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Fixed Fee Foul-Ups and How to Avoid Them!


Stephen Allen
Lexfuturus

So, I find myself in sunny Vilnius presenting to and attending the IBA Legal Business Conference. Can I take some pleasure in the fact that “my bit” (other panellists were in attendance) seemed to be the most hotly debated, even given its less than compelling title “Pricing Models and Cost Management”?

OK, I GUESS NOT – PLEASE WAKE UP NOW!

Fixed fees are a major cause of abject panic at almost all law firms. Without fail, and normally only surfacing when so induced by alcohol, all have countless war stories of having got burnt, seriously burnt, with fixed fees.

The conference agreed that hours spent is an inappropriate measure of value.  An enlightened bunch. But what instead?

Clients want those fees fixed! Predictability is a much sought after commodity.

But why do law firms hate fixed fee so much?

And, why is it when law firms do, reluctantly, agree to a fixed fee do they get so badly burnt?

Here are the 7 key elements in getting fixed fees to work for you (as well as your client, naturally). 

1. Data, data, data

You record time. You have time records for every matter you have undertaken. You have all the data you need to break to:

a: collate the average total cost of ten similar matters;

b: break down the key components of each matter and cost them; and

c: identify and cost the key variants (jurisdictions, number of parties, etc).

You do, really. So why not use it?

 2. No detail, no fixed fee

Your client will have no idea as to why detail is important or what details you need to be able to effectively price the work. Take them through it. Get them to give you all the necessary detail. If they can’t give you that detail, then you can’t give them a fixed fee. Don’t be fobbed off with vague responses. It will be you that gets burnt.

Take them through it, make it as pain free as possible, but no detail no fixed fee.

 3. Scope it

You’ve got the detail. You can price the components. You build in a contingency. You’ve got a total price.

All you need to do now is agree the price with client, right? Wrong!

You need to fix the scope, the basis of your pricing. You need to set out, clearly (bullet point is always neatest) what is in and what is out of scope.

It’s a pain. Can you really be bothered? Client has agreed to give you the work.

You don’t do it, you will get burnt.

Set it down, get it signed off.

Once signed off make sure everyone at your firm working on that matter understand what is in and out of scope. 

4. Get the team

You priced this matter based on an assumption as to the level of fee-earners working on the transaction. Make sure you don’t over resource.

 5. Manage the project

Manage the project, the time spent, the resource used and the scope undertaken.

Do it daily. If the team spending more time than budgeted – review why and fix it.

If you have a resource mismatch, address it ASAP.

If the project strays out of scope, then back to point 2. above – get more detail from your client, price the out of scope work. Agree the price, and agree the scope. 

6. Keep your client close

Keep informed and keep them informed. Raise issues and concerns as they arise. Give them options not problems. Make it easy for them to say “yes”.

7. Learn from it and improve:

  • your data
  • getting the detail
  • scoping
  • resourcing
  • project management
  • communication

Never stop refining the process. Get it right and it may just be the most profitable thing you ever did. Share and Enjoy

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Stephen Allen was a lawyer in private practice, moved in-house and then ran two major divisions of a European telco. He now advises buyers and sellers of legal services on alternative fee arrangements, optimised delivery solutions and legal cost to value metrics. He blogs, privately, on www.lexfuturus.com and can be reached at stephen@lexfuturus.com.