Am I a Bad Lawyer If I give My Clients Fixed Quotes?
Anyone who has ever had to hire a Lawyer will tell you there is nothing more obstinate, discomforting, or irregular in the legal world than the billable hourly rate. This antiquated model of billing permitting to the time spent on a matter has historically generated perverse incentives for partners and holders of law firms, a life of misery for lawyers, and most important, monetary headaches for clients. Consequently, to circumvent this ordeal, fixed fee billings as the alternative fee arrangements have been the source of considerable discussion in the legal community during the past several years. Various law firms and lawyers have been very vocal proponents of implementing or exclusively converting to fixed fee whereas others, who seem to be the mainstream, still feel indeterminate if fixed fees will assist their bottom line or lessen their profitability. One thing is certain, fixed fee agreements are becoming paramount as more and more clients, both large and small, are starting to proactively request for the cost predictability, certainty, and transparency, which they provide.
Sadly, what has not however changed is the ongoing disparity between price and value which clients of law firms ingrained in time billing are challenged with on a daily basis. It is this disproportionality, which is stimulating the increasing momentum for change to an alternative billing system and not merely based on the length of time it takes to do a job. What should be of further concern to the profession is that it is clients who are driving the criticism against the billable hour and pursuing out alternative price methods. In ever increasing numbers these clients want certainty in price and greater transparency and value. Fixed fee pricing satisfies these needs.
Indeed fixed fee as a preliminary billing provider presents compelling advantages for clients and lawyers. Here are some reasons offered on why lawyers should begin to adopt and implement this model transversally in the legal community.
A fixed fee helps to align lawyer’s interests with the clients.
There is something inherently troubling about a billing system that hollows a lawyer’s financial interest against that of its client and that has built-in incentives for inefficiency. The billable hour model has both of these adverse features. The more time a lawyer spends on a matter, the more he or she can charge the client; however, the more the lawyer charges, the more the client must pay. This conundrum creates a runaway train of billing that strains lawyer-client relationships. In contrast, a fixed fee billing structure aligns a lawyer’s interests with those of the client. Once a fixed fee is agreed upon, the lawyer’s exclusive incentive is to complete the work. Meanwhile, the client no longer must worry about how much time the lawyer is spending on the matter. In this model, the lawyer works efficiently, the client gains predictability, price certainty, and the value of the work rather than the lawyer’s time as the focus of the engagement. This framework reinforced the ‘peace of mind’ that lawyer-client relationship generates for the client in the first place.
Fixed fees produce incentives for the lawyer to work efficiently
While fixed fees condense uncertainty for the client, they simultaneously offer benefits for the lawyer as well. A fixed fee billing structure incentivises a lawyer to work quickly and locate the most direct route towards finalising a task. Under the hourly billing model, lawyers in general may not intentionally take a much longer time, with the comfort of knowing that every second they spend on the matter will likely be compensated. This will undervalue the services being provided and undermine the reputation of the individual and the firm. Though, integrity is expected, it is impossible to guarantee it under the hourly billing arrangement. Thus, in contrast, under a fixed fee billing lawyers must get creative and avoid duplicating effort, and like most corporations, work against a “bottom line”. Working efficiently also produces long-term benefits for lawyers as it forces them to develop systems for addressing and completing specific tasks.
Fixed Fees ensure a lawyer can depart from a matter more Efficiently
A conventional engagement agreement between a lawyer and a client only concisely recognises the scope of the representation. If the matter is litigation, for instance, it will explicate that the lawyer has ‘agreed to represent ‘client’ in relation with legal claims proclaimed by Party X’. In the instance where the matter is transactional, it might state that the lawyer has ‘agreed to assist ‘client’ with the purchase and sale of Property X.’ Such general language creates preventable risks for the lawyer. He or she may be constrained to withdraw in the event the client refuses to pay for the lawyer’s services. Contingent on the stage of the representation, a lawyer who endeavors to, and effectively withdraws, could risk exposure to a malpractice lawsuit or a disciplinary complaint. Neither recourse is ideal. There are frequent occurrences where a court will necessitate the lawyer to remain in the case and continue representing the client notwithstanding the client’s refusal to pay. This is exasperating, to say the least.
In contrast, a properly quoted fixed fee billing structure will recognize the precise tasks being executed and the price for each task. It is advised to break down the representation into comprehensive, component parts, and subsequently assign a price to each element. In this fixed fee billing, a lawyer can withdraw more smoothly in situations that involve a client refusing to pay for a specific component. The relationship is much clearer and compartmentalized. The lawyer should include language in the engagement agreement that states that, if a client fails to pay for some portion of the representation, the lawyer may withdraw. This structure is not a remedy to the conventional complications of withdrawing from a representation. It does, nonetheless, recuperate the relationship and the expectations supplemented with it.
The issue of fixed feed s vs. hourly billing is undoubtedly not black-and-white. Fixed fees may not be suitable in all occasions. In some limited circumstances, hourly billing may be desirable. However, lawyers’ should not endeavor to force every engagement into an hourly billing structure. It is a requisite for lawyers’ like many businesses today to get resourceful in order to remain competitive. They should consider fixed fee billing as an extra arrow in their quivers that they can utilise to market and price their facilities. The ‘peace of mind’ that lawyers provide their clients should be an all-encompassing, comprehensive objective that comprises and does not disregard the billing component of the representation.
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