Creative Billing Strategies Across the Globe

“Creative Billing Strategies across the Globe”, by Janet H. Moore, first appeared in the Legal Marketing Association’s Strategies Magazine (October 2009, V 11.N09)

Clients are scrutinizing their legal bills—and are increasingly dissatisfied with traditional, hourly billing. “Hourly rates on their own are outdated and can be viewed as rewarding slow working practices,” explains Jonathan Mortimer, Head of Dispute Resolution of Langleys Solicitors in York, England.

So, what kinds of creative billing strategies are lawyers using to keep clients satisfied–and build client trust?  After all, according to Silvia Hodges, who teaches professional services marketing at Emerson College, “what really counts is that the client believes the firm has his/her best interests in mind.” Here are some ways to do that.

Contingent Fees and Third Party Funding

Although only specific jurisdictions (like the United States and some parts of Canada) permit some variation on contingent fee arrangements, contingent fee arrangements are increasingly popular in the US—in large part because clients only pay upon a successful result (recovery or defense).   Even the mainstream media is taking note of contingent fee popularity; for example,  last year Fast Company’s published an article (appropriately titled “Caffinated, Aggressive & Brash, Esq.”) celebrating the contingent fee success of Los Angeles-based Quinn Emanuel Urquhart Oliver & Hedges.

Despite its attractive features, some clients hesitate to accept contingent fee arrangements.  Barry Barnett, a partner at Susman Godfrey LLP and author of Blawgletter, explains that clients  often worry about how to negotiate contingent fee arrangements, or fear losing control over how the case proceeds.  And some clients simply dislike giving their lawyers “an entrepreneurial interest in litigation”, concludes Barnett.

In England, litigants commonly resort to insurance because “the fees and costs risks normally inherent in commercial disputes are much more manageable,” notes Paul Jonson in Pannone LLP’s Manchester, England office. In his firm’s contingent cases, clients pay reduced hourly rates, and the firm receives the balance of its fees from the recovery (if the case is successful) or from insurance (up to a limit).

Third party litigation funding has gained popularity not only in the UK but also in Australia, Austria, Germany and certain other jurisdictions. Although usually designed so that the client (not the lawyer) deals directly with the funder, critics say that lawyers end up serving two masters—the client and the funder. (See “Lawyers Divided Over Third Party Litigation Funding” by Neil Hodge, International Bar News (April 2009).

Sharing Risk of Future Income Streams

Even transactional matters can be structured so that lawyers bear some risk.  For example, Magic Circle firm Allen & Overy LLP won acclaim for sharing some risk with—and creating legal fee predictability for—one of its clients. A&O’s website describes how the firm helped Markit Group create an online data service.  A&O received reduced hourly fees, coupled with a fixed fee for each data delivery from the client to its ultimate consumers. Because A&O’s future income stream was contingent on the data service’s popularity in the marketplace, A&O shared some financial risk with its client.

Fixed Fees

With an office in Quingdao, China, Dan Harris’s Seattle based firm, Harris & Moure, pllc, handles a lot of work in China–75% of it for a fixed fee.  Harris managed to convince a number of the Chinese law firms to the same; however, he explains, “this was not easy to do because most high end Chinese law firms will not accept anything other than the billable hour.” His firm has used fixed fee billing in China for both routine matters (like trademarks) and complex matters (like arbitration)—but not for joint ventures (with documents in both Chinese and English) because his firm’s fixed fee quotes come out too high.

Paris-based Blake Redding, a partner in the international boutique VistaLaw LLC, feels that such lump sum arrangements can work well. He describes how one large European multinational paid a lump sum in exchange for his firm’s (1) a hotline service from the multinational’s legal department to the firm, (2) strategic support through brainstorming and planning, and (3) handling commercial litigation involving less than a certain amount. Redding has also seen lump sums used in large transactions, after which the general counsel “will, if satisfied, add a bonus element.”

Some firms have relinquished the billable hour altogether in favor of fixed, value-based pricing, such as Boston-based Exemplar Law, LLC.  After all, clients seem to like fixed fee arrangements; as Dan Harris reports, “amazingly enough, we have never had even one single complaint about them.”

All You Can Eat

VistaLaw’s Michael Whitener describes a variation on fixed fees—which he dubs “All You Can Eat.” For a fixed sum, the client gets all the legal services desired (with some limits). Whitener explains, “The client loves it because they have legal services on call and certainty regarding their monthly legal costs.  We love it because it’s steady income, we have the opportunity to get more integrated with the client (since the client uses us more), and we’re freed from the tyranny of the billable hour.”

Fee-Capping

In the Middle East, the downturn in the financial markets, the influx of new law firms, and the popularity of law firm panels and/or RfPs, have put “additional pressure on law firms to become more ‘creative’ in pricing for work,” explains Clifford Chance partner John Graham. Graham, who relocated to Abu Dhabi earlier this year, sees clients requiring “individual negotiated caps applied to each of multiple work streams (sometimes with ‘spill-over’ from phase to phase).” Clients tend to scrutinize the fee-cap assumptions “line-by-line”, explains Graham, noting that most fee-capping arrangements also include a discount or uplift, depending on the transaction’s success.

Deferred Payments

Francisco Ugarte, a partner in Santiago, Chile’s Carey y Cia Ltda., notes that his firm has occasionally consented to deferred payments in order to keep good clients happy. In these circumstances, the client defers a portion of the legal fees; it pays the deferred sum when the client closes a subsequent deal or financing “irrespective of whether or not we are retained as counsel on the second deal.  This fee arrangement, of course, strengthens the client’s loyalty with the firm.”

Share Ownership

“How we get paid really depends on the client,” explains Doug Stinmetz, whose Stinmetz Law Firm PLLC works extensively for Russian clients through its offices in Moscow, New York and Houston.  Stinmetz’s firm has always used creative billing arrangements.  Sometimes the firm even takes an ownership stake in a client—although it is careful to sequester the shares in a separate fund not under the firm’s management.

Pay What You Wish a/k/a “Radiohead Billing”

Using out-of-the-box thinking, Michael Whitener imagines the day in which a “radically creative firm” would go further and implement “Radiohead Billing”.  Just as the band Radiohead let fans download their music and pay whatever they wished—including zero—Whitener wonders whether law firms should do the same. That, Whitener concludes, “would perhaps be the ultimate value proposition.”

Janet H. Moore, JD, ACC, is an experienced international business lawyer who works as a global rainmaking strategist, executive coach for lawyers, and international trainer. Contact her at Janet@GlobalRainmaking.com or through www.GlobalRainmaking.com.

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BREAK OUT BOX:

For more thoughts on:

1. Creative billing, see Mark A. Robertson and James A. Calloway’s Winning Alternatives to the Billable Hour: Strategies that Work (3ed Ed.) (ABA Publishing 2008).

2. Services provided for free, see Chris Anderson’s Free! Why $0.00 is the Future of Business (Wired Magazine online 2-25-08).

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