Ed Poll: Our topic, today, is alternative
fee arrangements. In today’s world, the preeminent
method of billing is based on the hour. Historically,
I’m not sure that this has been the way that lawyers
have always billed for their services. If not, how did
we get to where we are today?
Jeff Carr: It’s not the way
that lawyers have billed traditionally. I think this
is something that came up in probably the 70s or so
if history serves me right. It used to be that bills
were given on a bottom line for value rendered services.
Ed: Sort of like legal services rendered, Five Thousand
Jeff: Exactly. There’s a famous story about a
Washington lawyer, I think, or it might have been a
New York lawyer that sent a bill like that. The client
questioned it, and then they sent him back another bill
for Twenty Five Thousand Dollars, and the Twenty Thousand
was to prepare the justification for the first bill.
Ed: That sounds like Edward Bennett Williams.
Jeff: I think it might have been. I think this was driven
largely by corporate counsel and insurance counsel in
the 70s, maybe the early 80s, when people were frustrated
with that kind of billing system. We went to the billable
hour as a way to impose some cost control and as a way
to understand the way law firms were billing us. Now
of course we’ve got a whole generation of lawyers
that know nothing else at this point. I’m in that
generation. I mean I’ve never worked under any
system when I was in private practice other than the
Ed: Well, there’s a lot of dissatisfaction, at
least verbalized, with the method of hourly billing,
in recent times. One of the questions I would ask just
as a starting point is, is there anything right with
Jeff: Oh absolutely. Hourly billing is a rough surrogate
for value, time rendered. If you take time away from
a lawyer, that’s really the only thing that the
lawyer has to give to you. It’s very difficult.
If you take an hour from a lawyer, he can’t really
replace that hour. And that’s the way I think
a lot of lawyers think these days. If you use varying
billing rates, then you can have a rough approximation
of the experience and the type of advice you’re
getting. You know, if it’s a hundred and fifty
bucks an hour for a first year associate versus six
hundred bucks an hour for a wizened grey-beard litigator
who is absolutely great, then the hourly rate does reflect
the qualitatively difference as well. It’s also
easy. You just add up the time and multiply it.
Ed: Well, in terms of value, there’s clearly
a difference between the, as you say, wizened grey beard,
and the new associate. But in terms of value for the
client, does a client really care? I mean, the value
to the client is whether they had their objective achieved,
Jeff: That is absolutely right. And that’s why
there’s such a disconnect, I think, with particularly
corporate clients and law firms these days. If you think
of the law firm model, the economic model is based upon
total revenue brought in the door. And that’s
a function of hourly rate times the number of hours
that you actually bill for and can collect for. That
has absolutely no relationship, whatsoever, to the value
that the corporate client places on the services. Just
as you say, Ed, we want the objective achieved, and
we want it achieved in the fastest possible way and
in the lowest possible cost. So, we’ve got this
disconnect or a divergence of interest here, from a
law firm model, versus what the corporate model wants
to pay for. The difficulty is trying to figure out how
to reconcile that lack of convergence, if you will.
Ed: Well, I guess that leads me to a couple of questions.
One is you’re talking about the corporate world.
And is this where our new thinking is limited to, as
opposed to the individual person or what I call the
family kind of matter, and the second question is if
in fact there is this disconnect, why are we still using
it, and why is it that so many clients still prefer
what we might today call the old way of using the hourly
Ed: That’s a multiple list of questions, I know.
But I wanted to make sure I at least got them out on
the table for you.
Jeff: Let me take the last one first. I think there
are a whole lot of reasons for that. Basically I think
it’s lack of creativity and complacency, especially
in a corporate world. It’s just trying to come
up with a new way to do it is hard. It’s just
frankly difficult. And there’s also not necessarily
a margin in coming up with a new way. You might be able
to decrease your costs. But you’re taking some
risk, especially if you’re not using the premiere
firm that you may have wanted to use. It takes a creative
mind, and it takes someone who’s looking forward.
Now you’ve got to remember that lawyers are all
mired in the past. I mean it’s an entire profession
based upon things that have happened five years ago,
and things that are going to happen five years from
now. It’s very seldom focused on today. I think
there’s a complacency with the way things were
done, and a lack of creativity to change it. It’s
also risky to change it.
With respect to your first question, the one about
whether this is really just corporate or what do you
do about the family person that needs assistance? I
think quite frankly legal services have gotten too expensive
in this country. Look at the rise of things like Nolo
Press and Willmaker, software packages, that essentially
permit people to do a lot of what would have been done
by a lawyer on their own. Let’s face it, most
legal work, about eighty percent of it, in any context,
whether it’s your personal stuff, or whether it’s
in a corporate world, is commodity type of practice.
It’s really that only twenty percent are high
value, high risk, bet the company, go to jail, lose
your house matters. Those are the things that you really
need the specialized service for. I think, in general,
legal services have been priced out of the market for
the general consumer. You also then have the pure personal
injury type work where contingencies are the rule and
the norm. That just reflects the fact that people are
not going to go pay to hire a lawyer to get them money,
but they’re willing to give the lawyer a share
of the funds if they recover. It’s kind of like
a lottery. But you know they don’t really have
skin in the game themselves.
Ed: What I find particularly interesting since many
of our readers of this material will be individual practitioners
or small firm practitioners who are dealing in the family
context, I think it’s important for them to understand
that there are alternatives that even they can use.
Ed: The contingency fee that you mentioned in the personal
injury case, I think, is a classic example of value
Ed: You don’t get paid unless you produce a result.
Jeff: That’s right. I personally don’t
like contingent fees as one of the alternatives to an
hourly rate because I think it’s too much of a
zero sum game. You know, I think on the one hand, the
lawyer has too much at risk because the recovery is
zero. And on the other hand, I think the firm gets enriched
if they win. I think there are other alternatives that
can be used that better align the desperate interest
of both parties and really gets to the point where what
you’re trying to do is make the law firm profitable
while at the same time achieving whatever the client’s
interest is and that’s what we try to focus on.
Ed: There’s a great segue then into this question
which is: What are the alternatives to this hourly system
of billing, if not contingency?
Jeff: Sure. And there are lots of them. I mean there’s
the contingent one that we talked about. There are partial
contingencies. There are fixed fees. There are project
fees. You could use volume-based discounts. That seems
to be the most popular, at least in the corporate world.
There are caps or in other words a “not to exceed”
number. There’s some shared risk. If you go over
ten percent of the budget, as an example, the firm eats
that first ten percent. And then above a ten percent
overage, the parties both share some of that overage
in some way. And the flip side on the other side, if
you’re ten percent under, the firm gets a bonus.
Things like that. So there are lots of alternatives
to this system. I don’t personally like most of
the ones that most people talk about. I don’t
like caps because then the firm has no incentive to
continue to do work, and oftentimes additional work
is needed. That’s the problem with fixed fees
also. And caps are really just fixed fees in disguise.
If you have a cap, you know what you’re going
to spend, it’s going to be the maximum amount
that was proposed. Even these ones that have kind of
this risk shifting or sharing of overage, that kind
of thing, those are good. Those are helpful. We have
moved to a performance-based billing model, where we’re
really trying to align our interests or the firm’s
interest and encourage them to reduce the cost of their
providing legal services. Let them focus on making money
by reducing their costs as opposed to billing us for
Ed: So, with all of these alternatives, how do they
square with the current rules of professional conduct,
such as the ABA Model Rule 1.5 which require that the
fees be reasonable? If a lawyer or a law firm can get
a bonus, is the fee then still reasonable? In an answer
just a moment ago, you talked about your concern that
a firm might be enriched, is the way I think you emphasized
Ed: Is that bad if they got the result?
Jeff: The answer to that is it depends. My personal
feeling is giving a law firm thirty to thirty-five to
forty percent of a recovery is not reasonable. At least
in the litigation context, there are some studies out
there that say juries are a lot smarter than people
think they are. They know that a plaintiff’s lawyer
is taking about a third away. So what they do is they
gross up the award that they want to give to the plaintiff.
What that’s doing is just a massive wealth shift.
In order to compensate the plaintiffs for the value
that a jury thinks it should receive, they just add
a third on top of it, so that the lawyer gets paid.
What they’re interested in is making sure the
plaintiff gets compensated. That’s an incredible
cost on society. There are some studies out there today
that say that the mass tort industry and the personal
injury industry in the United States puts a tax on the
economy of up to two percent of the GDP. That’s
a total of defense costs and recoveries and plaintiff
costs. But that’s an incredible amount of money.
Ed: It is. But would those cases be handled if the benefit
were not out there? For example, in your mass torts
cases, there’s an incredible amount of investment
that has to be made to get the case to trial, first
of all, and then to get the jury to see the wisdom of
Jeff: Sure, I agree with that. There certainly is.
Unfortunately though most cases never go to trial. It’s
essentially a form of legalized extortion. You look
at a company like Haliburton that thought that its activities
had not harmed individuals that had brought some asbestos
cases against them. They lost, I think the number was
about two-thirds of their market cap overnight, after
a couple of jury verdicts against them. These were cases
where, as I understand it, there was only a fear of
prospective injury, not an actual manifestation of harm.
That’s a pretty amazing vignette I think in this
system. You know it’s just classic debate that
goes on in the United States of the difference between
the English rule where the loser pays and our system
where you’ve got a contingent based litigation.
I’m not sure which is the right one. I personally
favor the English rule because I think people should,
if they’ve got good cases, they should bring them
and they’re going to get compensated for them.
Their legal fees are going to be paid. The flip-side
is contingent fee arrangements do permit plaintiffs
who cannot afford litigation to litigate. That’s
fine. Maybe the answer there is to impose some reasonableness
in the pleading requirements. Maybe the courts are at
to blame here in part permitting cases to go forward
without even a modicum of satisfaction of proof in the
Ed: Well, Jeff, many lawyers believe that corporate
counsel are merely trying to lower the legal costs,
and that there’s really no benefit to the lawyer.
Can you describe some of the benefits to the lawyers
as well as to the corporate world.
Jeff: Sure. I hear that all the time because we do
most of our work on an alternative fee basis here at
FMC Technologies. People are always saying, “Well
Jeff, you’re just looking for a discount.”
That’s not true. We actually want to pay firms
a higher effective hourly rate. We just don’t
want to buy as many hours and we want it somewhat conditioned
upon their performance. Performance is a factor of many
different things, communication, satisfaction of our
business objectives, use of technology, their overall
knowledge. There’s some subjective criteria in
there as well as simply winning. My feeling is first
we’re helping to improve the firm’s performance
and they should embrace that. If they live in a world
that favors and rewards continuous improvement, they
should embrace this. Second, just from a pure economics
standpoint, if we’re willing to pay more per hour,
but for fewer hours, what we’re doing is increasing
their margin on those hours and giving them hours they
can sell to somebody else. We’re freeing up their
inventory to sell to somebody else.
Ed: One of the critical elements of alternative billing,
as I understand it, is that the lawyer’s got to
move away from his or her attempt to be perfect.
Ed: The mode of leaving no stone unturned that we learned
in law school is no longer applicable, but this also
suggests that the client’s going to absorb a certain
amount of risk. How can that risk be defined in advance
of the engagement? As a skeptic, do you really believe
that the lawyer will be immune from a malpractice suit
if the result hoped for by the client doesn’t
Jeff: You know, that’s a great question because
that’s what you hear often as the defense of why
we have to do work this way. I mean, first the rules
of professional conduct require us as members of the
bar to zealously represent the client. Many a billable
hour has been spent in the name of zealous representation
of the client. That’s on the one side. The flip
side is we’ve got to do this, otherwise we’ll
get sued for malpractice. I think the answer to that
is that the client does have to absorb a certain amount
of risk, and they have to understand that. At least
in my world, I look at myself as the head of the FMC
Technologies law firm. Lawyers that work for us on the
outside, they’re the headcount that I can’t
afford to have on the inside.
When we engage them, an outside lawyer versus one of
my inside counsel, they’re the same. I just pay
them in a different way. One I pay in a paycheck, and
the other I pay against an invoice. But as far as I’m
concerned, they’re members of my legal team. That
legal team, along with the internal client, sits down
and decides what the strategy is going to be for the
case, what our objectives are, or if it’s not
a case, in the transaction, whatever the legal matter
may be. What our objectives are and what resources we’re
going to put on it and understanding what the deltas
are. You know that we could spend another thousand hours,
but it’s only going to increase the probability
of success by five percent. That’s a risk we’re
willing to take. You’ve got to have that conversation.
Frankly if you have that conversation, and if you make
sure that the in-house lawyers along with the firm lawyers,
along with the internal client, are all sitting at the
table, and deciding what approach to take, frankly you’re
all dirty if something goes wrong. You know, you’re
all part of that decision making process and we’re
not going to sue for malpractice in that kind of a circumstance.
Ed: Well you say you’re not going to sue and
I hear you and I believe you going in.
Ed: But now we’re at the other end of the tunnel
Ed: And you’re really ticked off. You’re
pissed, as they say...
Ed: That the result came down, the judge did this or
the other side did that, and who are you going to look
to? The lawyer on the outside, ‘cause you can’t
Jeff: Yes. You know that’s a legitimate fear and
a legitimate concern. I can’t speak for others,
I can only speak for the way we’ve handled this
kind of a situation. We had a piece of litigation that
went bad, the judge made some outrageous determinations
during trial, we lost about a $3.5 million verdict.
Instead of firing the law firm, and hiring somebody
else for the appeal, we rode the same horse, through
the appeal. And we prevailed on appeal and had it reversed.
Our feeling is we’re loyal to our lawyers and
people that work with us. I think a lot of this comes
down to client expectations and understanding how to
manage those expectations. I describe most legal work,
particularly in litigation, as being like a weather
Ed: Oh my goodness.
Jeff: When the client asks are we going to win? Or are
we going to lose? Whatever the question is, you know
they’ll push you for a percentage. I mean most
lawyers want to say it’s more likely than not.
Who knows what that means. Or you’ve got a good
case to an outside lawyer, that may mean a twenty-five
percent probability of success. To the client they may
be hearing a seventy-five percent probability of success.
So unlike most lawyers, we actually give people probability.
We say, you know, if they want to hear it, we’ll
use a decision tree and we’ll say you have a sixty-two
point five seven eight probability of success in this
matter, or a probability of getting this number or losing
that much. We will actually go through that exercise.
The only thing I know about that exercise is that I
will always be wrong. You know it’s never exactly
what we predicted. But that’s exactly what the
weather person does. When the weather person says there’s
a five percent chance that it’s a thunder storm,
ninety-five percent probability that it’s going
to be a beautiful day. If you’re standing in a
downpour, you’re pissed at the weatherperson.
But the fact is the weatherperson was right, you’re
in the five percent zone. And that’s the way you
have to deal with this with the client.
Ed: There there’s no recourse. But when you’re
looking at the lawyer, all of a sudden the lawyer is
naked. There is recourse and that’s by way of
the malpractice action.
Jeff: You know we’ve never been asked to give
a representation or a warranty that we would not sue
for malpractice. It’d be an interesting question.
I’m not sure how we’d handle it. We base
our relationships on trust quite frankly. And the personal
relationship with the counsel. We’re very loyal
to the few number of firms that we work with. That’s
just part of the bargain for exchange. I know my job
is on the line if we lose. That’s the way I look
at the world. It’s my decision and my responsibility
ultimately if something goes wrong. It’s not the
firm’s in my view.
Ed: Jeff, let me switch our focus slightly. If one
of the principal ingredients of alternative billing
is that fees are paid by value, not by time, who sets
the value? If the client sets the value, how does the
client get educated to understand what the value of
his service is? For that matter, how does a lawyer get
educated to understand what the value of the service
Jeff: Right. Oftentimes it’s hard to focus on
this in value, I think. People tend to think of the
world, when they’re talking about value billing,
more in the world of litigation I think than anything
else. Writing a will, as an example, or giving tax advice,
is actually one of the best ones where you can state
the value, if it saves this much money in taxes. There’s
a pretty clear value there. On the other hand, in litigation,
I think what you’ve got to basically say to folks,
you’re going to sit down and you say it’s
not just money, it’s what are your objectives
in this case? Is it winning by this much? Is it only
losing by that much? Is it getting an injunction? Is
it getting your patent enforced? Is it making sure that
your patent is not declared invalid? What precisely
is it that you’re looking for? That’s what
we try to focus on, that’s the element of success.
It’s not so, we don’t focus on value as
much as we focus on what is the objective. Once we know
what the objective is, then you can tell the firm, hey
this is my objective, this is the situation, how much
is it going to cost? Give me your best guess on how
much it’s going to cost. Break it down into the
components of a case, or the components of a transaction,
and give me a budget by phase by phase on what it’s
going to cost to get there. If the number is too high,
then the client has got to make a decision as to whether
or not, wow, it’s going to cost me that much,
to achieve this result. That either is or isn’t
worth it to me. And the client’s got to make that
decision. And, so I think all of this comes down to
a true communication and a true exchange of what things
actually can cost. It doesn’t do a client any
good at all for a firm to come in and lowball a matter,
to say I can do this for twenty thousand dollars, or
I can do this for a hundred thousand dollars, if it
ends up costing two hundred and fifty thousand dollars.
Now, if it ends up costing two hundred and fifty thousand
dollars, and there are reasons for it, and the client
has been involved in why that has happened throughout,
that’s okay. The client’s going to be sitting
there saying is this still worth it to me or not? They’ll
decide to pull the plug or they’ll decide on some
Ed: So, what you’re suggesting, if I’m
hearing you correctly, is that one of the key elements
here is to create a budget of events and then a budget
of money as to what it’s going to cost.
Ed: And, that budget in terms of events and benchmarks
and so forth, that’s clear to understand. In terms
of the budget for money, though, what number are we
using? Are we going back to the hourly rate and then
coming up with the number?
Jeff: In our system, that’s exactly what we do,
Ed. We’ve come to the conclusion that, for better
or worse, we’re stuck with the billable hour.
It’s a good surrogate for time efforts expended
in a matter. And so we still use the billable hour.
But what we do is we try to put part of that compensation
always at risk and then you get that amount back, plus
a bonus, based upon, and plus a variable bonus, based
upon efficiency and success. So in other words, if you
tell me a matter’s going to cost a million dollars,
you achieve success for five hundred thousand, as opposed
to a million, in terms of what your billed amount was,
we would have paid you four hundred thousand; we would
have withheld a hundred thousand; that would be in the
at-isk bucket. If success were achieved, you’d
get that hundred thousand back, and depending upon when
you achieved success, another hundred thousand as a
success bonus, and then there’d be an efficiency
bonus on top of that for bringing the matter in fifty
percent below expected costs.
Ed: So in other words, if we’re using the million
dollar example, you’re saying that you would pay
only fifty percent, and then...
Jeff: No, actually what we normally pay is eighty cents
on the dollar.
Jeff: We put twenty percent at risk. Depending upon
when success is achieved, the at-risk bucket is growing.
Then, if success is not achieved, you’ll lose
what’s in the bucket. If success is achieved,
you get what’s in the bucket, plus a success bonus,
plus an efficiency bonus, or an efficiency penalty.
You know if you over-land you might take a ding on your
bonus because you overran the total budget on the case.
Ed: Now, who sets these bonuses? It’s clear that
the eighty percent figure is established up front.
Ed: The bonus bucket entries or withdrawals, are they
subjective or are there some standards that are set
up so that the lawyer has some objective criterium?
Jeff: Let’s just put it in a litigation context,
for us anyway. We use a system, we call it ACES. It
stands for the Alliance Council Engagement System, subject
to a pending business process patent. You give us a
budget, five phases in a case, you give us a target
for each one of the phases; during a phase we pay eighty
cents on the dollar and then, depending upon when success
is achieved, you get what’s in the bucket plus
a bonus. And the bonus depends upon the phase. If you
achieved success in the first phase, you get what’s
in the bucket plus a hundred percent. If you’re
in the second phase of the case, it’s what’s
in the bucket plus seventy-five, and so on. The lowest
bonus is twenty-five percent. I mean we have to incent
people to play in this world. The interesting part about
our system is that if in any phase you get to the point
where you’re going to go above your target for
that phase, we don’t want you to stop work. You
know we want the firm to continue to do work. But say
you’re in discovery and say you know I really
need to take that one more deposition, but I’m
going to be above my target. We say take the deposition.
But if you go above the target, now the ratio of case
switches and now we pay you twenty cents on the dollar
and eighty cents goes in the bucket. What that does
is it forces the law firm to make tactical decisions
in the interest of the case. In other words, they are
only going to do those things that are going to materially
contribute to success. Now their success bucket is growing.
And so if they think that it’s going to work,
they’re willing to put that eighty cents in the
success bucket. Then depending upon what phase they’re
in, they get money back, plus a bonus. Then depending
upon how efficient they were in the overall case budget,
they might get an efficiency bonus, or there might be
an efficiency penalty. This aligns their interests in
maximizing profit and our interest in achieving success
as early as possible.
Ed: I was going to ask you about the concept of beauty
in the eye of the beholder. If beauty in this case,
value, is in the eyes of the client, then how do you
reconcile differences of opinion from value?
Jeff: Great question. In the litigation context, you
don’t, at least in our world, because we do this
Ed: So there’s some objective criteria set out?
Jeff: There’s some objective criteria, right.
Now in every other situation we use a different form
of ACES; it’s called ACES long term or ACES LT.
Think of that as a report card system. This works for
transactions, it works for just straight hourly billing,
fixed fee, works for anything. What we do is we say,
“Okay, here’s the project, or here’s
our deal.” We’ve come to a deal on either
hourly or fixed fee, whatever that may be. You give
us a bill, we pay you eighty cents on the dollar. Twenty
percent goes at risk. Periodically, or at the end of
the engagement, either one, we give you a report card.
The report card is based on five different factors.
They are subjective. I won’t kid you, they are
subjective. Each of those factors are weighted equally.
Depending upon how you do on your report card, you get
between zero and two hundred percent of the amount withheld.
The firm realizes anywhere from eighty percent to a
hundred and twenty percent of its total amount billed.
What that forces us to do as the client is to give meaningful
feedback to the firm about what our expectations are
and whether they’re meeting them. The criteria
we use are things like communication, teamwork, innovation,
satisfaction of our business objective, and knowledge.
Those are our basic criteria. Those happen to be the
same five core values FMC has as a company. When we
think about what our core values are, it’s those
five things. What we’ve done now is we’ve
said, here’s what those five things mean to us
in buying legal services. If you do stellar performance,
you’re going to get your bill plus another twenty
Ed: Jeff, your concepts are mind boggling in the legal
profession and I think right on in the business world.
I’m not sure how many corporations though, even
in the business world, honor the core values that you
describe. But taking it to our issue at hand more directly,
it seems to me that underlying this whole discussion
is the need for the attorney to understand what the
client really wants as outlined in your five criteria.
Ed: And then, secondly, to create a budget and time
line of costs and events. And it’s something that
at least when I went to school and even today’s
law student, we’re not taught how to do this.
How do lawyers intuitively know how to do this, based
on your experience? And if they don’t know it,
how do they get the skill?
Jeff: Yes, and they don’t know it. You’re
absolutely right. I know that you’re an MBA. I
got my MBA the hard way, by running an investment banking
and privatization firm for about five years. Ran it
right into the ground. You know lawyers are not taught
to be business people. It’s a fundamental error
in our legal education system. You take kids that are
liberal arts majors. You put them in law school. I don’t
know what they learn in law school these days, but they
sure as heck don’t learn the business of law and
they don’t really learn how to counsel clients.
Ed: You know the fact of their not knowing the business
of law has allowed me, in 1995, to actually get a registered
trademark on that phrase.
Jeff: Is that right?
Ed: The Business of Law is my trademark.
Jeff: That’s a fantastic trademark. And it’s
just right on because I think the reason I formed my
own firm was because I thought I didn’t want to
be a lawyer. I thought I was fed up with being a lawyer.
What I learned was I didn’t hate the practice
of law, I hated the business of law as it was being
practiced at law firms. What brought me back to in-house
practice after this little five-year experiment was
the fact that at my core I’m a lawyer. I worry
about our profession and I worry about the failing of
lawyers in law firms to understand that they are in
a business and to understand that it is a customer service
business, and understand what customer service means.
Ed: Absolutely. Well, after all of this and the experience
that you’ve had thus far, Jeff, what do you see
as the future of alternative billing systems? Saying
it another way, what do you see as the future of the
relationship between lawyers and clients? Are we going
to be more or less adversarial to one another?
Jeff: That’s such a great question because I think
it goes to the fundamental problem in our profession
today. Right now, law firms don’t have a great
incentive to change. If they can sell all of their hours
essentially in an inelastic market that says go ahead
and bill me as many hours as you can and I’m going
to continue to pay it, there’s no incentive to
change to some other form. And there’s no incentive
really for them to reduce their costs as a way of increasing
their profitability. Corporate counsel are getting increasingly
angry about this and corporate clients are getting increasingly
angry about it. Eventually we’re going to get
to a situation a lot like the medical profession where
we’ll have some form of managed care; we’re
not going to like it very much. I don’t know what
that form will be. Maybe it’s increased auditing
of bills; maybe it’s people coming in saying the
value of that service is not a hundred thousand dollars,
it’s seventy-five thousand dollars; maybe there’ll
be a whole cottage industry that will develop. In fact,
I think it’s already there that does that kind
of review work. That will make it even more adversarial,
as you’re saying, Ed. And that’s not the
way this profession ought to go. We’re counselors.
We’re supposed to be solving business problems.
We’re supposed to be partners with our businesses,
regardless of whether you’re in-house or at a
firm. Somehow, some way, we’ve got to find a way
to change this relationship where we are compensating
our firms fairly and making them profitable. I mean
we do not want our firms to be unprofitable, but we
also don’t want the firms to be doing the work
that we don’t need done and that doesn’t
go to our business objectives.
So in my view, you need more in-house counsel that
have the nerve, guts, time, hutzpa, creativity, whatever
it is that you call it, to start challenging this. And
you need firms that more and more say you know there’s
got to be a different way. My favorite firm in America
on this issue is a little firm out in Seattle, Washington
called the Summit Law Firm. They’re all refugees
from the big firms. Ralph Palumbo created the firm because
he felt there was a different way to provide legal services.
Every time any lawyer at Summit sends out a bill it’s
hourly and it comes down to the bottom line, and it
says “total amount of this bill,” and there’s
a number there. There’s another line that says,
“client adjustment,” and that line is blank.
And then there’s a final line that says, “total
amount due.” As a client, I have a right to do
whatever I want to a Summit bill. I can give them a
bonus, I can write it down to zero. Now that’s
true value billing because you’re empowering the
client to do whatever they want to their bill. If you
call Ralph, and if you ask him how many people, write
it down to zero he’ll kind of laugh. He’ll
say “one or two.” He says some people like
you Jeff, pay us bonuses. But, by and large, most people
pay exactly the amount of the bill. The reason they
do it is they believe and understand that the bill is
reasonable because they have the right to change it.
And so therefore they don’t need to. It’s
a fascinating and amazing marketing ploy and also a
partnering relationship because he’s empowering
his clients to say what really was the value of these
Ed: That’s a great way to end our conversation.
Jeff, thanks very much for joining us today.
Jeff: My pleasure, Ed.
Edward Poll, J.D., M.B.A., CMC, is
a coach to lawyers and certified management consultant
who shows attorneys and law firms how to be more profitable.
Ed's latest book is Collecting Your Fee: Getting Paid
From Intake to Invoice (ABA 2003); he is also the author
of Attorney & Law Firm Guide to The Business of
Law, 2d ed. (ABA 2002) and Secrets of the Business of
Law: Successful Practices for Increasing Your Profits.
To make suggestions or comments about this article,
call (800) 837-5880 or send an e-mail to firstname.lastname@example.org.
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