with no benefits to clients shows a complete lack of understanding of the competitive legal market of today. Part of the end result and indeed the aim may be to increase profitability but to achieve this a firm has to remain attractive to its clients and be competitive.

There are issues with LPO as a concept especially in terms of quality of the product being provided and potential negative effects on training. In terms of quality the main concern is how do you ensure that the output is good enough.  This is a serious reputational issue but I find it hard to believe that the likes of A&O have just said "Who gives a damn about quality just show me the money".  Reputation is everything.

The training issue is more difficult.  Addleshaw's PR blurb highlighted that their new project would mean "No more drudge work for associates".  This was followed quickly by a remark that whilst associates do need to undertake due diligence exercises to understand the processes they do not need to do 500 of them.  The problem is that once you have a system in place which means associates do not need to do any of them you automatically go from 500 to zero with the result that associates have no experience.  This would seem to suggest that there must be a level of sacrificing associate experience to cut costs.  Full experience of the process and work is a necessary step to managing the process.

In my area, Real Estate, this is a real issue.  A significant proportion of Real Estate work could be considered relatively straight forward - basic leases, licences to assign, licences for alterations and even simple sale and purchases of pieces of land.  Pricing competition in these areas is intense and it is difficult to compete against regional firms on price.  The obvious answer would be for us to open a regional office and send all the low value work to that office.  However, unless we forced every trainee and associate to spend a proportion of time in that office (thus losing a major cost save in terms of lower salaries in the regions) our office in London would be populated with Real Estate lawyers who do not have proper hands-on experience of the nuts and bolts of the assets they are dealing with.  That would be failing our associates and failing our clients and putting at risk our status as the go to firm for Real Estate.  Whilst it might be possible to reach a happy medium by sending out some of this work and retaining some the temptation will always be there to send it all out to improve the bottom line.

In summary:

• Competition amongst law firms has never been greater
• All firms are looking to create competitive advantage and LPOs are just one way of creating that advantage
• Successfully creating such an advantage over competitors should result in increased profitability afterall that is the primary function of any business (as opposed to a charity).

Whether the short term gains offset the long term risks remains to be seen but criticising it simply because it might mean some law firms become more profitable as a result is like criticising Tesco for driving down prices and becoming more profitable at the same time. 

The client-lawyer relationship - can we fix it?

This blog really continues a debate that was started by @legalbizzle and @legalbrat a few weeks ago.  There are a number of postings relevant which you might consider pre-course material including:

• What lawyers can learn from call centres by Legal Bizzle
• It's not about the biscuits by Legal Bizzle
• It's client care but not as we know it by Legal Brat

In truth this is not a new debate, in fact it is not really a debate.  It is obvious that relationships can only exist between individuals and not between corporate entities - a relationship is not a contractual bond it is an emotional bond and entities do not have emotions.  A CEO or Group Counsel might say "We use BLP for our Real Estate work" and it might be true that Berwin Leighton Paisner have been appointed but the reason for that appointment will be due to that same CEO/Group Counsel having a relationship with individuals at BLP.  As a firm we cannot take the relationship for granted and as with any relationship it must be constantly worked on.

I have often pondered why it is that people can be in a relationship for years and even living together but then get divorced relatively quickly after getting married.  I believe the answer is obvious - prior to getting married both parties worked at the relationship to maintain it.  Both realised that in order for the relationship to be sustained it required effort and sacrifice on both sides.  However, once the couple are married they fall into the trap of thinking that the marriage certificate is proof of their commitment and no more effort to maintain the relationship is required.  However, the opposite is clearly true, the marriage is simply a new phase to the relationship and the parties must still go to great effort and make the same sacrifices if the marriage and thus the relationship is to survive.

Leaving the sphere of marriage counselling and returning to client-lawyer relationships, it is clear both from the articles above and personal experience that the same is true.  During the courting phase lawyers will spend a large amount of time talking to and supposedly getting to know the prospective client.  Then once the appointment has been made many lawyers will simply stop with the "idle chatter" and only talk business.  It should hardly be surprising that the client, in such circumstances, wakes up in the morning and views his lawyer in a negative way.  His lawyer is not interested in helping him achieve his goals.  His lawyer's sole motivation is acquiring instructions for the purpose of making money.

So if it is so obvious why are so many lawyers bad at it?

The answer to this is not so clear but I believe it may lie partially in the traits of the average lawyer and partially in the billable hours tradition that has built up.

In terms of the billable hours tradition I think that this is something which has been mentioned before.  From a young age it is impressed upon the junior lawyer the importance of the billable hour.  That is how firms have traditionally made money.  Your associate's salary is a fixed annual sum but the more billable hours you can get out of them the more profit you will make.  The problem is that in the associates' minds this translates into anything which is not billable as being evil.  Accordingly, said associates do not want to "waste" their time in "idle chit chat" with clients when they could be billing another client.  By the time the associate has reached a more senior level the habit is embedded and breaking that habit is significantly harder and requires effort.

Therefore, this part of the problem is systematic and within the power of the profession to address by better recognition of the non-billable hour at the most junior level.  Certainly at BLP we actively encourage our junior associates to engage on a social basis with clients.  But we have not solved the problem because, at the end of the day, there continues to be the pressure to record time, leaving associates making bad cost-benefit analysis decisions and probably not investing sufficient time in building the relationship.  But it is a start which will hopefully better equip our associates as they move towards partnership or into in-house roles.

The traits issue is less tangible but I want to throw it out there as a thought for discussion.  I just wonder whether law attracts a certain type of individual who is not as comfortable with developing personal relationships with multiple contacts.  As with everything there are exceptions to the rule and these exceptions are found in the rainmakers.  Whilst some of what these rainmakers are good at can be learnt, their success is due in a large part to their personal character traits.  Whilst we might be able to provide training and alter some bad habits fundamentally it is unlikely we can ever change (nor do I believe we would want to) a person's character to such a large degree.  If that is correct then there may be an argument that whilst small improvements will be made in client-lawyer relationships, fundamentally if you expect all the lawyers to suddenly become the best relationship people around it just ain't going to happen. 

What category do I fall into?  I suggest you ask my clients.

It's Tuesday: I'm a lawyer, get me outta here!

This blog was initiated by the article appearing in The Lawyer on-line today entitled: Lawyers can't handle Tuesdays, survey reveals.  The "research" in question was commissioned by Michael Page International and its results are summed up by their marketing director Eamon Collins as follows:

"This research has told us that 10am on a Tuesday is the most stressful time of the working week, and it isn't a coincidence that this is also when traffic to our website peaks."

Gimme a break.  The article does not mention who carried out the research or how but it is likely to be as scientific as the intendance research ranking law firms by Twitter use which gave rise to huge debate  Let's accept that the research could actually come to the conclusion that 10am on a Tuesday is the most stressful time of the working week.  Does Michael Page really expect us to believe that the first thing a stressed out lawyer does is say:

"F*&k this, I am out of here.  Let's see what Michael Page has on offer this week".

What a pile of dog poo (sorry still can't bring myself to swear on-line).

What's worse is that this kind of marketing dressed up as serious research does immense damage by belittling what is a very real issue in law firms today (and I suspect in the in-house world too).  Lawyers are under incredible stress for all different reasons.  All this article does is make a mockery of the issue by giving Michael Page cheap advertising space.

So here is an attempt at a more helpful review of stress in the legal world today; its causes and perhaps a stress reliever or two for all you stressed out lawyers out there.

So here are some causes I have noted in my long and illustrious career to date :

1. Technology - yes we all thought that technology would make our lives easier but the incessant stream of information, e-mails, red-lines, twitter, IMs, iPhones, internet browsing actually add up to an impossible mix that our brains do not have the time to digest.  Top of my list is e-mail.  In the old days lawyers and clients communicated by letter (or fax if really urgent).  It was recognised that it took time for letters to arrive and letters to be sent as well as time for documents to be typed.  However, the advent of immediate correspondence has led everyone to believe that if a question is asked by e-mail at the push of a button then the answer should come back at the push of a button.  We might use computers to communicate but the answers still come from a human being who may need to analyse, annotate, review and meditate before responding.
2. Lack of support/supervision - this means poor management by us, partners and senior associates of those we instruct further down the seniority chain.  It is right that associates should not need constant hand holding.  On the other hand giving over the instructions is only half the job.  Junior fee earners (and senior ones) need to be provided with proper supervision and support if they are to fulfil their potential.  They need to be pushed but not off the top of a skyscraper!
3. Poor client management - how easy it is to complain regarding unreasonable client demands but is that really the client's fault?  The client is buying a service.  Whilst it would be nice to think that when asked the question "when do you want it for" the client will respond with an answer relating to when he needs it, that was not the question asked.  Perhaps the question we should be asking the client is "how does this piece of work fit in with your deliverables at so that I can ensure that we can revert in a timescale that enables you to meet your deadlines?"
4. Poor working habits - also known as "rabbit in the headlights" syndrome.  This is the person who faced with a number of different tasks keeps on jumping from one to the next without actually finishing any of them and at the end of the day feels they have accomplished nothing (which is actually true).

And now for some self-help remedies (one for each issue):

1. Just because you get an e-mail does not mean you need to respond to it immediately.  Turn off that annoying "ding" and the pop-up window.  Clients know that you are not necessarily at your desk and that sometimes you need to think about things.  If something really is urgent they will pick up the phone and call you so if it rings you better answer it.  If it is not urgent ask the client if you can call them back.  Tell them you are just in the middle of something and want to be able to give them your full attention which will be easier once you have finished what you are doing.  Make sure you say when that will be.
2. If you feel unsupervised then say something.  Don't send an e-mail to someone asking them to look at a document.  Get off your backside, print it out and take it in.  9 times out of 10 the person you go to see will be happy to help and you will learn far more.  Contrary to popular belief partners do not eat their young (I believe that's even true in the "eat what you kill" firms).
3. Manage your client's expectations - well this just goes back to the whole client care debate.  When you get a new instruction how about you pick up the phone to the client and talk it through with them.  Understand what their drivers are; what internal pressures they are under.  Even if this does not change the timetable you will develop a much better relationship with the client and the better the relationship the better the chance of sensible timetables being issued in the first place.
4. Sorry but all I can say to this is "Get a grip".  You simply need to force yourself to complete one task at a time.  Look at what you have to do and ask which is the most Urgent and Important.  That is what you do first and you finish it before you look at your e-mails or any other task.  If two tasks rank equally then just pick one; just go with your gut.

Well that's it for the tips.  One last word on stress.  The fact is that doing what we do for the people we do it for stress is a fact of the job.  You can take positive steps to avoid it but there will always be times when you are under stress.  But at the end of the day it is only a job.  Don't let it ruin your life.

The client care debate - an out houser's view.

Let's get one thing straight.  This is meant to be controversial, it is meant to stimulate debate.

There have been a number of excellent posts in the last couple of weeks by stalwarts of the in-house blogging circuit on the provision of legal services by law firms and lawyers.  Specific examples include:

• "It's client care but not as we know it" by @legalbrat
• "Crossing a (red)line" and "It's not about the biscuits" by @legalbizzle

These blogs are excellent and provide a singularly valuable resource to the out house lawyer who wants to gain a better understanding of how in-house lawyers (and by extension) clients view their legal advisors as well as the do's and don'ts likely to result in praise or a swift disinstruction.  My message to them and all in-house lawyers who blog on these subjects is "keep it up".

Clearly one of the purposes of the above blogs is to encourage debate with the providers of legal services, Big Firm LLP.  And yet, for example, @legalbrat is failing miserably to get any response from any out house blogger to his challenge despite it being featured in @legal_week (see here).

In fact, out house blogs generally fall into the following categories:

• recent legal developments/statutes (yawn!)
• anonymised (amusing) anecdotes of a day in our life (some of which are a joy to read - @magiccircleminx being one such example - but hardly are just there for enjoyment)
• random musings on some news with possibly a connection to the law (does anyone really care about my opinion on interest rates?)

However, what I have failed to find is a single blog by an out houser which considers the challenges facing private practice firms in their provision of legal services to the world and ways these challenges could be addressed.  Why is this?

A number of possible answers spring to mind:

• The "It's a wonderful world" answer - There are no challenges.  Life is just about perfect and we happily are able always to meet if not exceed our client's expectations; associates are completely satisfied and would work for free with no job expectations; our fees are always agreed because we unerringly get it right and our clients love us to bits and gleefully pay all bills because they see the value ooze out of every penny like a BOG10F would in a supermarket.
• The "We haven't a clue" answer - what do lawyers know about addressing the challenges?  Of course there are challenges but we went to law school not business school and so have not got a clue how these challenges should be addressed.  All we can do is employ expensive consultants to tell us the same thing they have told every other firm they have provided consultancy services to: cost-cut, outsource, commoditise, value-add; show the client you love them.
• The "We are afraid of corporate espionage" answer - Behind the scenes we are working very hard at changing the way we do business and work with our clients.  When we think we have discovered the secret then we will tell the world with a front page splash all over @thelawyer or @legal_week but until then we daren't breath a word because one of our competitors might latch on to the idea and steal it from us and of course they could not possibly be considering the same things we are.
• The "Bury our head in the sand" answer - we are aware of the challenges but hope that if we wait long enough either they will go away or we will retire before they are big enough to kill us. 
• The "Too scared to engage" answer - we have some ideas and would really like to engage with our clients to discuss them but we are afraid that in order for our clients to work with us on developing those ideas we would need to have a full and frank discussion regarding our feelings as well as theirs.  They might not like some of what we say and we can't afford to upset them.

In truth the answer is likely to be a bit of all of the above.  Many law firms are engaging with their clients on a one-to-one basis and in doing so are improving the level of client care and client satisfaction.  But even in these closed discussions one has to wonder how much is raised of what a law firm expects from its clients and focuses almost exclusively on how the law firm can improve the service it gives to the client.

Maybe I am naive but in my view the law firm-client relationship should be symbiotic as opposed to parasitic.  As such, would we (clients and firms) not be significantly better off if we could actually openly talk to each other about what we both like and dislike about each other; about what we each could do to make the other's life easier and more fulfilled.  I know that my firm's success is intrinsically linked to my clients' success but do my clients think that their success is in any way dependant on my firm's success?  I doubt it and yet I believe it is.  A successful firm, full of fulfilled lawyers who feel appreciated for the work that they do (and I do not mean in pure financial terms) will provide a much better service.

This kind of fulfilled relationship requires openness on both sides.  But how can we ever expect our clients to help us achieve such a level if we do not even tell them what we genuinely want from them.  How it would be nice to be thanked for working through the night and cancelling dinner with your wife.  How, having done the deal and invoicing at the agreed fee it would be nice if the bill was paid without any need to chase.  How, fundamentally we accept and appreciate that we are service providers who must always be at their best but that it would be nice if the service recipients recognised that this is not always easy.

At the moment it seems to me that all the input is from the in-house lawyer setting out what they want with no input from the out-house lawyer setting out his stall.  We tell the client what they want to hear and listen to what they have to say about the services we provide.  But do we ever tell them how they could change the way they work to help us?  So my challenge to my fellow out housers is let's engage with our clients in a more meaningful manner.  They do not have all the answers and we are not solely responsible for all that is ill with the client-lawyer relationship.  Do this and then maybe together we will reach new heights in the provision of legal services.

Then again, maybe not. . .

Exceeding the client's expectations = job satisfaction



The Shard at night



It's been a bit quiet on the blogging front this week which, for me, means one of two things:

1. I have been away; or
2. I have been having a crazy week in the office.

Looking out of my office window just now at a complete white out of London my view of The Shard being completely blocked a part of me wished the reason was 1.  However the real reason has been that I have had one of the busiest weeks in the office for quite some time.  Back to the good old pre-Xmas deal rush.

In the course of this week, trying to juggle multiple balls, I got to thinking about what it was about my job that I really enjoyed because, despite the pressure of managing various client demands, annoying deadlines and the usual last minute issues, I was in a great mood and since I do not celebrate Xmas (and am not gonig away this year) it was not connected to the impending holidays.

There are lots of reasons to enjoy my job - the rush of a deal, the intellectual rigour, the large sums of money involved, the social interaction.  My conclusion was that I enjoy my job because I provide a service to someone and if I provide that service in an excellent way and, hopefully, exceed the recipient's expectations I feel good about myself.

That is what I did this week.  I had a number of transactions with ludicrously tight timescales even the client was doubtful were realistic and yet we delivered.  We worked together as a team and produced the result the client wanted in a timeframe the client asked for but believed was unachievable and all with a smile on everyone's face.

Law is a service profession and therefore is no different to any other service provider such as being a waiter.  You can be slow to respond, surly, dump the product before the customer and blame the chef or the management for things going wrong.  The customer will still pay for the food but he will not have enjoyed the experience (and probably not come back) and, to be frank, neither will you.  But provide an excellent service, show you care about the client and not only will the client be happier and ready to come back for more but you might be happier too.

Exceeding your client's expectations is not just about making the client happy; it is about getting the maximum enjoyment and fulfillment from your job.

Fee cutting is no way to emerge from recession | Analysis - print | Property Week

Fee cutting is no way to emerge from recession Analysis - print Property Week

Giles Barrie, in his editorial this week, raises some interesting points regarding the effects of fee cutting in the agency world.  The same phenomenon can be seen in the legal world for the same reasons and with the same fundamental risks to buyers of legal services.

Cutting fees is bascially an attempt to grab market share by low balling now with the hope that the client will continue to instruct you when times are better and you charge more for the same service.  Understandably many buyers are attracted by the low rates on offer but before rushing to buy the cheapest service they do need to consider what they are getting at such a cheap price.

Some issues include:

• Many of the problems that are being identified now with properties should have been spotted previously but due to time, cost and deal pressures they were not.  Taking the cheapest quote is simply repeating the mistakes of the past.  Now is the time to ensure you are getting the best advice for your circumstances as a mistake now could cost a lot more than the few pounds saved in fees.
• In order to remain profitable a firm offering a cheap quote will be forced to push the work down to the lowest level possible.  I have heard of one firm hoping to put in place data capture systems which would enable all leases reviews to be carried out by trainees.  No disrespect to trainees but no matter what technical systems you have an inexperienced trainee is unlikely to spot where a rent review clause is defective or whether there might be a Good Harvest issue in the drafting.

From the suppliers' side such low balling also creates issues:

• It creates the impression that little or no skills are required for the work - if this was the case then law firm's indemnity insurance would clearly not be as high as it is!
• It demoralises staff who know that they are effectively providing a service for which the clients are not paying.  They constantly feel under pressure to cut corners to improve profitability further increasing the risk of negligence and resent the fact that they cannot do a proper job as the fees do not allow it.
• Do you honestly believe that a client having instructed you because you were cheap will stick with you when you hike your prices on the basis that you are going to offer the same service?

Therefore, as Giles notes in the agency world, fee cutting in the legal world is damaging for both customer and supplier in the long run although I suspect will continue to be the case as many fail to recognise the risks.

Contracting with a UK REIT - does it make a difference?

REITs hit the UK landscape in January 2007 and now many of the best known names in the UK property world are REITs - Land Securities, Hammerson, Great Portland Estates, British Land to name a few.  As a matter of course there are certain questions one always considers in terms of the party with whom you are contracting.  It is important to consider whether they are executing the documentation correctly and, indeed, their power to enter into the transaction.  If it is a foreign entity the obtaining of a legal opinion is advisable.

REITs add something different to the mix and the risk to a party contracting with a REIT is that without knowledgeable legal advice one can be exposed to unnecessary risks or, indeed, lose out on potential advantages.

The rules governing REITs are complex and affect not only the REIT itself but also those with whom it contracts.  A REIT's business is split into a Property Rental Business (PRB) (which must be at least 75% of its total income) and the remainder being its Residual Business.  PRB income is effectively tax exempt (there is 20% withholding tax which exempt investors can reclaim) whereas the income from the Residual Business is taxable at 28%.

It is beyond the scope of this blog to go into detail (nor would I wish to give away trade secrets quite so easily) on the potential issues and pitfalls that can arise when dealing with a REIT but some highlights include:

• the sale of shares in an SPV property company by a REIT will be a Residual Business which may have negative tax consequences
• the base cost of a property in an SPV once owned by a REIT may be higher or lower than the SPV paid for it
• the sale by a REIT of a development within 3 years of practical completion is likely to be a Residual Business which again has negative tax consequences
• whilst the PRB part of the REIT does not pay tax it still benefits from capital allowances to reduce the dividend payments it needs to make so REITs will not simply give these up
• Joint Ventures with REITs raise all sorts of governance and tax issues and potential advantages

As mentioned the REIT legislation also provides potential opportunities as well.  Therefore it is key that when you are getting into bed with a REIT you know what those opportunities are and how to exploit them for both parties' benefit.

Commercial Lease Code - let's be radical

The news that the 2007 Commercial Lease Code has not proved any more well known than its predecessors has been met with dismay by the Government. Larger, institutional landlords did embrace to some degree the Code and did their best to publicise it. However the fact remains that much of the country's commercial estate is owned by small landlords and managed by small agents who have no interest in publicising the code as all it would do is damage their negotiating position and, in the case of agents, raison d'etre. So the prospect of legislation looms closer.
What I am about to say may shock you but . . . bring on the legislation. But not in half measures. Let's not tinker around the edges. Let's be radical.
I propose that for all leases of an area less than a certain minimum and/or a rent below a certain level (eg. £50k per annum) there should be a statutory prescribed form of lease. It could have the following:

• a minimum 2 year and maximum 10 year term
• Index-linked upwards only rent
• Security of tenure
• Repair to standard at date of first lease
• Assignment with consent not to be unreasonably withheld ("ntbuw")
• Underletting of whole with consent ntbuw
• Specific user with change permitted within same use class ntbuw subject to estate management considerations
• No alterations apart from internal non-structural with consent ntbuw
• Service charge drafting would be fixed by reference to the RICS Code

These are just suggestions but you get the idea. It may be that a few variations of the leases would be needed for different types of property and rental structures but all of this is achievable.
Why do this? Well the amount of time and money that is spent in the negotiation of heads of terms and subsequent documentation of those heads is one good reason. All landlords and tenants would need to agree would be the rent and term.
But the benefits go further. When an investor is reviewing a portfolio of properties low value leases would not need to be reviewed for consistency as the terms would be dictated by law. Certificates of Title could be reduced in size. Lawyer review time would be cut leaving more time to do the deal. Disputes would be dealt with more easily since the wording could quickly be interpreted by the courts and the number of disputes would fall. Everyone would benefit to some degree at some point.
The downside? Mainly in reduced flexibility although quite how much flexibility would be lost is questionable. Agents might need to reduce fees to reflect the lack of terms to negotiate but they would still be needed to find the tenants and get them signed up. Lawyers would lose out on fees as our services would not be required for straightforward leases but we would still be needed to negotiate agreements for lease, licences for alterations, etc.
So I say let's legislate, let's be radical, let's create the standard lease.

Pinsents – first firm to offshore work of qualified UK lawyers | News | The Lawyer

Pinsents - first firm to offshore work of qualified UK lawyers News The Lawyer

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Am I about to be outsourced to South Africa?

I awoke this morning to read in The Lawyer that Pinsent Masons is the first firm to send real legal work (i.e. work that qualified associates would do) to a company in South Africa. Outsourcing is not new to law firms and nor is outsourcing off-shore. However this is a first as it means real legal work going off-shore and judging by some of the comments made by my peers on TheLawyer.com they are not happy about it!

This is a fascinating development in the provision of legal services. I think that there is little argument that to a large extent geographical location is no longer an important factor in the provision of any services apart from those requiring you to be in a specific place (e.g. a plumber). So why did lawyers possibly consider themselves different? Afterall, in some ways our jobs are even more easily transferable across the globe. I could be writing this blog, reviewing and drafting documents and reports and generally conducting my work life from anywhere on the planet (and, I suspect, from the International Space Station as well) - my clients do not care where I am as long as they can get hold of me when they need to!

So what is the big issue?

Well I think that there is a difference between a firm based in another country with limited or no office in the UK providing legal advice from a cheaper base and a firm existing properly in the UK and outsourcing legal work to another company in another country to cut costs. In the first case, from trainee up there is the potential to get exposure to all parts of transactions. The only thing that might be partially lacking is client contact although this would increase as you became more senior and your skills would develop accordingly.

However, in the second form, which Pinsent Masons has adopted, there is a whole chunk of work experience that is now being removed from trainees and junior lawyers. One cannot play down the importance of that kind of experience in developing a well-rounded lawyer. The ability to run a transaction well can only come from the experience of being a tiny part of a similar transaction and seeing the effect that decisions made at the higher level have further down the chain.

Am I surprised?

Of course not. The increasing dichotomy between partners' needs to keep profits growing and clients' needs to see fees fall meant that something had to give. Law firms have to find a cheaper way of conducting business especially in the current climate and this is one way to go.

Will it affect quality?

This is an impossible question to answer as often quality is dependent on the individual as much as the company employed. However, the fear of failing to impress a given supervisor will be lost as will concern regarding damage to brand. Again, these are not tangible things which can be measured.

Is this the end (or at least the beginning of the end)?

Who knows. I do not see it as being possible to remove the human touch, certainly at the higher value end of the spectrum. Clients want specific lawyers for specific deals. The problem is, as pointed out by a number of comments on TheLawyer.com, what effect will the outsourcing of the low value work to cheaper locales have on the experience required for the next generation of lawyers just starting out? Could it ever be positive?

Don't the partners and clients know this?

I think they do but at the end of the day we now live in a short-term view society. This has been highlighted as one of the main causes of the financial crisis. Partners and managers are not worrying about the effects of something in 10 years' time but rather the benefits that will be achieved in 2-4 years' time. Some may also suspect that the whole fees issue is a short term one and once the economy recovers it will disappear.

The problem is that whilst it might be true that law firms will not be expected to further cut fees it is highly improbable that they will be able to significantly increase them either. Further, if you were a partner in a firm who had outsourced work to South Africa and you could now increase your fees and either (i) bring more work back on-shore at a higher recoverable cost or (ii) keep it off-shore and make more profit, which would you opt for?