The relationship between law firms and in-house legal departments is often fraught when it comes to billing. It’s an issue law firms have with many of their clientele as the demand for fixed-fee pricing increases.
Like any business department, in-house legal teams operate on a budget. This demands transparent oversight of spend, especially when outsourcing work. The benefit of fixed fee RFP work for in-house teams is the certainty of spend and outcome, which gives the team a clear path for allocation of funds.
Law firms might not see things this way. They operate on the incremental billing system and are used to seeing their time as a direct correlation to money rather than setting a project fee and delivering to that. Let us explain some benefits of fixed scope work, as we see it, for our private practice friends.
Thomson and Reuters discuss flat fee and packaged legal services, proclaiming that firms will be able to appeal to a new generation of legal service consumers: “By providing more transparency, trust, and confidence, legal services can be dramatically improved, promoting client satisfaction, repeat business, and referrals.”
This client satisfaction is often due to the elimination of stress over legal fees. Providing people with a certainty of cost and outcomes removes a huge barrier to engaging with legal in the first place. Flat fees align the lawyer and client by providing an outcome-based goal for the lawyer to achieve and eliminating the client's concern over the efficiency of their lawyer (inefficient lawyers billing by the increment can add considerably to a client’s costs). Quality not cost becomes the focus of the engagement.
In the same vein as a client’s stress over price is removed, so too is the potential for fee disputes. Flat fees allow for the client to agree to and prepare for the bill, and it removes the risk of clients disputing or claiming that the lawyer overcharged.
Inherent to a flat fee arrangement is scope, which provides the lawyer with protection. A detailed scope will specify the tasks the lawyer is to undertake for their client, reducing the professional liability risk of a client alleging their lawyer should have taken steps that lay outside of the specified works.
Lawyers can experience liberation when moving away from incremental billing to flat fee arrangements. They are trained to solve complex legal problems, not to be purveyors of time. The billable hour is a topic of contention within the legal profession, reported to cause job dissatisfaction for many lawyers. Removing the pressure to achieve billable targets and the stress about over or undercharging clients can create a much more conducive work environment for the lawyer, one where their time and energy can be spent on the legal nitty-gritty itself, thus enhancing job satisfaction.
Firms that move to fixed scope work are embracing the future; pressure is mounting for legal services to rethink the way they bill. The procurement of legal work is increasingly based upon price, less so long-standing client relationships. Technology is enabling this as clients expect firms to use e-billing and contract AI solutions that can significantly reduce the cost of work.
In-house legal teams are also growing, with less work outsourced, increasing competition for private practitioners.
The market is changing, and ultimately moving away from billable hours provides firms with a competitive advantage as corporate and private practice clientele are proving receptive to fixed-fee billing.