March 2013

Everyone claims to offer fee structures that are alternatives to the billable hour.  Frequently, these “alternatives” are nothing more than estimated hours x hourly rates, plus “a little cushion.” So clients should ask:

1.  How did you determine your alternative fee?  What metrics did you examine?  What factors did you consider?  What experience did you draw on?  Can I see your worksheet?

If the lawyer mentions hours, that have provided only a surrogate hourly rate number.  But its locked in.  Early settlement?  Client loses.  Case goes the distance?  Law firm covered.  That is not risk sharing under any definition.

Everyone knows that those who are serious about alternative fees have learned to handle things differently?  Legal Project Management.  Lean Six Sigma.  Project Management.  Process Mapping.  Those words mean something to those truly committed to alternatives because these are among the things that drive the cost of production down (and hence increase profit margins).

2.  How do you handle cases differently under the alternative fee you quoted than you would if you were billing by the hour?

If the answer is “we don’t,” they you need to ask “how are you doing things differently now than you were three years ago?  Be specific.”  The questions should elicit some specific response—changed staffing, great risk-taking, more partner involvement at the front end–something to show the manner of handling has changed significantly.

If the answer is that there is a difference in how the cases are handled, ask if the changes are designed to improve the firm’s efficiency and reduce the cost of handling the matter.  The answer must be yes or the firm is too stupid to let them work for you .  Once they answer yes, ask why they are doing those things when it benefits them (lower cost equal higher profit margin) but not when it would benefit you (cost plus billing)?  There is no acceptable answer.

Everyone knows there is a huge amount of fat built into litigation, particularly in the process pieces of litigation.  So clients should ask:

3.  What is your disaggregation strategy, and why?

If there is no disaggregation strategy, the firm hasn’t eliminated the fat.  It’s just that simple.  The best answer, in my view, will be that document review (not just first level review, but all review right up until partners lay hands on the documents) should be outsourced.  There are professional reviewers who do more, at a higher quality and provide more useful work product, than any law firm could consider, for a fraction of the cost.  The cost difference is quantifiable.  And the difference is money in your (the client’s) pocket.

Ask the questions.  Don’t accept the standard lawyer pablum as an answer.

I am frequently asked how I go about pricing the handling of a lawsuit.  I am always tempted to answer with the old line, “I could tell you but then I’d have to kill you.” My real answer goes something like this:  “Before talking about how, you need to know why.  Why is it that your client wants a fixed fee (or some other alternative to the billable hour) and why do want to offer it?”  The latter question frequently draws the “I want the business” answer, which in my view is utterly unsatisfactory.  It reflects a lack of recognition that AFA pricing is as much about how you do the work, how you approach problems and how you relate to your clients as it is about the dollars you receive.

Here is what I believe.  The money the clients spend on piece of litigation belongs to the client, not me.  I have never had a client with unlimited resources, so I assume there are other ways the client could spend the money it is considering spending on the lawsuit or dispute.  It could buy a machine, it could acquire a business.  You get the picture.  Those other investments all have projected returns.  Why shouldn’t the defense of the lawsuit?  The corollary to this is that the client has a right to chose how and how not to spend its money.  If I incur fees the client has not approved, I am taking this right away from the client.  Who the hell am I (or any lawyer for that matter) to do so?  Most AFAs (and budgets “with teeth”) are designed to address these two premises.  Once you have the why, the how, while not easy, is not as hard as it otherwise is.

The prior post contains a link to a story discussing one of Disney’s key philosophies–“It’s not my fault, but it is my problem.”  When a park patron shares a problem with a Disney employee, it doesn’t matter that the employee had nothing to do with the problem or that it’s “outside their jurisdiction.” The employee is trained to “own” the problem until it is solved.  In stark contrast, I saw a story in today’s Chicago Tribune about American Airlines once again missing an opportunity to convert a problem into amazing customer service, similar to my own recent experience with the airline.  “Service” programs that are designed to kick the can down the road (“you’ll have to deal with it at the airport”) are a waste–they do nothing but tick off the customer.  How much easier would it be for an airline to fix the problem rather than suffer attack on Twitter or a major story about what jackasses they are in a major (well, the Tribune used to be) Sunday newspaper?

Customer service is not something you claim to do.  It is something that is part of your (whether a person or a company) DNA.  It is clearly not part of American Airlines’ DNA.

I have often observed that when presented with an idea from outside the law, lawyers are almost reflexively dismissive.  After immediate dismissal of such ideas, lawyers then tend to exercise their legal skills to develop their arguments why the idea is bad.  In contrast, most business persons I have had an opportunity to observe hear an idea and immediately consider how the idea could help their business.  If the application of the idea is not clear, business persons tend to look for a germ, a molecule, a nano particle of “something” they can utilize.  I hope that as lawyers are forced to think more like business persons, they embrace this attribute.  I’m not holding my breath, but that is my hope.

It is in this vane that I am sharing a link to a story  on client service (including a podcast version), something I heard this morning on an NPR program called Under the Influence, produced by CBC.  The piece was entirely about customer service and the way it improves companies and profits.  I hope you appreciate the ideas Terry O’Reilly shares.

Great post by Aric Press of American Lawyer discussing the “series of microclimates” that law firms and law firm-client relationships have become.  The title of Aric’s article, Everybody’s talking at me, draws on the great 1969 song of the same title.  And while Aric subtly notes the famous “I don’t hear a word they’re saying” line from the song, the fact is that change has been brewing to the point of bubbling over for years, clients have been expressing their noted desires for years and law firm partners have been largely silent in response.  It is the “I don’t hear” line that should be the story, not the cacophony of voices.  That is old news.

For lawyers who are late to the game, it is certainly not too late to at least think about change.  But it is getting close.  The comments by clients suggest the gradual move toward proscribing change rather than collaborating to achieve it, since the latter has proven to be a largely failed strategy.