Value-based billing a trust exercise
Value-based billing begins with clear conversations, trust, correct scoping and defined understanding of legal objectives, a general counsel has offered.
Last week, Lawyers Weekly reported on the perception of fixed billing held by the general counsel at Big W, Ben Langford.
At the same ‘Thought Leaders of the Future’ event, the general counsel and company secretary of ‘oOh!’, Maria Polczynski, shared how she had implemented fixed billing practices during her time as the head of group legal for Bendigo Bank.
Instead of calling it fixed price billing however, Ms Polczynski said she prefers to call it “value-based billing”.
“The way you get to value is by agreeing a price for ultimately the benefit that they [the external legal providers] are providing to your business,” she contextualised.
Iterating a need for baby steps, Ms Polczynski said legal departments should “start with outputs, rather than inputs”.
The general counsel said she doesn’t care how many hours it takes for a certain objective to be met, as that’s not what she’s paying for, instead, she will pay for “what you are dealing to me”.
In the first instance, Ms Polczynski admitted that “no law firm is going to possibly get to what that means for our business, but they might get to deliver X result or Y advice or something”.
She explained the importance of having fixed objectives, and using proper scoping as a tool for comparison.
“At Bendigo we did a lot of experimenting in this space over a couple of years,” Ms Polczynski said, and she they began asking firms “if you are not going to give us a fixed-based price or a value-based price that is fixed, please give us a reason why”.
“The first year we did that, 2010, nobody gave us value-based reasons, and nobody gave us reasons and we realised then that we let them get away with that,” she stated.
“So the next year, when they didn’t give us a value price we said ‘why?’ and we kept asking why.”
“In the end, we got to the conclusion that there is nothing that cannot be value-based pricing,” Ms Polczynski said, because “we were always happy to say – well, we are doing Australia’s biggest class action at the moment, and if we can value price on that one for a rolling three month basis, then don’t tell me that you can’t value price on a small, slightly annoying commercial dispute”.
Conceding that “most firms are perfectly willing to come up with fixed prices for something that is a process with no variable in it”, she continued, but “what you actually want them to do is think about what they will deliver, and what it is worth to us”.
She cited the importance of working with “your trusted relationship firms”.
“Don’t do this with firms you don’t trust, they won’t trust you anyway – start with anyone that you have a good sourcing relationship with, because of course, quantum merit, if you do something and it’s good for us, and we value it, we will of course pay you,” she said.
Bendigo started this process in order to have conversations around wanting price certainty and “a bit of skin in the game, sharing our pain, understanding where we were coming from”.
Ms Polczynski said that what they found was by focusing conversations on objectives, “the conversations became so great that they were very trust-reinforcing”.
“Within a very short time, actually I started to get disappointed if people agreed too fast,” she admitted, “because we were missing out on what we found actually to be really value-adding, that this was an important part of our own continuous cycle of improvement”.
“Because they’d tell us what we needed to do in order for them to be able to deliver what they said we wanted for what they were prepared to do,” the general counsel said.
In conclusion, Ms Polczynski said that what the Bendigo team found over a long period of time “is you can do just about anything [using value-based billing]”, but the hardest things to do on such pricing models are small, one off advices.
“The smaller, they’re almost harder – there’s a tiny little bit where a retainer-type arrangement can work – and there’s the big complex ones where you can scope it really well,” she noted.
“It’s that in between space that’s a bit tricky, but other than those one-off advices, and even then you can do it, it’s just a bit of give and take and post evident reviewing and a bit of trust and what-not,” the lawyer said.
“But other than those, there is nothing that cannot be value-based fixed price if people enter into it with the right commitment, do it the right way and resist that rush to get to the beginning of starting to work...”
“It’s a really hard thing for lawyers to do – to sit there and scope,” she offered.
“But you don’t build a big house by starting with the bricks, you start with the plans.”
“And we should too,” Ms Polczynski ended.
Lawyers Weekly has previously reported on the new opportunities for new lawyers in the corporate space.