11/02/2011 01:54:00 PM EST
Has the Hourly Billing Model Become An AFA?
In a telephone conference earlier
today with a client talking about legal project management and alternative fee
arrangements, I was struck by a statement by one of the partners on the call.
Although he recognized clearly that AFAs, especially fixed fee matters, makes
project management more urgent in today's legal world. He went on to say that
that even if the firm was billing on an hourly basis, the client was treating
the fee as an AFA. WHAT? I was thinking, and then he explained: "With
write-offs and write-downs, the client is imposing a fixed fee." The client
simply will not pay more than the figure she or he thinks is right. That fact
shows up in the realization rate.
Today I also ran across a post on In Search of Perfect Client Service
by Patrick Lamb that raised the question about how the realization rate
according to Hildebrandt's Peer
Monitor Index (PMI) continues to decline. It seems that law firms merrily
go about raising rates, while clients summarily go about paying less.
In part, here is what Lamb gleaned
from the PMI:
that increase (in billing rates by 3.5 percent from a year ago) is marginalized
by the fact that firms' 'realized rate' -- the rate they are actually paid by
the client -- reached an all-time low this quarter. Net collected realizations
fell slightly, to 85.4 percent, which also represents an all-time low."
He suggests that it would be better
for a firm to have a sit down with clients and talk about NOT raising rates or
even lowering them, if the client will help the firm with their realization.
Another option is for the law firm
to become more efficient - whether on hourly billing or a fixed fee. That's
where legal project management comes into play. It can increase value for the
client, and improve the firm's bottom line.
As Lamb concludes: "But whatever
firms do, simply doing what they used to do (increasing rates) is a fool's
errand." Not to mention poor marketing.
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