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Legal Commentary

: In Search of Perfect Client Service

BigLaw and Fixed Fees: The Two Don't Mix

By Patrick J. Lamb

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You cannot flip a switch and start pricing lawsuits on a fixed fee basis. Like anything else, it takes experience to become any good at it. Is it any wonder, then, that firms that have historically charged by the hour quote inflated flat fees? I've written about the tendency of BigLaw to multiply rates (which, of course, include a healthy profit) times the number of hours they expect to spend on a matter, and then add in a fudge-factor of 10 to 15% or more. Now comes evidence that suggests some GCs, at least those in the UK, share that experience. Legal Strategy Review conducted a survey of in-house counsel in 40 UK-based law departments, most of which use large, London firms. Half the respondents were leery of fixed fee arrangements because "as soon as you discuss them with a firm, the number is increased to include a premium and a contingency, and hey presto, you are paying more than you should in the first place."

The sophisticated buyer has to understand that the historic leverage, billable hour model on which virtually all law firms is based is a system that is fundamentally at war with how firms committed to the fixed fee (especially with a results-based holdback) are modeled. For example, perhaps the most successful fixed fee firm is Bartlit Beck. It has 53 partners and 16 associates. There is no billable hour firm built with that kind of ratio. Bartlit Beck and others, like Valorem, are built with an emphasis on experience because profit comes from getting results faster and more efficiently than other firms.

No matter what big firms say in their pitches to clients where they offer fixed fees, you cannot easily or quickly eliminate a culture that prizes long hours and pushes work to the lowest levels to then be redone by people at more senior levels.

So my advice to clients is this: if you are the beneficiary of a fixed fee proposal from a large firm, make sure you have a results-based holdback to guard against all the work be done by inexperienced lawyers, and ask the firm how they have changed their culture to support fixed fee arrangements. Then get a competitive quote from a firm that is modeled on generating profits from fixed fee engagements because of the results the firm achieves, not because they add in "a premium and a contingency."

Full post as published by In Search of Perfect Client Service on August 02, 2009 (boomark / email).