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18 October 2016

Getting the Price Right: How to Charge for Legal Services


Published on 18 October 2016
Financial management
Finding the right price to charge for legal services is notoriously challenging. Uncertainty in terms of time required, opposition strategy, indeterminable court dates and the unpredictable vagaries of conflicting law combine to make accurate rates all but impossible to offer. Conversely, clients are increasingly seeking cost-competitive access to justice, particularly with the law more than ever available freely and easily online.

The Internet has magnified a long-standing tension between lawyers and clients over billing; clients, now able to access fixed-fee lawyers via online bidding services, are perhaps more suspicious than ever of their legal bills. On the other hand, such services risk devaluing the difficulty of law, which is a disservice to lawyers, clients and courts.

In this swiftly evolving environment, Insights examines a few approaches to pricing legal services amidst digital disruption, global competition, and increasingly self-educated clients.

Alternative Billing Models: Can they work?

Fixed-fee billing is not new. Commonly used in more standardised services like conveyancing or drafting wills, fixed fee billing, though attractive to clients, may risk under-pricing – that is, a lawyer makes a loss for the work involved. This may simply be due to a matter becoming more complex than anticipated, and the costs agreement failing to be flexible enough to account for uncertainty.

To ensure a fixed fee approach is profitable, Richard Burcher, Founder and Managing Director of Validatum (UK) Ltd suggested mining the firm’s historical records to accurately estimate an overall fixed fee for a project.

“This would include historical fees, staffing resources, billable time and timeframe parameters,” Burcher told the Law Society of NSW.

Scoping the project effectively is crucial. “The nature and extent of the scope will have some relationship to the size and complexity of the project. In the case of a house purchase, the scope might consist of 10 bullet points. On a complex commercial transaction or a piece of litigation, it might be 10 pages,” said Burcher.

Mixed billing to account for uncertainty

However, uncertainty is one of the few certainties in law; even a well-researched, clearly-scoped piece of work may be derailed, threatening to go beyond the initially agreed scope. “When an issue comes out of left field that is clearly outside both the scope and the assumptions, you must re-engage with the client and agree on a revised scope, revised timetable and revised price,” urged Burcher. “And you must do it quickly.”

Ursula Hogben, General Counsel for LegalVision, suggests pricing work in rounds. In a recent presentation to the College of Law, Hogben noted that LegalVision specialised in “high volume work that can be systemised.” Pricing in rounds, therefore, may allow for uncertainties to be accounted for, with clear ‘checkpoints’ to manage client expectations around progress and price.

Top tier and legal start-ups: a marriage of opposites

Increasingly, top-tier firms have responded to mounting cost pressures and global competition by merging with, or launching their own. low-cost legal services. Gilbert + Tobin recently contributed a second round of funding to legal start-up LegalVision, while Herbert Smith Freehills announced its second low cost legal services team comprising 65 people, including 50 fee earners. Herbert Smith Freehills’s Melbourne team will offer 24-hour document review, claims assessment, due diligence, commercial contracts and legal analysis for firm clients, all at lower cost. Similar offerings from Herbert Smith Freehills were also launched in Shanghai and in Perth, with the latter as a pop-up.

“Melbourne was chosen because a number of sectors came together in that location, as well as accessibility and affordability,” said Sinead Burke, Asia and Australia director for alternative legal services, to LegalWeek. Libby Jackson, Herbert Smith Freehills’ global head of alternative legal services, noted that “a high volume of data” was driving this shift.

Pricing legal services has never been easy, and client complaints around high legal fees likely has much to do with the complexity of explaining what legal work involves. The approach of top-tier firms essentially ‘disrupting themselves’ is notable, and a trend worth watching. Equally notable is a more nuanced approach to fixed fee work, possibly involving clearly defined project scope and assumptions, or pricing work in rounds to account for uncertainty. In this increasingly cost-competitive legal market, what is clear is that clients respond well to clearly communicated options and flexibility.