Change is only constant for law firm billing

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By Patrick Thornton
Dolan Media Newswires  

MINNEAPOLIS, Minn. — The billable hour will never die, lawyers say, but it has faded for law firms of all sizes.

In competitive request for proposal meetings or when marketing to new clients, being willing to work with a client on billing can make a law firm stand out from the pack. Firms can structure the deals in a way provides value to the clients, and still makes the firm money.

The Holy Grail for every client is a predictable bill from its law firm, said Rick Morgan, the executive managing partner at Bowman and Brooke in Minneapolis. The firm has offices in nearly a dozen cites and represents clients across the U.S.

“What every business wants is a real number for their case, something they can rely on,” he said. “I don’t see proposals from clients anymore that don’t ask about alternative fees.”

The key is to recognize that there is no ‘one size fits all’ approach, he said.

Clients and firms can mutually benefit from several different agreements. What works for one of the firm’s products liability clients, might not work for an IP client, but a firm can craft an agreement that works in both cases.

Bowman and Brooke uses several different kinds of alternative fees. Some clients pay with a straight flat fee contract with a “circuit breaker” built in when the case hits a specific dollar threshold. For some clients the firm works on a flat fee through the discovery phase of a case and then switches to billable hour before trial. Some clients get a volume discount on the billable rate for big cases. The firm does a flat fee on a per project basis when clients ask for it too. The firm meets with the clients to review the projects and the budgets as frequently as every month, Morgan said.

“Once we know the volume of work involved, we’ve gotten pretty good at working something out,” he said. “And depending on how the case works out adjustments can happen. Not just from us, but I have gone back to a client and said ‘We are getting too good of a deal here. Let’s talk about this.’ At the end of the day, I want that next case so that’s why I am willing to partner with them on their bills.”

In 2010, Keith Halleland and William Habicht formed a law firm with the specific intent of offering more negotiated, alternative fees. The firm has about 20 lawyers and consultants and does banking and real estate, employment, litigation and health care work. Halleland said the firm uses alternative fees in every practice area.

“General counsels are getting more gutsy when it comes to trying [alternative fees]. This was something our clients were asking for. They always complain about opening that surprise bill and tell you ‘I can’t believe a lawyer spent time doing that,’” he said.

He said as alternative fees have grown in popularity, law firms have a better idea of what works and what doesn’t. In the firm’s health care practice, for example, they can anticipate how long it will cost to complete a project based on past cases and create a budget that both client and law firm can work with.

Businesses with more frequent legal issues can see the savings more easily than those that don’t often need a lawyer, he said.

“Clients want to know they are getting a good deal, but don’t always know how to judge the price,” he said. “That’s where the trust comes in and the law firm has to make them comfortable with what we are doing and show them the savings.”

Halleland said many clients prefer pro-rated bills that take the fee for a project and spread it out over time. If a business can plan for a set, monthly bill for legal services it is easier to budget for throughout the year, he said. It’s up to the law firm to devote the right resources to the project and to stay within the budget, he said.

“It sounds simple, but there is a science to it,” he said. “Our clients have to manage their staff and their budgets and that’s what law firms have to move toward. That’s how the business works.”

Chad Snyder and his two law partners at Snyder Gislason Frasier in Minneapolis advertise that they offer alternative fees on their website because, as Snyder says, “When I am looking for goods online, I want a sense of what it will cost me.”

The lawyers present almost every new client with two billing options: a flat, hourly fee and an alternative fee arrangement. Snyder said far more opt for the alternative fee.

The firm practices family law, contract negotiation, civil litigation, entertainment, employment, insurance law among other areas. As a smaller firm, alternative fee arrangements allow the firm to take on smaller clients and defend their rights in court. He doesn’t quote a fee for defending a client who has been sued all the way through the case, but breaks the bill into phases with a safety valve built in for unexpected matters.

“I tell them, it will cost you X from me to draft and answer and go through the Rule 16 conference. And for the discovery, it will cost X more,” he said. “The businesses know then that they have to set aside enough money to pay me when the next phase comes up. It gives [the clients] a little less anxiety.”

He said the agreed-upon rate eliminates surprises from the client when the bill comes and helps the firm get paid faster. When lawyers aren’t preoccupied about tracking their time and worried about getting paid, they can better focus in on the case. For his firm the alternative fees work because they are selling value to their clients, not the lawyers’ time.

Snyder said firms of all sizes must adjust their billing practices so clients can afford to pay them and protect their rights and the firms can still make money.

“We don’t have a widget to sell,” he said. “I’m looking at what my legal service is worth to the client whether we are taking about a $30,000 dispute over a contract, or something in the seven figures that the whole business is riding on. Sometimes we take a bath because it takes longer to prepare something, but it often works out in our favor too. I think overall it tends to wash out.”