CLIENT MEMORANDUM DISTINGUISHING YOUR FIRM
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- Aron Preston
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1 CLIENT MEMORANDUM DISTINGUISHING YOUR FIRM This is the secnd in a series designed t help law firms distinguish themselves in a legal market where their cmpetitrs are jckeying t better serve clients in a value-driven envirnment. The first piece discussed the benefits f cnducting prject-by prject evaluatins. This piece addresses an area in which enrmus changes are taking place billing practices. HOURLY BILLING ERECTING GUARDRAILS Fr almst as lng as lawyers have been plying their trade, legal fees have been a surce f frictin in the relatinship between lawyers and their clients. In 1993, the American Bar Assciatin issued a Frmal Opinin in which it stated: One majr cntributing factr t the discuraging public pinin f the legal prfessin appears t be the billing practices f sme f its members. 1 This pinin is reflected in the Assciatin f Crprate Cunsel s 2011 Chief Legal Officer Survey, in which CLOs were asked what their tp 5 cncerns were - 66% respnded with reducing utside legal csts 2. Similarly, in the 2010 ACC/Serengeti Managing Outside Cunsel Survey, 83% f in-huse cunsel surveyed stated that reducing utside cunsel cst was ne f their mst pressing cncerns 3. One f the fremst cncerns expressed by clients abut legal fees is the use f billable hurs as the primary means f calculating fees. The mst prminent cmplaint f the billable hurs mdel is that it gives law firms the incentive t wrk inefficiently t emply the n rck left unturned apprach, which can significantly increase the client s legal csts, withut necessarily having a crrespnding increase in the chances f a favrable result. In fact, in the afrementined Frmal Opinin, the ABA went n t state that pressure n lawyers t bill a minimum number f hurs and n law firms t maintain r imprve prfits may have led sme lawyers t engage in prblematic billing practices. 4 At the end f the day, as the argument ges, the billable hurs mdel is nt cngruent with the interests f the client. This incngruity has resulted in an ever-increasing number f cmpanies and business grups pushing fr alternative methds f billing. The Assciatin f Crprate Cunsel (ACC) 5, fr example, has launched a natinal campaign called the ACC Value Challenge. The stated purpse 1 (ABA Frmal Opinin ). 2 Assciatin f Crprate Cunsel s 2011 Chief Legal Officer Survey, P ACC/Serengeti Managing Outside Cunsel Survey 4 (ABA Frmal Opinin ). 5 The Assciatin f Crprate Cunsel, with ver 30,000 members, is, in my view, the mst influential and effective assciatin established fr in-huse cunsel. As such, its initiatives shuld be taken seriusly by the legal cmmunity.
2 2 f the ACC Value Challenge is t prvide netwrks, tls and dialgue t bring law firms and crprate custmers f law firms tgether t develp ways t recnnect value with the cst f legal services. New businesses have spawned in an effrt t assist law firms and their clients in structuring alternative value-based billing mdels t better align the cst f legal services with the value prvided t the clients. While I supprt the effrts t find creative alternatives t billing fr legal services, I d nt subscribe t the prpsitin that the hurly billing mdel is irreparably brken. I believe that the hurly billing structure can be an effective way t bill fr a variety f matters, if prperly managed. A number f effective in-huse legal departments have devised cmprehensive plicies t manage utside cunsel and, cnsequently, their utside legal bills. These plicies can effectively serve as guardrails arund the hurly billing structure t cntain csts and address sme f the prevalent cncerns abut waste. Mst clients, hwever, have n such plicies in place, thus lack prtectin frm the risks assciated with hurly billing. But law firms shuld nt be waiting fr their clients t cnstruct these guardrails. The firms shuld be taking the initiative and incrprating many f these cncepts int their daily practice. T affirmatively address the unease felt by many clients twards the hurly billing mdel, I suggest implementing billing cmmitments, memrializing them in writing and delivering them t the client at the beginning f each matter. The billing cmmitments shuld be delivered alng with the engagement letter and shuld lk smething like this: The firm is dedicated t prviding ABC Crpratin with highest level f service pssible and ensuring that ABC Crpratin reaps the mst value frm the services prvided. T further its dedicatin t client value, the firm makes the fllwing Billing Cmmitments t ABC Crpratin. BILLING MANAGEMENT Fr every matter where the anticipated billings exceed $10,000 r where it is anticipated that the wrk will be perfrmed fr a perid lnger than 1 mnth, the firm shall prepare a pre-prject plan that will include: A summary f the matter A rster f lawyers A cmmunicatin plan A budget A summary f legal implicatins and strategy A timeline The firm will prvide client with frequent updates as t where the billings are vis-à-vis the budget. At the beginning f each week, the lawyer managing client s matter will issue t client a narrative summary f the wrk that has been dne n the file fr the previus week, stating what accmplishments were achieved and what tasks were cmpleted $Freedm$Drive,$13 th $Flr,$Restn,$VA$20190$ (703)$251=4430$ $
3 3 INVOICES The lawyer respnsible fr the file will review each invice t determine that each line item clearly and succinctly describes the wrk perfrmed and the legal reasn the wrk was perfrmed. Invices shall include a narrative descriptin f the wrk perfrmed fr each specific task by the persn perfrming it. Invices shall als include (1) name r initials f persn perfrming wrk, (2) time spent n task, (3) the billable rate f the persn perfrming the wrk, (4) the cst per line item (rate * the time spent n task), and such ther infrmatin requested by the client. All time will be billed in increments f ne tenth (0.1) f an hur. Discussins r cnferences amng the firm s attrneys shall be minimized and shall nly be undertaken when that is the mst efficient means pssible t cnvey r btain infrmatin. Billing descriptins fr such cnferences shall state specifically why a cnference was needed. Where mre than ne persn is invlved n the same prject drafting dcuments, attending a meeting, etc. unless clear frm the circumstance, the narratives shall explain why each persn s presence was necessary. General ntatins such as attended meeting will nt be used. N lawyer shall bill mre than 10 hurs in ne day n a single matter withut the client s prir cnsent. Unless therwise requested by the client, each invice will be fr services rendered during the prir mnth. Invices shall be delivered t the client within 20 days after the end f each mnth. EXPENSES (GENERAL) Invices frm third-party vendrs shall be paid directly by the firm and incrprated int the firm s invice t client. When invicing fr disbursements and expenses, the firm shall prvide client with an itemizatin f ut-f-pcket expenses incurred by the firm n behalf f client and the purpse f thse expenses if such purpse is nt clear frm the itemizatin. When submitting invices fr disbursements r expenses, the invices shall reflect the actual cst and shall nt include any mark-up. Where the firm has vlume discunt arrangements with a vendr, the preferred pricing enjyed by the firm shall be passed n t client. TRAVEL & MEAL EXPENSES The firm will btain client s apprval fr all air travel and shall make its best effrt t anticipate all air travel in preparatin f any budget created fr the matter in questin $Freedm$Drive,$13 th $Flr,$Restn,$VA$20190$ (703)$251=4430$ $
4 4 The firm shall seek alternatives t travel such as cnference calls r videcnferences wherever practicable. Airfare incurred by the firm shall be cach nly n dmestic flights, and business class fr internatinal flights. Where the firm has pricing discunts fr airfare, such discunts will be used n client matters where pssible. During travel, the firm will nly rent mid-size cars, unless larger vehicles are mre ecnmical and/r therwise apprved by client. The firm shall nly use hired cars if ding s is mre ecnmical than renting. The firm will nt hire lims withut client s prir apprval. Fr any meals required during travel, the firm will prvide client with an itemized receipt reflecting the fd items purchased, the date, and the name f the establishment. The receipt shall be accmpanied by a written descriptin f the nature f the business necessitating the meal. The firm shall nt bill client fr time that a lawyer spends in transit, unless actual billable wrk is perfrmed during such travel time. NON-BILLABLE ITEMS The firm will nt bill client fr the firm s internal ffice expenses, such as faxes, cpying, scanning, phne calls (i.e. line charges), rdinary pstage, vernight envelpes, lcal travel, car services, and library subscriptins. The firm cnsiders these csts f ding business, hwever, in exceptinal circumstances where any f these csts are excessive, the firm may seek apprval frm client t bill such csts t client. The firm will nt bill client fr administrative services (including vertime) prvided by any law firm persnnel, including secretaries, wrd prcessrs, librarians, prfreaders, managing clerks r infrmatin system technicians. The firm will nt bill client fr administrative csts r fees charged by electrnic r ther research services assciated with electrnic legal research (this des nt include the time spent by a lawyer perfrming research). The firm will nt bill client fr wrk dne by first r secnd year assciates, except in cases f general legal wrk such as research, general drafting and dcument review. The firm will nt bill client fr first r secnd year assciates t attend meetings r trials. The firm makes every effrt t ensure that persnnel billing t a file must be rendering valuable services based n existing expertise cmmensurate with their billing rate. The firm will nt bill client fr legal research t educate attrneys in the basic fields f expertise fr which the firm is hired. The firm will nt bill client fr time spent preparing invices, cmpleting time slips r reslving billing questins. The firm will nt bill client fr time spent by paralegals perfrming clerical, secretarial r administrative wrk; r time spent by a lawyer perfrming paralegal wrk. The firm 11951$Freedm$Drive,$13 th $Flr,$Restn,$VA$20190$ (703)$251=4430$ $
5 5 is cmmitted t assigning wrk t the least expensive persnnel fr the mst efficient and cmpetent service. The firm will nt bill client fr duplicatin f time caused by the transfer f a matter t a new attrney, duble-teaming r educatin f ne r mre firm persnnel, unless such duplicatin was necessitated by a request frm client that such persnnel be added t the matter. The firm will nt bill client fr file creatin, rganizatin & maintenance. The firm will nt bill client fr the use f air phnes during air travel unless the firm can demnstrate that unusual circumstances existed that necessitated such use. The firm will nt bill client fr wrk that is nt related t the matter fr which the firm was retained, unless client specifically requested that such wrk be perfrmed. OTHER COMMITMENTS With the exceptin f legal and ther research fr an initial reprt and evaluatin f liability and expsure in a new matter, any legal research and the need fr any written mem r pinins based theren shall be authrized by the client in advance. Any rate increase implemented firm wide shall nt apply t any f client s pen matters. The firm is cmmitted t explring and implementing new technlgies that enable the firm t perate mre efficiently and that facilitate the prcessing f clearer and mre accurate billing statements. The firm is pen t designing and implementing alternative fee arrangements where the firm and the client find value in ding s. The firm will implement systems and prcesses t ensure that the Billing Cmmitments are strictly adhered t. We welcme the input f ABC Crpratin in ur effrts t grw the Billing Cmmitments and t add greater value t ABC Crpratin s business. Hw many firms d yu knw prduce this srt f affirmative cmmitment t prviding value t clients? Why wuldn t they? One reasn why many firms d nt is because they re nt structured t cmply with the majrity f these Cmmitments. Other firms prefer t maintain the status qu until their clients demand therwise. The Billing Cmmitments utlined abve are representative f a firm that understands that their lng-term prfitability is dependant n the value they prvide t their clients. If yur firm is capable f cmplying with sme r all f the Billing Cmmitments, yu shuld immediately implement them int yur practice and train each lawyer n the value f the Cmmitments the principles they supprt are at the heart f every client-centric law firm $Freedm$Drive,$13 th $Flr,$Restn,$VA$20190$ (703)$251=4430$ $
6 6 If yu cnsider the Billing Cmmitments t be t burdensme r nt wrthy f adptin, be warned. There are pwerful headwinds pushing against thse firms wh stubbrnly bill in the same fashin they have fr decades gne by. In the face f a legal climate that finds mre law firms understanding the business prpsitin f aligning their interests with their clients, thse firms that cntinue t fcus n billing practices that slely benefit their bttm line, rather than their clients, will suffer the fate f having n ne t bill at all. Rd Bddie, Senir Advisr The Wickfrd Grup 11951$Freedm$Drive,$13 th $Flr,$Restn,$VA$20190$ (703)$251=4430$ $
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