Pricing legal work
Take a standard, firm-wide approach to setting legal fees.
By Richard G. Stock
Consider that just ten insurers, eight banks and five provincial governments spend nearly $2 billion in legal fees each year. Collectively, they retain over 600 Canadian law firms. Each of these 23 organizations is reviewing its "guidelines" for using outside counsel, taking a careful look at costs and the applicability of measures to deliver better value for shareholders and clients.
Legal service at the partner level is primarily a relationship-based business, a relationship defined first by competence in substantive matters, secondly by service. Accessibility and turnaround define service and help clients to assess the value they believe they’re getting. Lawyers who pay careful attention to these basic elements of service get more work from the same clients and receive referrals too.
Why, then, should hourly based work carry the same rate by year of call? What is the right hourly rate for an associate with five years’ experience, versus one with seven years? What is the rate for a student, and does it matter to the client? How does one price the contribution of senior lawyers who serve as counsel to the firm?
Here are a few factors that every law firm should take into account in establishing its standard billing rate.
1. The firm, not the lawyer, must set the rate. Without a doubt, partners know the clients and their matters, and have a sense of "what the file can take." Nevertheless, too many firms still let partners set their own rates, a frame of reference too narrow to take into account best practices and the firm’s economic imperatives.
2. You cannot justify a rate difference between associates based on what clients and legal matters call for. Some firms have moved to "pricing bands" for associates (entry, intermediate, senior), but most create a lockstep system of rates after surveying their competitors. Firms would do well to fine-tune standard rates by area of law, and then try to reflect the real capability of the individual associate, rather than set lockstep rates.
3. Work allocation and delegation practices are highly individualistic. Most partners would admit that 20% to 30% of their work could be delegated to someone with less experience and would still be done well. More robust profiling (case/matter plans) of legal matters by experience level would uncover the market value (sometimes higher, rarely lower) of the partner and senior associates.
4. Timekeeping habits are idiosyncratic. Most legal matters are billed on an hourly basis. The billing lawyer reviews many factors, as well as the time and rates of those working on the file, before deciding how much should be billed. Firms should consider adjusting the rates for lawyers who filter their time or who otherwise are poor timekeepers.
5. A firm might have 11 different standard rates covering 20 partners across 25 years of call, with as little as $10 difference among them. Firms are now simplifying their pricing architectures by ensuring that the standard rate differences are at least 10% or $25 between partners, and then reviewing their guidelines for realization.
6. Ultimately, the system of hourly rates continues to camouflage the relative value provided by counsel. The best advice is to sit with the client and discuss the costs of legal services, provide an estimate with a range, define conditions that would trigger a review of the estimate, and then summarize everything in a letter of engagement. Until then, time marches on.
Richard G. Stock, M.A., FCIS, C.Adm., CMC is a partner with Catalyst Consulting, designated the Preferred Supplier for Legal Services Consulting by both the CBA and the CCCA. Richard can be contacted at (416) 367-4447 or at www.catalystlegal.com.
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english
Repenser les frais juridiques
Ayez à l’esprit l’ensemble du cabinet avant d’adopter votre politique de frais juridiques.
Au Canada, dix assureurs, huit banques et cinq gouvernements provinciaux dépensent près de deux milliards de dollars chaque année en frais juridiques. Collectivement, ils ont recours aux services de plus de 600 cabinets juridiques canadiens. Or, chacune de ces 23 organisations a entrepris de passer en revue ses lignes directrices sur l’impartition des mandats juridiques, en fonction d’une valeur améliorée pour les actionnaires et les clients.
Pour les cabinets juridiques, l’enjeu est grand. Voici donc quelques facteurs que chaque cabinet devrait considérer en établissant sa structure de facturation :
1. Le cabinet, et non l’avocat, doit fixer les honoraires.
2. Vous ne pouvez justifier une différence d’honoraires entre avocats sur la base des demandes d’un client ou de la complexité de la cause.
3. La plupart des associés conviennent qu’entre 20 et 30 pour cent de leur travail pourrait être délégué sans perte de qualité.
4. Les cabinets devraient envisager d’ajuster les taux horaires des avocats qui comptabilisent mal le temps consacré à une cause.
5. Un cabinet peut avoir 11 taux différents pour 20 associés, avec une différence de moins de 10 $ l’heure. Mieux vaut simplifier l’architecture des taux.
6. Finalement, le système du taux horaire camoufle la valeur réelle de l’avocat. |
