June 5, 2014

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Industry Outlook: Legal

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Industry Outlook: Legal

June 5, 2014

My experience in my firm, and in Salt Lake generally, is that alternative forms of billing have become commonplace. You see that with lawyers taking equity positions in startup companies in return for legal services. You see flat rates in estate planning matters, in certain deals and even in litigation matters. But in my experience, the billable hour remains the way in which clients receive and pay for legal services.

What we all have learned as lawyers is that we need to be flexible in how we work our fee arrangements so that clients will hold us in high respect and will pay our rates. It’s important to be flexible and to make sure that the firm’s services and the client’s needs and the respective incentives are aligned, and sometimes they’re better aligned through alternative billing arrangements.

POS: We still see billable hours as a mainstay at the firm, but we are also seeing a lot more client control on budgets, approvals, revising budgets as you move through a transaction or litigation. There’s changes and there’s unpredictability. So there’s going to be changes in budgets, and we need to stay on top of that with clients.

When you look back 10, 15 years, we are seeing definitely a trend toward increasing alternative fees, blended rates and fixed rates and secundants. We reduce our hourly rates because we bring in different types of attorneys to work on the cases. Our costs are lower, so we pass those cost savings on to clients with lower hourly rates.

MAXFIELD: You can’t escape the billable hour. What clients seem to be talking to us about are issues like visibility and predictability. If they have some sort of sense as to how this is going to turn out fee-wise, even if it’s in a phased fashion, they seem to be happier at the end of the day.

Part of that requires tracking data to try and figure out either what you’re doing on that particular case or what you’ve done on other cases. We’ve started to make that investment, to track that data and figure out what that’s going to mean. If we’ve done a given task, can we look at 10 of those tasks in the past and say, “We think that on average you’re going to spend about X for this.”

JARVIS: We have gotten into a lot of alternative fee arrangements, and it’s in reaction to the client’s need for more certainty and more transparency. We have spent time training all of our partners on the different kinds of alternative fee arrangements that can be offered to clients.

But even in the billable hour context—we still do the majority of our work on billable hours—there is still that need for more transparency and certainty. So we’ve worked at trying to make sure that we budget better, that we provide better estimates to clients, that we have a system that we can track.

We also instituted a policy last year—which wasn’t very popular when it began but has become popular—requiring time to be entered by midnight of the following day. That allows you to tell clients day by day exactly where you are as far as fees.  

CLYDE: A lot of clients have very little tolerance for paying for young lawyers. They’d rather pay for expertise, and they’re quite willing to pay top fees to get the people they want. They are fine to have young lawyers work under that supervision, but they don’t want to have a task dumped and are willing to pay the freight to have the more experienced lawyers there, to get a better bang for the buck, if you will, by having people who are more experienced.

FILLMORE: Our firm is based in Utah County, and Utah County for a long time has been kind of a hotbed of entrepreneurship for the technology base. We get a lot of spinoffs from BYU and UVU. If we took advantage of every alternative fee offer we got from clients, we’d be broke, so we take a lot less of that than we did 20 years ago. So the billable rates plus retainer have become presumptive for us.

We try to educate our clients on the virtue of that for them. It’s not an either/or. Nonetheless, we have had success with hybrid fee arrangements where we take a small piece of the company in exchange for extension of credit or some discount on our fees.   

McNEILL: We’ve had a lot of companies that will be on the traditional hourly fee model through a lot of litigation. But to get them through trial, sometimes we’ll change that structure to a hybrid, and we’ll give them an hourly discount. And then in return they’ll give us a partial contingency, which they’re very happy with.   

How have clients and their expectations changed?

CLINGER: What I have found, especially with my transactional corporate clients, is that we need to stay ahead of the game. We need to find out what’s going on nationally, regionally and sometimes even internationally with our clients. We need to be proactive in coming up with solutions for them and also helping build their business model. We are a customer service organization, and we have to remember that customer service comes first.

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