A Recurring Management Fail in Legal: Business Clients Keep Finding That Their Law Firms Aren’t Following Agreed Engagement Terms


The Point

It’s considered a best practice among lawyers in-house to “manage” work relationships with their law firms by writing rules for them to follow. “Outside counsel guidelines” they’re called.

And they don’t work all that well as a substitute for more conventional management relationships. It’s common (subscription required) for in-house attorneys to review their law firms’ time entries in detail, and then complain to those law firms about departures from the outside counsel guidelines. With those law firms then having to respond accordingly. A chronic waste of everyone’s time.

Setting a fixed price upfront for a matter would eliminate the “need” for the business client to tell its law firms exactly how they must do their work on that client’s behalf, and avoid the related “need” for in-house counsel to audit their compliance.

This Matters to Your Business

Alex Hamilton, when he was a partner of Latham & Watkins (presently the second-highest grossing law firm in the world), famously proposed a basic innovation which that firm declined to accept:

“Fixed pricing can therefore be an opportunity both to drive the competitiveness of Latham (by incentivizing us to operate better) and to increase profitability. But there is a catch: being able to make fixed charging work requires more than just changing the pricing model … It is a necessary condition of successfully operating a fixed pricing model that partners pricing in this way find better ways of working ….”

Over a decade ago, Mr. Hamilton left Latham & Watkins, and founded Radiant, which describes itself this way:

We only charge fixed fees and don’t keep time sheets, so our clients always know what they will pay and our interests are aligned.”

Here’s what Mr. Hamilton wrote two days ago about outside counsel guidelines, and about in-house counsel’s constant revision of those guidelines to somehow get their law firms to deliver what those in-house counsel want:

“An extraordinary cottage industry was created because clients choose to write over-engineered outside counsel guidelines rather than tell their law firms to fix price …

“And then the law firms “innovate” by normalizing the terms.

The legal industry is apparently beyond redemption.”

This Matters to Your Business

Hourly billing completely prevents clients from knowing in advance what they’ll pay.

And it stymies any effort at aligning the corporate client’s interests with those of its law firm.

No set of rules, however cleverly worded, and however relentlessly enforced, can overcome these structural impediments to truly fiduciary client service.

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