Alternative Billing: Fad, Fancy, or the Future of Law?

Posted on July 24, 2012 by Nicole Black

Invoice from Standard American Petroleum Compa...

(Photo credit: Wikipedia)

Legal futurists like Richard Susskind and Mitch Kowalski have long predicted that value-based billing is the wave of the future for the legal profession–in part because corporate clients are beginning to demand it. In a recent interview, Mitch explains his theory:

Corporate clients are finally waking up to the arbitrary way in which they are charged and are demanding that legal fees bear a clear relationship to the client’s perception of the value received. How long the lawyer takes to provide that value is irrelevant.

Of course, just because clients prefer it doesn’t mean it’s necessarily the right solution–or even a workable solution. After all, lawyers have been billing by the hour for decades now and there must be a good reason for it, right? Perhaps hourly billing simply works better for lawyers, making their lives easier and improving client service in the process.

Or maybe, just maybe, lawyers can’t see the forest for the trees and are clinging to the old ways of doing business even though it literally makes them ill.

Unfortunately, according to a recent study, it seems that the latter explanation is the correct one. Rather than simplifying lawyers’ lives or aiding client representation, billing by the hour actually makes lawyers depressed and anxious, as explained by Vivia Chen at the Careerist blog:

(Lawyers who billed hourly) suffered from higher stress during downtime, and they worried more about having enough work. When work was available, they were tempted to work as much as possible. A vacation or a day off meant a loss of money. Other studies found that the problem got worse as people made more money, because they felt that their time was more valuable and therefore more scarce.

So, if it’s bad for our health and many clients increasingly seem to prefer the predictability of value-based billing, then consumer demand and common sense will no doubt result in change. Because change is good.

But then again, we’re talking about the legal profession–a profession that is willing to change, but does so at its own pace. And, when it comes to alternative billing arrangements, a new ALM report shows that lawyers are not exactly embracing value-based billing practices. Earlier this month, the Wall Street Journal Law Blog reported on the results of the study:

The ALM report surveyed 141 in-house law departments and 194 law firms on their use of—and satisfaction with—alternative billing arrangements.

It found that most law firms continue to rely on traditional billing for the majority of their work, and law firms are on whole less delighted with alternative fees than the corporate law departments they serve.

So alternative billing isn’t exactly catching on in the legal field. And quite frankly, the profession’s reluctance as a whole to embrace this concept makes perfect sense to me even though my resistance to value-based billing for certain types of cases makes little, if any, sense.

By way of explanation, I have a background in criminal defense and civil litigation. I’ve always charged flat fees for criminal defense files, while civil cases were billed either hourly or on a contingency fee basis. And, for some reason, I have a very difficult time conceptualizing the idea of billing a civil defense file–one that would normally be billed hourly–on a flat fee basis, even though it seems perfectly ok for a criminal file. This is so even though both files could unexpectedly settle or plea out or, alternatively, go to trial. So, both types of cases could end early on with minimal work or could result in many, many hours spent on pre-trial proceedings and on the trial itself.

But even though both cases have the same potential for a quick and early settlement or a lengthy representation, for some reason, I’m perfectly comfortable with the idea of estimating a flat fee up front for a criminal case, but not for a civil case. And the only explanation I can come up with for this apparent paradox is that that’s simply the way I’ve always done it. I have a certain comfort level with estimating costs for criminal cases, but not for civil cases. And I know from experience that in most criminal cases, in the end, it usually works out. But I can’t say the same for civil cases since I’ve never done it, hence my level of extreme discomfort when faced with the idea of value-based billing in a civil case.

I think that most lawyers are in the same boat as I am when it comes to value-based billing for matters that have always been billed hourly. You know it can probably be done, but it just doesn’t feel right. I do think, however, that this reluctance to embrace alternative billing will ease with the passage of time, and increasing client demands will accelerate this process.

For those of you ready to take the leap, Mark Robertson has some great advice in this recent article, “A Case for Alternative Billing,” from the ABA’s Law Practice Management Magazine. Mark suggests the following guidelines when setting a flat fee, and offers in depth explanations for each recommendation in the article: 1) know your costs; 2) data mine your files; and 3) determine the best-and worst-case scenarios.

And, law practice management guru Ed Poll provides further guidance for lawyers seeking to move to alternative billing in a recent ABA LPM section e-zine article “Technology Brings Billing and Receivables into the New World of Law.” Among other things, Ed explains why being open to the idea of transitioning to value-based billing is so important for solo and small firm practitioners:

Leveraging the efficiencies of technology will be a vital survival strategy for small practitioners in the “new normal” turmoil that law firms must deal with – but only if technology leverage is combined with innovative approaches to billing. This point is crucial, because technology efficiencies without billing innovation will keep the firm from realizing technology’s financial benefit. In fact it could be the road to financial ruin if combined with a rigid billable hour approach, or with inefficiency in receivables policies.

Not everyone agrees with his conclusions, but he certainly makes a convincing case. So, even if you’re not quite ready to make the change to value-based billig, perhaps it’s time start thinking about alternative fee arrangements. Because it’s indisputable that the times they are a’changin’. It’s just a matter of how quickly and who’s going to be able to position themselves so that they can successfully pivot and make the changes work to their advantage.

–Niki Black

Can you automate the practice of law?

Posted on May 8, 2012 by Nicole Black

(Photo credit: rkrichardson)

Legal futurists spend their time studying, analyzing, and predicting the future of the legal profession. And, unfortunately, their collective assessment is that the future isn’t bright lawyers unwilling to innovate and embrace technology.

Anyone who has followed my writings knows that I tend to agree with this dire prediction. I truly believe that over the next few years, lawyers who embrace and utilize technology effectively–in particular Internet-based and mobile tools–will undoubtedly have an edge over their less tech-savvy colleagues.

But can technology actually replace the services provided by some lawyers, or will it instead supplement their practices, allowing them to operate more efficiently and better serve their client’s needs?

This is something I’ve pondered often over the years and I found myself revisiting this issue after reading a Fast Company piece about Tim Hwang, a 25-year-old non-lawyer, former research associate at Harvard’s Berkman Center, and founder of a satirical website, Robot Robot & Hwang.

As explained in the post, Hwang believes that the antiquated legal field is one of the last remaining holdouts of the 21st century technological revolution:

One thing that got me intrigued about law was that industry-wide it has the same kind of structure as older industries that have been disrupted by technology: a small class of people that’s based on control of information, protected by regulations. Law hasn’t had its Napster moment yet, though everyone recognizes it’s an incredibly inefficient structure now and the legal profession is in incredible disarray.

While I agree with his assessment of the legal profession’s arguably sluggish acceptance of technology, I find myself disagreeing with his conclusion (and the conclusion of many other legal futurists) that technology has the potential to replace many aspects of the practice of law:

What if I turned Robot Robot & Hwang into an actual legal practice? It would have to be nimble in the way it’s organized; people would have to develop technology or use it to create efficiencies. Imagine a law firm running more like a startup–that’s going to require a more nimble approach to law…

Every time I read something like this, I’m perplexed. How can the services provided by lawyers be equated with the sale of widgets or the development and sale of an iPhone app? Lawyers “sell” fact-specific analysis, advice, and advocacy, not goods or simple services. The unique nature of the services provided by lawyers necessarily limits the structure of the platform–ie. the law firm–through which those services are delivered.

Perhaps the source of the disconnect is my background as an attorney serving consumer clients. My experience as an attorney has always involved litigation matters, whether criminal defense or civil and commercial litigation. Accordingly, my job has been to provide fact-specific analysis, advice, and advocacy–tasks which are not readily commoditized. Thus, for lawyers with my legal background there is oftentimes a disconnect and predictions that technology replacing their position as a trusted advisor seem overblown and unrealistic.

However, as Jordan Furlong explains in his recent post at Law21, it is transactional lawyers whose jobs will be most affected affected by technological innovation, not litigation attorneys. According to Jordan, the lawyers who will be most affected include “most lawyers in midsize and large firms…(g)overnment and public-sector lawyers…(c)orporate law department lawyers…(l)aw school lawyers…(j)udicial system lawyers…(and) (a)dministrative agency lawyers.” Those who will be least affected include “private-practice lawyers…independent professionals who contract directly with purchasers without the involvement of an organizational middleman.”

As someone who has never practiced the types of law that futurists like Jordan and Richard Susskind predict will be partially supplanted by technology, I’ve found Mitch Kowalski’s new book, Avoiding Extinction: Reimagining Legal Services for the 21st Century, to be particularly helpful in enhancing my understanding. In it, Mitch envisions a world in the very near future where a typical BigLaw firm discards traditional practices and embraces alternative billing and ownership structures, reduces overhead costs by outsourcing, and utilizes technology and collaboration to efficiently and effectively serve its clients.

I’m halfway through the book and it’s already helped me to better understand how technology and outsourcing can replace certain aspects of the transactional legal services provided by large firms and other legal service entities. Mitch adeptly explains this concept in a recent interview for YourABA:

Legal process outsourcers have been a big game changer. The success of Pangea3 and others have caught the profession by surprise. Never before in history has so much legal work been given to non-law firms.

The number of in-house lawyers has grown exponentially over the last 25 years—legal costs are no longer necessary evils and are being managed more than ever before.

However, even with that newfound understanding, I still have a difficult time envisioning a future where more efficient processes effectively supplant the human element of lawyering, even for transactional lawyers. Sure, technology can automate and even replace certain aspects of lawyering, but at the end of the day, the legal advice and advocacy of a trusted advisor is a decidedly human factor–and, in my estimation, it’s something that simply cannot be replaced.

–Niki Black

Client Portals: The Future of Law Practice Management?

Posted on April 4, 2012 by Nicole Black

(Photo credit: Wikipedia)

Last week, tech-savvy attorneys from across the United States, Canada and Europe converged upon the Chicago Hilton en masse to attend the ABA’s annual Techshow. Their shared goal? To learn about the impact of the latest technological innovations on the practice of law.

One of the most interesting parts of the conference occurred on the last day, when Jim Calloway, the director of the Oklahoma Bar Association’s Management Assistance Program, offered a “big picture” overview of the impact of technology on the legal profession in his plenary speech titled “The Future of Law Practice: Dark Clouds or Silver Linings.”

Throughout his speech, Calloway emphasized repeatedly that the effect of technology on the practice of law can no longer be ignored. He explained that the defining characteristic of lawyers who survive–and thrive–in midst of these rapidly changing times will be their ability to incorporate emerging technologies into their law practices.

One key to successful adaptation, according to Calloway, will be the implementation by lawyers of web-based client portals. Rachel Zahorsky of the ABA Journal explains why in her blog post summarizing Calloway’s speech:

Great client service in addition to great legal work means no more emails with bulky attachments. Client portals allow lawyers to upload and organize documents that can be viewed easily. Emails should be reserved for alerts to let clients know when the documents in the portal have been updated.

However, not everyone is convinced of the utility and feasibility client portals. For example, Carolyn Elefant recently questioned the practicality of client portals in her blog post “Client Portals – Love ‘em or Leave ‘em.” As she explains, many of her clients have been unwilling to log into stand-alone portals to obtain documents:

Most of my clients – who range from individual landowners to large trade associations and corporate entities – don’t want to log into a work space to download a pile of documents. They’d rather get them by email – and so, I find myself dispatching my virtual assistant to serve their requests. In short, my efforts to corral clients into their designated portals has been much like herding cats.

So, in her experience, client portals aren’t all they’re cut out to be. But, perhaps the reluctance of her clients to visit client portals stems from their lack of familiarity with the multitude of platforms being utilized. When stand-alone platforms are used for a single purpose, such as a repository for documents or for collaboration, clients are required to visit and log into separate, unfamiliar sites in order to obtain access different types of information. In other words, perhaps it’s the stand-alone nature of the platforms that is the heart of the problem.

This is no longer an issue when the client portal is built into a one-stop practice management system, rendering lack of familiarity with the platform a non-issue. Clients log-in at the outset of their case and use the platform for a wide range of activities including communicating with their attorney, accessing and collaborating on documents, and obtaining information about the status of their case, such as the next court date. In other words, regular use of the platform breeds familiarity with the interface, thus eliminating confusion or reticence to use it. And, the more intuitive the interface, the easier it is for clients to use.

Ultimately, any client reluctance to use web portals will be a short-lived phenomenon. This is because client portals are becoming increasingly familiar to consumers. These portals are already commonplace in many industries, including banking and mortgage financing and for that reason, consumers will soon expect instant access to information via web-based portals in legal matters as well. The writing is on the wall: client portals are the future of effective and efficient representation of legal clients.

But don’t take my word on it. Instead, consider what the always prescient Richard Susskind predicted about client portals back in 2008:

“The astute lawyer of tomorrow…will want to have a more or less full-time presence, day and night, on the network…(L)aw firms will need to put in place practices and processes that ensure 24-hour-a-day availability of some form of client contact. In the future, the winners in the legal world may succeed by dint of survival of the most responsive.”

–Richard Susskind, The End of Lawyers (2008)

–Niki Black