Redwood Analytics

As I mentioned in November, when I started this series, it could hypothetically go on forever.  Half of my consulting efforts have been focused on alternative fee arrangements over the past year.  There is little doubt that I will continue to post on the topic.  That said this series was meant to introduce readers to the basics and hot topics around alternative fees and I want to end the formal portion with some passing thoughts.

I have travelled from firm to firm over the past year, each one with different priorities and client bases.  Yet no matter the firm I work with, there is some apprehension.  Yes, the move to alternative fees has taken place.  Yes, there are some clients who still prefer the billable hour.  Yes, each firm needs a structure and process to manage matters to result in client satisfaction and reasonable profit returns.  Yes, firms need to accept some risk.  No, firms do not need to take on all risk.  But have the basic components of the industry changed all that much?  I don't think so.  You speak at enough AFA conferences and you'll hear lots of rationales for change:

"How would you feel if a contractor painted your house and charged by the hour?"

"Every other service profession has a set price, why should we be different?"

And for the really adventurous...

"Tossing away timesheets is the way to go.  That is the only way you can focus on providing value to your clients."

Let's get something straight before we leap off the edge.  A painter knows how much it will cost to paint your house by taking the hours he assumes it will take, extracting a margin that he needs to maintain and add in material costs.  The reason why he can quote a fixed fee is because of his experience in the time that it will take to perform the painting you require.  In addition there are different levels of painter quality.  If you want to hire someone to do sponging, cool design, or anything that requires additional expertise it will cost you more.  How is that different than the legal industry?  We as an industry just need to gather the experience to price matters appropriately and leave significant unforeseen circumstances out of proposals.  A contractor building a house takes on the risk that if there are delays in obtaining permits or sub-contractors who make mistakes, he is liable for fixing them.  If the owner who originally wants plain old walls painted white has now changed his mind to having all the walls made out of pure gold...that cost gets pushed to the owner.

If every firm is quoted fixed fees for all their work, you would see the high profile NYC firm charging dollar amounts for a specific matter while the lower profile firm down the turnpike is charging slightly less.  How different is that from a high profile partner charging $800/hr versus another charging $450?  There is a difference between Saks Fifth Avenue and Wal-Mart.  It is an evolution of pricing pushed by client need and experience.

All firms need to understand how to approach, propose, track, and manage alternative fees.  They also need to learn the skills of project management.  Yet, I would argue the latter statement is a given no matter what the arrangement, be it alternative or based on standard rates.  For long enough the industry has not had to look deep into how they are managing matters.  It is time for that to change and alternative arrangements appear to be the conduit.  This is a good thing but it does not change the basics behind the industry. 

So next time you listen to a radical debate on how practicing law has drastically changed and that the entire industry has been turned upside down...take a second to think of the basics.  My guess is that they are still there.