Law Firms’ Recent Head Fake on Out-of-Control Legal Charges

THE POINT

Reports about pricing “compromises” between law firms and client companies in the wake of Covid-19 simply reflect attorneys’ intransigence about hourly billing — not a real willingness to remove that business model’s waste and cost uncertainties by agreeing in advance the value they promise to deliver for a predictable dollar amount.

DISCUSSION

An example:

The American Lawyer / Law.com, January 4, 2021 (paywall): “Constrained by Crisis, Law Firms and Clients Are Learning to Compromise on Pricing“:

“The pandemic and its economic fallout have driven legal departments to turn to their law firms for help. With a toolbox of old and new ideas at their disposal, firms are showing that they’re willing to listen ….

“The circumstances are giving rise to conversations about pricing and driving both sides of the law firm-client relationship to seek common ground¬†….”

But “common ground” between lawyer and client is precisely what the hourly billing model makes impossible.¬†Pricing risk remains entirely on the business as the law firm avoids disclosing the actual amount payable until after the work has been done. In determining the amount of the charge, the law firm’s interest and the client company’s remain directly opposed to each other: what the law firm gains the client company loses, and vice versa. Consider: Exactly where is the “common ground” between a law firm attorney trying to make his or her billing quota and the interest of the client they’re working for?

So, under the zero-sum terms of the legal profession’s governing business model, there can be no genuine “common ground” — only ad hoc discounts.

Jeff Carr, legendary former general counsel of FMC Technologies and Univar Solutions, put it best in a tweet this week:

” … It’s not about discounts & ‘compromise’, it’s about reallocation of risk of inefficiency & alignment of divergent interests. Delivered value … relationships do exactly that ….”

BUT IT’S NOT ALL BAD NEWS. A minority of lawyers oppose the prevailing model, and a few businesses are actively demanding efficiency and measurable value in their law functions.

For one example of this, I invite you to read my blog post this Tuesday, January 12,2021.

 

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