February 2015

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I am honored that my recent post, Timekeeping Company argues lawyers using AFAs still need to keep time, has been selected by the editorial team of SmallLaw, as its SmallLaw Pick of the Week.  SmallLaw is a popular email newsletter for solos and those who manage and work in small law firms.

This recognition was a complete surprise.  The email notifying me explained:

Many awards given out these days are meaningless because marketing can play a role in determining who wins. By contrast, those who win our SmallLaw Pick of the Week award don’t even know they’re in the running and cannot influence our editorial team. We think this makes the award meaningful.

Thanks to the editorial staff at SmallLaw.

One of the great things about non-hourly billing is that it frees you from the tyranny of timesheets.  You stop thinking about billing and start thinking about results, about outputs, about deliverables.  That approach is an anthema to the many vendors who specialize in products that help lawyers find more time to bill to their clients.  Timekeeping companies are not fans of non-hourly billing.

Smart Time is a timekeeping company that claims to have “reinvented” timekeeping for lawyers and others. It’s CEO recently identified 7 reasons why timekeeping is still essential to lawyers using AFAs.  Let’s explore these.

Reason 1: Measuring timeliness and compliance. Project managers still need a tool to evaluate how timekeepers are performing with regard to a project’s expected timeline.

Wrong! There is a huge difference between “how long” and “by when”.  Project managers and those performing a project need to be very focused on “by when.”  Timekeeping does not come close to measuring “by when.”

Reason 2:  Planning for estimates. While your client may perceive flat-fees as a good value, you must make them valuable for the firm, by accurately estimating to cover your costs and make a profit. Looking at previous time investments will help you to know exactly how much time it takes to perform specific tasks.

Most wrong! The truism that flats fees need to be profitable is not debatable, but timekeeping and cost, that is the amount that one subtracts from revenue to determine profit, have little to do with one another.  An the what value of knowing the amount of time one spent doing a project before brings to mind the saying about the value of learning to do the wrong thing better.

Reason 3: Client trust. Many, if not all, clients will still want the ability to monitor and check in on the engagement, and hours are one good way to do that. AFAs don’t do away with client-firm discussions on the progress of the matter.

Wrong! Clients are concerned about outputs, deliverables and results.  They care about strategy and the timely completion of projects and tasks.  Few truly care about the amount of time spent doing a task. They have been victimized by this approach for too long.

Reason 4: Keeping to budgets. How else can a timekeeper review and stick to a case or matter budget, if they don’t know how much time they’ve spent on it? In an AFA, following budgets strictly is key.

Wrong! The key is when, not how long.  The quality of the deliverable should not be artificially restricted.   The “budget” and the “fee” are the same–you make money by having the fee exceed the cost.  Cost and the time spent have little relation to one another.

Reason 5: Measuring profitability.  Without timekeeping its impossible to measure the profitability of the engagement.  Hours are still the best measure of cost. Understanding how much it costs, in time, to complete the engagement changes a firm’s focus to efficiency and value.

Really wrong! Hours are not the best measure of cost–they have nothing to do with cost. Cost is the best measure of cost.  You measure profitability by subtracting cost from revenue. Hours don’t fit into the calculation.  What the author appears to be suggesting is that one measures profitability by comparing the fee to what you would have made had you billed by the hour.  That’s not how business works.

Reason 6:  Continuous improvement of the AFA model. If you track time, you can refine your pricing based on increased understanding of costs and clients’ needs. Potential pricing systems might contain inclusion of some hourly rates, as well. Just remember to keep any pricing system easy for the client to understand.

Wrong! This falls in the close but no cirgar category.  The key for delivery of service is “by when.” Know when you can deliver something is important to pricing.  Just as focusing on learning how to accomplish delivery faster.

Reason 7:  Rules of professional conduct.  If you end up in a fee dispute with your client, you’ll need hours expended to defend your position in court.

Wrong! This is nothing but fear-mongering of the worst kind.  Restated, the argument is that if you get into a fee dispute with your client (how often does that happen, really?) and a court declines to follow the terms of the fee argeement, you’ll need to have hours recorded somewhere.  Does the concept of self-interest enter anyone’s mind here?

I get why companies that sell timekeeping software and services are concerned about AFAs. Freedom from the constraints of timekeeping is the dream of countless lawyers, as is the desire to avoid having to buy software and services that add no value to the business.  But these kinds of arguments are disingenuous and misleading.