Billing probe reveals in-house resentment
An investigation into law firm billing by in-house lobbyist C&I Group and consultants BDO Stoy Hayward has revealed that in-house counsel are being left in the dark by law firms and are disillusioned with billing methods.
Ninety-four per cent of respondents stated that there was no certainty over the final cost of a bill with 82 per cent stating that there were no incentives for firms to be quick and efficient.
Colt Telecom legal, regulatory and commercial director Robin Saphra commented: “There is no transparency. You just tend to get a bill on your desk.”
Hourly billing is still the prevailing method of billing despite being rated as the least satisfactory by in-house lawyers. An overwhelming 97 per cent of in-housers were billed by the hour during the last 12 months with only 10 per cent opting for value-based fees.
“Some firms are risk averse from hourly billing,” said Saphra, adding that Colt had recently piloted a fixed fee method.
The report also showed that two-thirds of in-house lawyers were willing to incur higher fees for high-value work if they were able to pay less for lower value work.
CMC Markets global general counsel Dominic Bacon said: “I use hourly billings for most of my transactions but have an up-front discussion about what the work is likely to entail and what the costs are likely to be - so hourly rates become more of a measure than a fixed rate.”
He also explained that there is commonly no certainty over costs but this is usually because of the lack of certainty over the work.
“Negotiations over a settlement or an acquisition can be simple or protracted depending on the other parties involved,” he said.
171 in-house lawyers were interviewed. The C&I Group is looking to create a “tool kit” to deal with billing after analysing its findings.
Billing methods used in last 12 months
Hourly rate - 97 per cent
Fixed fee - 66 per cent
Success/conditional fee - 13 per cent
Capped rate - 42 per cent
Value-added fee - 10 per cent
Billing methods - satisfaction mean score
Hourly rate - 2.61
Fixed fee - 3.96
Success/conditional fee - 3.76
Capped rate - 3.8
Value-added fee - 3.65
Which alternative billing method is best?
Value-based - 10 per cent
Success/conditional fee - 4 per cent
Capped fee - 13 per cent
Fixed fee - 22 per cent
None of these - 4 per cent
Combination of methods - 47 per cent
Readers' comments (10)
Anonymous | 26-Sep-2007 10:57 am
Rewarding Inefficiency
In-house counsel are right to question the billable hour. Although it can be useful where there isn't a great deal of transactional certainty (meaning a fixed fee wouldn't be appropriate), there should be an open and ongoing dialogue with clients as to where fees stand.
Lawyers should not shy away from the "difficult discussions" (if they feel they are truly adding value (which is recognised by clients), what is there to shy away from?), nor should clients turn a blind eye to fees, only to question fees once the deal is done.
That said, the concept of the billable hour rewards inefficiency in so many ways. From many associates perspectives, inefficient working (by which I do not mean grossly inefficient or obviously inefficient) makes the drive to hit bonus related billable targets easie (particularly if they practice in an area where work flow has slowed). Similarly, why would a firm want to bill 9 hours when they could have billed 10? It's only when the inefficiency becomes glaring or obvious that questions are asked about inefficiency.
In an enviroment where in-house legal departments are coming under increasing pressure to reduce their legal spend, they need to be billed on a basis that truly reflects the value of the work done - perhaps a combination of billable hours with a cap (presumably set on the basis of previous work/instructions), with amounts over the cap being billed at a reduced rate?
Unsuitable or offensive? Report this comment
Tony Guise | 26-Sep-2007 6:23 pm
Rewarding inefficiency
Unitary billing can be unavoidable where there is litigation (which is particularly prone to unpredictable outcomes) however no such retainer should be entered into without a budget being agreed at the outset to provide a framework of expectation on both sides. Nothing stops the budget being varied in the light of developments.
What surprises me is the extent to which solicitors are reluctant to do this. Given we are holding ourselves out as experienced professionals not to be able to given an indication, at least, of the likely cost is unprofessional.
Unsuitable or offensive? Report this comment
Anonymous | 27-Sep-2007 8:50 am
Positive step
Agreeing on a fixed rate helps me to set and keep to the budget. If the final cost ends up under the agreed amount, I'll pay less, if its over - I know why and what for.
Unsuitable or offensive? Report this comment
Jim West, F.A.L.C.D. | 27-Sep-2007 9:10 am
Rewarding inefficiency
The situation was (and still is) covered by the Solicitors (Non-Contentious Business Order 1994 for all non-contentious matters. There are two stages to the billing, firstly the mathematical stage, i.e. the number of hours x the hourly rate for each fee earner and secondly making a judgment as to what is fair and reasonable in all the circumstances.
In practice it is very rare for solicitors to seek to charge more than the mathematical total and much more likely that (for a variety of different reasons, including simply keeping the client happy!) the solicitor will reduce the mathematical total to arrive at he/she considers to be a fair and reasonable fee.
However, the practice has grown (probably influenced by American billing methods) that both the solicitors and the client regard the mathematical total as the word of God and the onus is left with the client to challenge the total if they feel it is unfair and unreasonable, which in the long term does little to foster trust between solicitors and clients.
Unsuitable or offensive? Report this comment
Nils Breidenstein - Pegasystems | 27-Sep-2007 10:16 am
Long way ahead
One difficulty is to engage the law firms in these dialogues as they tend to be quite defensive in discussing billing and fees. In-house lawyers on the other hand have to demonstrate better communication and express concerns to their firms. If course the survey is only the start of the process and it will be a painful one - people are usually reluctant to change.
Unsuitable or offensive? Report this comment
A legal director | 27-Sep-2007 10:21 am
Fixed Rate Billing
I use fixed rate billing to encourage transparency and avoid surprises.
But the wider the scope of the exercise, the more difficult it is to secure a fixed rate. Law firms give you lines like; "Oh this might happen...that might happen" and generally try it on.
If I cap it - they always reach the maximum limit - and never 80% of it. Its a battle. The firms say they want to explore new methods and do different things, but when it comes to it - they just use hourly billing. In fact, fixed fees are still broken down into hourly rates - so its a camouflaged hourly rate, and accumulated to the maximum at that.
Unsuitable or offensive? Report this comment
Anonymous | 1-Oct-2007 9:24 am
Fixed fees
When I was a solo practitioner, my clients were provided with fixed fees quotes for the initial matter in question. The reason this proved successful for me was that I also discussed one or two possible contingencies with them and gave another fixed fee quote for each contingency before it came up. If something unforeseen happened, my clients could rest assured that we would discuss the fee before taking further action. Clients love it when you keep them informed, especially when comes to money.
Unsuitable or offensive? Report this comment
Anonymous | 7-Oct-2007 6:19 pm
One-sided
What private practice lawyers worry about isn't being transparent: it’s the fact that clients want certainty on fees, but rarely provide it on scope. "Scope creep" is a real issue, and if a private practice lawyer tries to keep part of the agreed scope flexible, this is challenged. The law firm backs down, and the client says no more, based on its firm scope of work. If a new, commercially-driven issue arises (new information, a change in deal structure etc), the lawyer deals with it in consultation with the client. When it comes time to paying the bill, however, suddenly the fact that it is above the estimate is a problem. Neither does it help that firms are encouraged to bid low by clients who evaluate purely on headline figure quotes. If clients want a low quote, then the scope needs to be limited. If they want realistic "certainty", then all parties need to be open to higher estimates which build in a contingency for unforeseen surprises...
Unsuitable or offensive? Report this comment
Anonymous | 10-Oct-2007 9:01 am
Billable hours
The main difference between in-house costs and external costs is the number of hours external lawyers put on the clock. I spend a lot of time working with external lawyers to keep their hours down to a sensible level - we take commercial risks in not pursuing every legal issue to its definitive conclusion. Getting external lawyers to accept this way of working is a major challenge - not helped by the fact external lawyers are concerned about PI exposure.
Unsuitable or offensive? Report this comment
Steve Ollerenshaw - Technology Law Alliance | 12-Oct-2007 3:18 pm
Billing Methods
Undoubtedly there is complacency on the private practice side, and I can understand the frustration that many firms are still not getting this right. However, I would point out that in my experience in-house lawyers are quite conservative about moving away from hourly billing. While they say they want value billing I have never managed to get agreement to bill on a percentage of deal value (I could have retired by now if I had). There is extensive competition to provide legal services and if in-house counsel is not getting fee transparency why not move the account to a firm that is better at account management?
Unsuitable or offensive? Report this comment