Lawyers consider alternative billing
AS THE ISSUE of time-based billing again came to the fore last week with reports that clients are pressuring firms to find alternatives, law firms themselves entered the fray, some arguing it
AS THE ISSUE of time-based billing again came to the fore last week with reports that clients are pressuring firms to find alternatives, law firms themselves entered the fray, some arguing it was time this conservative profession entered the 21st century.
The modern answer to time-based billing is event costing, which aims to pre-empt clients’ needs and market trends, Raj Lawyers managing partner Niren Raj said in an interview with Lawyers Weekly. This model, which the firm will implement across all services by July 1, is aimed at reflecting the “true cost” in the provision of legal services.
This view was reflected in media reports last week. Clayton Utz managing partner David Fagan said in The Australian Financial Review that law firms in the United States were moving to fixed fees for individual tasks, something likely to happen here in Australia as well.
Early last year, New South Wales’ most senior judge attacked time-based billing, calling for an end to the “tyranny of the billable hour”. In his opening of the Law Term address to the profession, Chief Justice James Spigelman said time-based charging has become almost universal. “I do not believe this is sustainable,” he said, citing High Court Chief Justice Gleeson, who said it was “difficult to justify a system in which inefficiency is rewarded with higher remuneration”.
While recent media reports reveal clients are forcing lawyers to drop their prices, an Allens Arthur Robinson spokesperson told Lawyers Weekly that the firm has had some pressure from clients to retain this method of billing. “Everyone professes to dislike hourly rates. However, more than once we’ve found that after we suggested a fee that was not based on hourly rates, our clients instead asked for a fee based on hourly rates.”
But lawyers must work to move into the 21st century, managing partner Raj said. Arguing that modern businesses are looking both for ways to reduce costs and get value for money, Raj said if firms in Sydney and Melbourne do not heed what the market is telling them, more legal work will move offshore.
For each item, “whether issuing proceedings or doing discovery, we will give [clients] a menu,” said Raj. He said that firms should know what their products cost in advance, and should charge their clients accordingly. “You know the product, you will know the cost. That degree of simplicity isn’t available anywhere else,” he said.
Raj rejected concerns that unforseen problems can arise during proceedings, arguing that a firm’s menu of costings should refer to issues such as delays in application. There is a possible set cost for most items, he suggested. Also, he dismissed some law firms’ views that they cannot use a fixed-fee arrangement, arguing “if you are a lawyer practising for five to ten years, you know what you will charge”.
The Australian Law Reform Commission (ALRC) last year said problems with overcharging, which is related to time-based billing, can be reduced by moving from an hourly rate to event-based fees, “with charges fixed in advance for work at particular stages of the process. Event-based scales would provide a greater certainty about costs for clients”, said ALRC president Professor David Weisbrot.
But an Allens Arthur Robinson spokesperson said that while firms are always looking for an alternative to hourly billing, there needs to be a value proposition for lawyers. “If we deliver value, as we believe we generally do, then we should be fairly compensated for that,” the spokesperson said.
Allens Arthur Robinson is open to looking at other billing methods, but said any new structure would have to be flexible in nature. “We’re open to discussing a number of different structures, but the more clearly and precisely the work can be scoped, the more readily we can be flexible and inventive in our fee structures,” the spokesperson said.