July 2010 | PRACTICE-BASED ALTERNATIVE FEE ARRANGEMENTS
Make Time Work for You: Handling Cases on a Fixed-Fee Basis
There are multiple reasons why handling cases on a fixed-fee basis is better for both our clients and ourselves.
The American Bar Association released a report several years ago that was very critical of the “standard” way that many (if not most) attorneys charge their clients for their services. In “Law and the Billable Hour: A Standard Developed in the 1960s May Be Damaging Our Profession” (ABA Journal, February 2002), Robert E. Hirshon, former president of the ABA, reached the harsh conclusion that “[t]he billable hour is fundamentally about quantity over quality, repetition over creativity.” He also insightfully asked “does the billable hour contribute to or undermine a practitioner’s ultimate goal—to provide clients with the best legal services possible?”
Do you currently handle cases on an hourly basis? If so, why? Did you consider and evaluate the many different billing options that are available to us as attorneys and conclude that this was the best one? Or, did you simply begin doing so because that was the way you were taught or the way it has always been done at your firm? I realize that these are somewhat uncomfortable questions to consider, but you owe it to yourself to do so, and you owe it to your clients.
To help you better analyze this issue, I highly recommend the book The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services by Ronald J. Baker and Paul Dunn (Wiley, 2003). This book makes it clear that our clients buy results, expectations, good feelings, hope, dreams, a preferred vision of the future, and solutions to their problems. They don’t care how long it takes you to produce those results—they only care about the results themselves. Moreover, price is not a controlling factor for most potential clients. Think about it, if price were all that matters, we would all be driving Hyundais.
In the book, Baker stresses that clients are not so much price conscious as they are value sensitive. He advocates the “subjective theory of value,” which provides that the person who is paying the bill determines the true value of something, not the seller or his internal overhead, desired profit or labor hours. Baker concludes that professionals should be judged on results achieved and wealth created for their customers— not on the number of hours billed.
Instead of handling family law cases on an hourly basis, I recommend you consider handling these cases on a fixed-fee basis. I have been handling virtually all of my Family Court cases in this manner for over five years, and my only regret is not having begun doing so years earlier. As discussed below, handling cases on a fixed-fee basis is better for both our clients and ourselves.
The initial reaction most attorneys have when considering this possibility is that domestic cases are too unpredictable to establish a fee with any confidence. However, insurance actuaries establish premiums for things such as floods, earthquakes, hurricanes and even death—all of which are certainly more difficult to predict than Family Court cases. If they can do it, why can’t we? The answer is that we can and we should.
How It Benefits Clients and Lawyers
Clients benefit from the fixed-fee process for many reasons. It gives them the ability to determine prior to retaining you whether or not they can afford your services. Similarly, because the client has authorized and agreed on the costs involved before the work began, you avoid the unfortunate situation where the client receives a bill that he or she is unable or not prepared to pay. As a result, you and your clients will have a higher level of trust and a better working relationship.
Have you ever had clients not give you necessary information, only to find out later that the reason was because they didn’t want to incur “yet another” charge for a telephone call or office conference? If the case is being handled on a fixed-fee basis, there is built-in disincentive to inhibit the flow of information from client to attorney. In domestic cases, the more information we receive from our clients, the higher the level of service we can provide to them. Of course, the end result is that we will have happy, well-satisfied clients, which will benefit our business in the long run.
One of the major benefits of handling cases in this manner is that we no longer have to track every minute of every day. For me, tracking my time was always a stressful process. Not only was it inconvenient to have to continuously stop working on a file to note what time was spent on it, but I always had a nagging concern that I had forgotten to charge someone for something and was therefore losing money as a result.
You will also save time because you will no longer have to engage in disputes with clients over the amount of a bill or be forced to justify the amount of time you spent on a given activity, because, as stated earlier, the amount charged for your services was negotiated and agreed on before the representation began. The sad part is that attorneys actually choose to handle cases on an hourly basis and heap this additional, unnecessary stress upon themselves.
When handling cases on a fixed-fee basis, it is no longer necessary to track time in this manner, and you will gain several free hours per week that used to be spent recording time that can now be spent working on clients’ files, spending time with your family, playing golf, etc.—all of which I submit are better than chasing the tail of the billable hour. The ABA report noted that “the profession's obsession with billable hours is like ‘drinking water from a fire hose,’ and the result is that many lawyers are starting to drown.”
It is important that we not overlook the financial benefits that come with handling cases on a fixed-fee basis. To our clients, a service needed or desired is always more valuable than a service delivered. Therefore, we have more leverage over the amount we can charge at the beginning of the relationship—before services are rendered—because that is when clients need us the most. This avoids the situations where our clients get the benefits from our services and then decide for whatever reason not to pay for those services.
Further, if the fee agreement is drafted properly, the fee paid by the client can be immediately deposited into your operating account when paid instead of having to linger in your trust account for weeks or months. Of course, this also results in additional time-savings to you, since you will not have to manage the various trust account activity associated with the traditional retainer and hourly billing process. Finally, I have found that the fixed-fee method gives me the ability to decide up front if I want to represent someone for a reduced fee. For instance, I frequently do this for military personnel, teachers or other public servants.
When handling cases on a fixed-fee basis, it is very important that you be very clear as to the terms of your representation. In Family Court cases, this means that you must specifically designate which issues you will and will not be handling on your client’s behalf. If the nature of the case changes or additional issues arise, you can execute a modification to your fee agreement to address the additional fees and costs that will be required from your client. Of course, it should go without saying that as in any domestic case, you should honestly and carefully assess the issues (and potential issues) from both sides of the case before you agree to accept it, and you should attempt to weed out and avoid “problem” clients whenever possible.
I would note that the ABA report found that “if we innovate our billing models, not only are the same revenues attainable, but also lawyering itself will become more enjoyable.” The fact is that you really can successfully handle Family Court cases on a fixed-fee basis. If you haven’t considered this option before, you owe it to yourself to do so now, because I believe that both you and your clients will benefit from it. If nothing else, try handling just one case in this manner to get a glimpse of how much better your practice and your quality of life can be.
Ben Stevens practices family law in Spartanburg, SC, with Turnipseed, Brannon & Stevens. Ben publishes both the South Carolina Family Law Blog and The Mac Lawyer blog, and he frequently speaks on substantive law and legal technology topics all across the country.