24. Reinventing
value-based billing
The last of the alternatives is something of a throwback to the past — but with a twist designed to make it more acceptable in the present.
Value-based billing the old-fashioned way
If you read Chapter 2 outlining the history of the billable hour, you’ll know that before lawyers started working out their bills by multiplying time spent by an hourly rate, they sent out monthly bills that they felt were “reasonable” for work done taking into account a host of factors, of which time was one.
The methods by which the amounts were arrived at were not exactly transparent. Indeed, the amounts charged could seem somewhat arbitrary. But, with a fair and ethical lawyer, trusted by the client, this could be a flexible formula for arriving at a value-based amount.
The problem, though, is the built-in conflict of interest. Lawyers have an interest in charging as much as they can get. Clients are wary about amounts that have neither been agreed to in advance nor are based on objective factors.
A modern twist: client-empowered “value adjustment”
A Seattle law firm with about 25 attorneys called Summit Law Group operates what appears, in essence, to be a modern incarnation of the pure value-driven model.
Its approach to making this work — given the mistrust that can arise when the lawyer alone is left to come up with a figure — is to empower the client with what it calls a “value adjustment line” on its bills. As it explains on its Web site: “We empower each of our customers with the right to adjust our billing, upward or downward, based on our customer’s perception of the value received, not ours.” It describes this as the “cornerstone” of its billing approach. (www.summitlaw.com. It’s worth taking a look at this firm’s Web site to get an idea of how a mid-size law firm can implement alternative billing and — judging by its client list — succeed. Also, the firm seems to take a fresh approach to other areas of law practice management besides billing. Incidentally, I have no connection with that law firm and, prior to writing this book, had never communicated with anyone connected with it.)
The Summit Law Group doesn’t appear to use a single form of billing that gives rise to the number that is subject to “value adjustment” by the client. It sometimes bills by the hour, but generally favors a more value-driven arrangement even before adjustments are made. It says that it is “open to any creative billing arrangement that is fair.” These include:
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•Value-based billings with incentives for results that exceed expectations.
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•Monthly retainers for day-to-day advice.
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•Percentage fees, success-based fees, and other fee incentives.
If slavish adherence to hourly billing seems wrong, if contingent fees aren’t appropriate, if flat rates seem problematic, and if budgeted caps don’t appeal, then why not just fall back on value? That really should not be a shocking suggestion. Something is amiss with the profession if it sounds quirky to suggest that lawyers’ bills should reflect the value of their work.
Entire contents © 2008 John Derrick