Some years ago, Telstra's then GC, Will Irving was quoted "Certainty has a premium it didn't have before the global financial crisis". The clients I advise about alternatives to hourly billing are looking for one of two things:
- The lawyer to have some skin in the game
- Certainty of costs
With the former, there needs to be some value component in the arrangement and agreement about what triggers any value payment. But the arrangements I see proposed by lawyers tend to be the same old hourly rates with a premium for "success". Lawyers and clients need to be a bit more creative. What is the value actually being delivered by the law firm? For transactional work it may be preparing documents that are approved quickly by a regulator. For litigation, it may be the accuracy of the initial advice on liability and quantum. The value payment can be tied to that.
Then there is the true value pricing arrangement - not tied in any way to time but solely relating to what the client perceives as the value of the lawyer's work. The basic question is "how much would you pay me to achieve X?"
This is where there is a real problem for lawyers, as it involves dealing in intangibles - what the client wants and needs, and what their perception of value is, (a complex psychological and sociological question). Until lawyers can break their thinking of tying value to time spent, they will never develop true value billing arrangements.
But then we come to certainty of costs. Generally this is achieved through some form of fixed fee pricing, sometimes with a value component. Fixed fees take work on the part of the lawyer. The work needs to be clearly scoped. Project management techniques and costing strategies used by other industries should be utilised to plan the matter and work out fees. But this work has additional benefits - developing a matter plan enables both lawyer and client to see if the matter is going off track and address this quickly. Secondly, other options and alternative approaches are often identified during the planning process and these can be explored.
But all alternatives require lawyers to take the leap of faith into the uncertain world of abandoning hourly rate. It takes courage, but in these uncertain financial times, clients are looking for lawyers who are prepared to be brave.