I am sitting on a panel next week at the Legal Week Corporate Counsel Forum (#CCFE) and as panellists we have been asked to discuss the potentially controversial question, “Can you trust your advisor on fees?”. Which I think is teed-up really as another excuse to put the in-house boot into those old chestnuts, the hourly rate, bill padding and the general iniquity of external legal fees.
Except, isn’t that all a bit, well, yawn?
For as long as I’ve been going to conferences for in-house lawyers there have been sessions about law firm billing. Cue powerpoint presentations about fixed fee deals, capped fee deals, all you can eat deals, retainer deals, volume discount deals, contingency fee deals, LPO discount deals, blended rate deals and so on. Why is the in-house community still fixated on having this discussion?
Well let’s leave that question behind a second (not least because we get to visit really rather nice hotels for the privilege of debating it) and focus on the question set for the panel. Can we trust our advisors on fees?
The obvious answer is that if we can’t trust them, then we shouldn’t be working with them in the first place. Whilst there is some truth in that, I believe that assertion is overly simplistic. A disconnect on fees between law firm and client is not necessarily down to a lack of trust. What constitutes “value” is subjective and neither law firm nor client will always get this right. On that point, I recommend this blog post by Nicky Richmond of Brecher, regarding why firms sometimes don’t know what to charge. It is an excellent post because of its transparency (just don’t ask what Brecher’s Managing Partner thought of such heresy – Nicky is the Managing Partner).
Back at my own ranch, we have had two larger than usual legal bills to deal with recently on matters that could not have been predicted at budget setting time (that’s what I plea during the Q3F anyway).
For one, I used a law firm I know well. We took about 60 seconds agreeing the amount of two interim and not insubstantial invoices. I had a figure in my head of what the work was likely to cost and how I valued it. The partner did the same. Our numbers were about the same. All based on trust. Bingo.
For the second matter, I used a firm I do not know well but who have played a good long marketing game – doing ad hoc pieces of work and billing not very much at all and without giving it any “we could do more for you” hard sell. The long game worked and a big piece of work came along which we sent their way. Unfortunately the work in progress report has also now come along and it is some way off the figure I had in my head (and some way further off the figure my internal clients were thinking of). There are some difficult conversations ahead on both sides. Yet this disconnect is not down to an issue of trust – I do trust the advisors. Instead, I believe it is down to subjectivity on both sides of the table. Value is not always an objective touch point.
Readers may be entitled to ask why I sit around until the end of a matter waiting for the bill to arrive before I find out how much our external lawyers are costing. You may also be entitled to ask why law firms sit around waiting for me to ask before telling me. Well neither of those things are true but it is worth making the point that projects can blow up quickly or change direction unexpectedly, such that a quote at the beginning of a project based on a number of assumptions can become meaningless (I refer you again to the work of Ms Richmond). In the day to day heat of an unfolding situation, decisions are needed quickly and so is resource. It is on projects like these where you really do need to trust your advisors to work with you quickly on a project and then come up with a number that is in the ballpark that you consider to represent the value which has been delivered.
I suppose I am saying what may be the unspeakable – that occasionally (and yes, this should be the rare exception rather than the rule) you need to crack on with an urgent, multifaceted and ever-changing project that either does not afford the luxury or realistically lend itself to having a sensible conversation about fees at the beginning of the project. Project management theorists and legal futurologists may shudder, but occasionally that is life.
Where client and advisor come up with a similar number during such a project. per my first example above, should we congratulate ourselves at the depth of our trusting relationship and raise a glass to celebrate the passing of the hourly rate? Of course not. Because, as I’ve written before, most if not all flavour of fixed fee deals, including those variants I referred to above, are reverse engineered into an hourly rate, give or take a bit. And as I’ve written before, that hourly rate is reverse engineered into (arguably inflated) law firm salaries (go on, have a look at that post, its proper controversial) which means it is unlikely in my view that law firm billing will – voluntarily – leave behind the hourly rate as a yardstick of how to bill, whatever a particular alternative fee arrangement might be called. Yet despite knowing all of this, the number I come up with in my own mind as representing “value” is still based at least in part on my own assumptions of the blended hourly rate of the combined legal team on a project and the time I think it will take them to do the job in question.
So far from congratulating myself at having such a good relationship with my advisors that I can agree a price over the phone in seconds, I should probably be lambasting myself for helping keep the hourly rate alive, albeit dressed up as something else.
Therefore the reason why we in-house lawyers keep discussing this same issue at conference after conference (apart from the excuse for an annual visit to a nice hotel) is because we can’t break the habit of assuming that a law firm will loosely bill on or around a time spent basis even if it is called something else. More fool us. We tell ourselves that we don’t, that we refuse to accept hourly rate billing and so on. But it is all too easy to do sub-consciously.
And the law firms keep at it too. Anyone know a mid to large law firm which does not pride itself on flexible fee arrangements for clients? No, thought not. And anyone know a mid to large “traditional” law firm which does not require its fee earners to record their time on a 6 minute unit or similar basis? No, thought not either. Isn’t that a bit of a paradox? If firms think they can cut it on alternative billing arrangements, why in their world does the big hand on their clock still move six minutes at a time? I don’t necessarily think good law firms want to retain an hourly rate model as a matter of principle – I’m just not sure they have come up with a better way of measuring value.
As in-house lawyers we welcome potentially disruptive new entrants to the market – your Riverviews, Axioms, Obelisks, Evershed Agiles and LODs. However, the disruption should not just be driven by new market entrants. It needs to be driven by us, the client.
The question for our panel at #CCFE should not perhaps be can we trust our advisors on fees. But instead can we trust ourselves to kick this debate into the long grass at some point in the next five years? Because if we can’t, then perhaps we’re not doing our own jobs properly as in-house counsel. To find that long grass, to kick this into touch, to mix another metaphor, we need to be clear in our own minds and clear with our advisors on what we really mean when we talk about value.
I hope to see some of you at conference – for five more years anyway.