Just when you’ve decided it’s safe to plow ahead with the newest alternative billing scenario—let’s see, there are flat fees, there’s value billing, contingency…what have we left out?—word gets out that clients who have faith in their counsel actually prefer the hourly rate. At least that is one man’s dissenting opinion on the subject.
Rich Baer, General Counsel of Qwest Communications, believes that “at bottom, those who are uncomfortable with the hourly rates believe that their lawyers will intentionally be inefficient and will not achieve the best result…” In other words, they think these “inefficient” lawyers will opt for the less-than-best scenarios in order to make still more money (at their hourly rate).
As if that isn’t enough of a brow-raiser, Baer believes that alternative fees do the opposite of make lawyers more cost-effective. If anything, he says, flat fees motivate firms to do less work, as lawyers perform less due diligence and are likely to pass work on to junior associates. He suggests that those “dastardly outside counsel” who were accused of “churning matters” for more money will now be financially motivated to “start cutting corners”.
As to success fees, Baer sees “a number of pitfalls” with them. For instance, “…unless it is a routine and repeatable matter (…loan agreements, sales contracts, repetitive litigation and the like) it is very difficult to come up with an accurate definition of success at the beginning….Do I really want to engage an outside counsel who will only try harder to get a better result” because of a financial motivation to do so?
He goes on to explain that the only incentive he thinks great lawyers need is the desire to win, which, in and of itself, should be the brass ring. Financial incentives shouldn’t have to be the deciding factor. “I must have a tougher CFO than most,” he says, “because if I went to mine and said, ‘Hey, good news[.] [W]e won a case, but I paid a premium to the law firm because we won,” [the CFO] would rightfully ask: ‘Couldn’t you have achieved the same result with a firm that charged us their normal rate for doing their job?’ ”
And as for fixed fees, he believes the whole idea of setting standard fees is elusive–it simply can not be pinned down. “On the complex matters that constitute the majority of our legal spend,” he says, “we…do not have enough insight into what…the components of those matters should cost us.” Now, if he were provided with “a simplified task-based e-billing system, and with sufficient other data,” he could begin to understand how much a deposition preparation session should cost, how much a megabyte of e-discovery should cost, etc.
When that’s ascertained, he mentions the need to then compare the data to another firm’s average cost.
The analysis and the…metrics are endless, he explains. “You may say that you do this now,” Baer says. “But do you really? [Does counsel] use a meaningful set of task billing codes (and not the dreaded and overly detailed UTMBS codes)? And then do you use that data to compare efficiency rates?”
Baer concludes by saying that so much has been achieved in the e-discovery space, but that so much more can be accomplished. “Unlike any other industry…we have not undertaken a rigorous examination of the process of delivering legal services to our clients.” For more, go here: http://online.wsj.com/public/resources/documents/richbaer.pdf
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