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Why Striving for “Predictable” Legal Fees May be a Cop-Out

February 5, 2013

PorscheA common mantra we hear from GCs and other clients concerning their overall legal spend is their desire for more predictable legal fees.  They complain, especially in a litigation context, that their biggest problem is cost uncertainty.  Presumably, this means that a law firm will successfully appease it’s client by providing predictable legal bills – no matter how large – so long as their are no untoward surprises. Unfortunately, it is exactly this type of mindset that has (irresponsibly, IMHO) fed the bloated and ever-greedy monster that BigLaw has become.

Accepting cost certainty, rather than cost fairness, is the ultimate cop-out by clients, and while it may be the “safe play,” it is certainly not the best course of action for your bottom line.

It’s like taking your Porsche to the dealership for an oil change.  You’ll leave with new oil, your brake rotors turned, and a set of new run-flats for somewhere approaching the price of a five-star Caribbean vacation.  Or, you could have taken it down to Gunther, a small specialist, who would change the oil, put on new rear pads only, and advised you that your run-flats were really pricey and you still had a few thousand miles of good use left on them.  Did I mention that Gunther’s bill would be in the low hundreds instead of the high thousands.

The dealership scenario is very similar to the BigLaw model as practiced the last 25 years or so.  You know what you are getting, the costs will be predictable and certain – just mind-bogglingly high – but, hey, it’s just the way it’s always been, right?  Gunther is riskier, because for every good small mechanic, there are a couple of not so good ones, but when you find the right one, you get better service for a much smaller price.

So, who should a client use?  A traditional, “safe,” BigLaw firm?  Or a small, specialized, but potentially riskier, value-pricing boutique?  To me the answer is obvious, but perhaps I’m just an outlier who believes that finding better service at a far better price is worth the extra effort needed to locate the right legal service providers.

People, this stuff may not be easy, but it certainly isn’t rocket science.  Gunther is out there.  Trust me.

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9 Comments leave one →
  1. February 5, 2013 2:15 pm

    Amen.

  2. February 6, 2013 7:02 am

    It may be in the long run, but focusing on predictability is a good place to start!

    [Originally posted in LinkedIn group “Legal Innovation”]

  3. February 6, 2013 7:06 am

    Mike…am an avid follower, but on this post I think there are some benefits to predictability. Establishing the cost parameters upfront, negotiating and then agreeing to those costs is the kind of transparency and predictablity the industry is screaming for…and then applying some sound business project management allows for monitoring and managment thoughout the litigation. Just receiving a bill 30 days after the fact seems to be the model folks are trying to move away from. IMHO!

    [Originally posted in LinkedIn group “Law Department Management”]

    • February 6, 2013 10:02 am

      Tom,

      All of the practices you are describing are great ways to approach the cost fairness I’m advocating. Similar to my discussion in “Why the Billable Hour Sucks,” and as discussed by Ron Baker in his efficiency vs. effectiveness discussions, the important question to focus on is whether the legal fees incurred are cost-effective as opposed to merely cost predictable. The former will ensure that the money is well spent, the latter, while safe, will keep price-gouging lawyers driving high-end Porsches (and being able to afford dealer service).

  4. February 8, 2013 6:48 am

    Excellent points. Predictably high is not worth much to clients.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  5. February 8, 2013 6:56 am

    I agree Patrick. It doesn’t seem like much thought is always put into the value of the defense received versus the predictability of costs

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  6. February 9, 2013 7:25 am

    Nice piece, Mike. However, as a former GC of a public company, I can vouch for how important budget predictability is, particularly at a time when companies are increasingly concerned about flat or declining profits and when legal spend is often among the largest line items in the annual budget.

    I agree that finding the “right legal service providers” is absolutely key to successfully managing in such an environment. In-house counsel have the added challenge of adapting to ever broadening responsibilities and demands for their learned counsel.

    GCs and other clients would benefit enormously from taking time to disaggregate their work so they can ensure the constituent elements are allocated separately to those legal service providers best able to do that work well and at the best price. In short, clients need a stable of Gunthers to whom they can allocate the different parts of any transaction or legal matter.

    Despite the importance to most GCs of predictability, I echo Patrick’s specific sentiment that “predictably high is not worth much to clients”. What clients want most is value for money, something neither your “poor” Porsche owner, or those law firm clients who just seek predictability, is getting. But then, some people still enjoy the luxury of not having to care. They are the ones who have yet to be affected by (or are otherwise thriving in) the new economic realities post 2008. Good for them, but they’re a relatively rare breed. I seem to recall something about the 1%…

    Gunther’s advantage is that he delivers value AND does so at a reasonable, fair and predictable cost. Perhaps we should all be sharing the names and contact details of the Gunthers we know. That might help shake things up.

  7. February 10, 2013 8:14 am

    The disaggregation David speaks of is absolutely correct. But it does also require GCs to have the courage to go outside their comfort zone of always instructing Magic Circle/White Shoe firms as their own form of personal insurance – the IBM factor.

    Many very good lawyers from those big firms migrate into mid tier and regional practices for lifestyle, family and other reasons and bring with them an impressive pedigree. As long as a few other boxes can be ticked to the GCs satisfaction, there is absolutely no reason why appropriate work can’t be pushed their way.

    The crumbs from the very large firms tables represent a banquet for smaller firms and for this reason, the client will often receive a level of attention, service and seniority that they might not get or even expect in the mega firm. That’s not a criticism of the large firms, just a fact.

    The second or third tier firm can often charge more for that work than the ‘local’ market will stand but it still represents great value for the corporate client.

    What are you waiting for?

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  8. February 11, 2013 12:05 pm

    Could not agree more! Definitely worth the effort to find the Gunthers out there.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

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