Moderated by Law Society NSW president Juliana Warner, the discussion included panellists Tomoyuki Hachigo, co-founder of Sprintlaw, Elizabeth Harris, director of Ovid Consulting, Tessa van Duyn, chief executive and practice leader at Moores and Professor Michael Legg director of the Law Society of NSW Future of Law and Innovation in the Profession (FLIP) stream at UNSW Law.

Ms Warner said that now, clients want greater cost certainty and solicitors want more fulfilling ways to work.  

“Alternative pricing is often viewed in direct opposition to traditional time-based billing models,” she said in the introduction of the panel discussion topic.

“It is an umbrella term for any type of legal fee arrangement, outside of the traditional hourly rate.

“Concerns about time-based billing are hardly new. As early as 2011, the Law Society held a symposium on billing, in part as a response to growing objections to the solicitor’s hourly rate.”

Whilst a 2019 survey of 140 mid-market firms found that hourly rates still comprise 58 per cent of all invoices, Ms Warner said solicitors have “pioneered” a wide range of ways to charge for their services, including fixed or capped fees, flat fees plus hourly rates, conditional billing, task or unit-based billing and subscription services.

However, in a live poll for those tuning into the webinar, 27 per cent of attendees said they were using time-based billing as a fee arrangement, with 26 per cent using fixed or flat fees and 17 per cent using discounts. Only 2 per cent were using a subscription fee and 3  per cent were using conditional billing and value-based billing.

VIEW ALL

Professor Legg kicked off the discussion by going through what different methods of billing look like and how clients would pay.

Fixed cap fees refer to fees that are agreed upon between the lawyer and the client from the outset, flat fees plus hourly rates mean that a flat fee is charged when the initial work on a matter is routine and an hourly rate applies when the scope of legal work is less defined and conditional billing follows a “no-win, no fee” approach.

Additionally, task or unit-based billing will mean the client and the lawyer agree upon fixed amounts that are charged for identified tasks or components and subscription services refer to when clients gain access to a set of services for a predetermined price, depending upon the plan they purchase.

“You can combine any of the types of billing I’ve spoken about,” he said.

But Ms Harris said that lawyers need to be aware of general and regulatory ethical restrictions on billing and make sure that their fees are fair and reasonable.

“I think as a profession, we forget that value is subjective in the eyes of our client. So, no two clients will necessarily see a particular fee as being fair and reasonable for them,” she said.

“The other ethical aspect is recalling that we as lawyers have the power in what is a fiduciary relationship. Particularly with less sophisticated clients, have the knowledge of what work is going to be required, how we’re going to do the work and what the market might charge for similar matters.

“When we’re negotiating or pricing an alternative price arrangement for a client, it’s important to look at the level of sophistication of the client and make sure that our client actually understands the arrangement they’re entering into, that they’re fully informed and understand that we are pricing in a different way.”

Professor Legg added that despite the rise of alternative pricing models, there was still a lot to learn from time-based billing.

“Time based billing is still an important option. Lawyers shouldn’t feel like they can’t use that any more, that’s certainly not the case. It’s really about asking whether it’s the appropriate way to bill a particular matter,” he said.

“Time-based billing can still be a way to provide information to move into other forms of fee arrangement. Usually referred to as shadow-billing, the way it can be used is that time-based billing can help a lawyer understand if they’ve correctly estimated a fixed fee arrangement. The only thing for the lawyer to be careful of is that they don’t start to go back to the time-based mindset [when trying to move across to an alternative fee arrangement.]”

Ms van Duyn has worked with alternative pricing since she started at Moores and said that she is a “BigLaw” refugee and was subject to determining her worth in six-minute blocks and enjoys not doing it anymore. Moores has currently adopted a value-based billing practice.

“At its core, I think determining price based on time as the only measure of value or worth can have really deleterious effects,” she said.

Mr Hachigo added that at Sprintlaw, they only do fixed fees, and shared the same negative sentiments in regard to time-based billing.

“From a business perspective, I think the issue with time-based billing is that it treats every unit of a lawyer’s time as equal, which we all know it’s not. Certain kinds of expertise have different market values,” he said.

“As a business, you really need to know all these different kinds of data points to decide on how to price your services. That said, I am sympathetic to still thinking about time as a relevant thing. You can learn things from time-based billing.

“If you’re not measuring time, I think you’re not measuring one of the most important input costs. Clients are also generally receptive to it.”

Professor Legg agreed that time-based billing can be used as a base to figure out what a fixed rate would be or look like – namely by separating a traditional pricing method into blocks to be able to figure out what a different type of fee would look like.

“Once you start to break the [legal] service down, it can be easier to price it,” he said.

Ms van Duyn broke down the pricing methods at Moores, and said they don’t bill until the clients’ milestones are hit. They also have three “package” options for clients, ranging from least expensive to most expensive.

“We price for value, not time. Which is something that is really attractive and fundamental for our people, but also our clients,” she said.

“Because of the whole shift in mindset it requires in lawyers, particularly those that have been trained in time-based billing previously, it’s critical that you support them in that shift in mindset, which is focusing on outputs and value creation rather than that ‘mindless drone’ style of imputing time only.

“[For us], it took a significant amount of investment to get the whole firm ready for the shift.”

Ms Harris agreed with the notion of a mindset shift, but concluded that your price point and your clients’ expectations of service need to match up for a move to alternative pricing to be successful.

“Part of the mindset change that’s needed with an alternative pricing arrangement is to actually realise what your price point is, and what are your clients’ expectations about price? If they’re only paying for IKEA, I’m not delivering a Rolls Royce,” she said.

“Clients [also] need to understand at the outset that things might change and the price might vary.”