TIME SHEET padding is not the real problem facing firms in New Zealand, according to a legal practice management consultant, but rather the institutionalised writing off of time.
According to PMF Management Services’ records, most New Zealand firms routinely discount work, and are running at a rate of around 60-75 per cent of time recovered.
“When you ask partners what is the task they like least of all, they say billing,” Ashley Balls of PMF Management Services said. “Lawyers are serially underselling themselves. Maybe this is because they set too high a price, which is not actually attainable in the market place.”
“Time recording is only ever going to be a productivity measuring tool,” he said. “Most of us can name solicitors that complete a whole week’s time sheets on a Friday evening, which is not necessarily evidence of fraud.”
Balls believes the heart of the billing problem lies in New Zealand being “the only common law jurisdiction that does not require a formal set of terms of engagement when a client and a lawyer meet. Ninety per cent of complaints to the law society are about costs, so there is clearly an issue of effective communication here,” Balls said.
Balls said that if the New Zealand Law Society required lawyers to agree basic terms of trade before taking on a matter, this would go some way to minimising cases like that of Watt and his NZ$185,000 charge for administering a NZ$350,000 estate.
Australian professional services management consultancy Julian Midwinter & Associates recommends that law firms should have straightforward discussions about price with all stakeholders, identifying which clients will pay more for exactly what services, and what pricing parameters will stimulate clients to migrate to other providers, because “overlooking consumer intelligence may result in under-pricing of around five per cent”. A recent article entitled “Price optimisation”, published by Julian Midwinter & Associates, states “pricing is fiendishly difficult. Lawyers and other expert professionals don’t much like talking about it, but service pricing can vary widely. Because of the ego, status, and power with which charge rates are imbued, it can even be difficult to get realistic information”.
Some performance disclosure would also go a long way to allaying any fears of widespread sharp practice, Balls said: “I find it odd that New Zealand has not adopted international practices of exchanging information — not just with each other, but with clients.”
“If only the big local firms would do what their US and English counterparts do and publish their performance data, including partner drawings, indebtedness, and a whole lot more. This is what I would like to see come of all this,” Balls said. “Firms can then compare with each other without having to go through the subterfuge of expensive private surveys.”
“Firms in England are managing their debt much better than their New Zealand counterparts, because this data is published. People know how much debt these firms are carrying, so they’re now competing with each other to reduce it, so everyone’s a winner. Information is actually giving the firms a positive outcome.”
“But clients here are being denied access to performance information, and I think it’s a very dodgy way of behaving. It really doesn’t look good, and I think it’s time New Zealand got over it. No one’s going to get harmed by it — clients aren’t going to run away and say, ‘oh look, they’re earning a fortune; I’m leaving’ — they already know. You walk into the half-acre of reception and see the pictures on the wall, and you know what it’s costing and who’s paying for it — you are. And if you don’t like it, go somewhere else.
“But people don’t,” Balls said. “People are attracted by success.”
“Knowing what their fixed costs are, I’ll stick my neck out and make an educated guess that a NZ$100 million turnover firm is yet to appear in New Zealand. It must be very close; I think Chapman Tripp must be within a whisker. I reckon I could write you, within two to three per cent, the fee incomes of the top 20 firms in NZ. It would take me, probably two or three days to put it all together, but I could do it, and I’ve thought about doing it and publishing it as a shaming exercise because I think the users of legal services have a right to know.”