Fee changes test law firms

Is a revolution occurring in Perth’s law land?

Some big firms are reporting big changes in the way they charge clients with some suggesting that around a third of their revenue is from alternatives to the traditional billable hours, in some cases double the previous years level.

Jason Ricketts, managing partner of Perth’s biggest law firm Freehills, reckons about 30 per cent of fees last financial year were not based on billable hours. That was twice the previous year.

Jackson McDonald CEO John McLean suggests alternative arrangements would account for 25-30 per cent of the firm’s billing, rising by 10 percentage points or more in the past couple of years and up from zero five years ago.

Lavan Legal, which has made the most noise about adopting alternative fee practice, puts its level at about 40 per cent. Lavan managing partner Greg Gaunt said that it’s been at this level for the past two years although he acknowledges it is only just catching on in more tricky areas such as litigation.

Mr Gaunt said that his staff had warmed to the concept but it still took some explaining to lawyers that when they offered a client an estimate that was really fixing a price.

The pressure to move away from billable hours, some say, is from the rising number of corporate lawyers who work in-house for clients and, especially after the global financial crisis, want to rein in budgets by demanding fixed fees, fee caps or other ways of escaping from being charged by the hour.

Offering different fee structures is also seen as a marketing tool, allowing firms to differentiate themselves from the competition.

But it is very new to a lot of lawyers, forcing firms on a steep learning curve.

Firms like Jackson McDonald and Lavan Legal have appointed pricing committees; others are using cost consultants to help them tackle the issue. There is even talk of pricing specialists being employed from other professional disciplines such as engineering to help lawyers quote on jobs the way other sectors have always had to.

Alternative billing methods, as they are known, even have their acronym, ABM.

“Lawyers are having to get a lot better with costing methodology,” said Mr McLean.

“Clearly engineers have had to deal with that for a long time, but it is very new to us.”

US-based consultant Ron Baker from Verasage Institute has been seen as an evangelist for this concept, holding seminars in WA to rid knowledge workers like lawyers from what he calls the tyranny of the timesheet.

Mr Baker told WA Business News that Australia’s legal scene was more influenced by the judiciary in this respect.

A good example was WA chief justice Wayne Martin’s May speech to launch law week which was titled ‘Billable hours – past their use-by date’ in which he argued that timesheets hurt the profession and their use should be reduced.

A recently released benchmarking survey by the Australian Corporate Lawyers Association found that its members, often the client side of the legal transaction, were also grappling with this issue.

It found 39 per cent of respondents thought hourly billing was not very appropriate, rewarding inefficiency and offering no incentive for success.

However, former ACLA WA president and Bankwest senior legal counsel David Nolan is hesitant to suggest that the billable hour is dead, or even on the way out.

“There is a mix of arrangements,” Mr Nolan said.

“What I am seeing is people are more prepared to look at alternatives.

“It is not a case of throwing away one and bringing in another.”

One problem raised by a Perth lawyer was that most of the costs awarded to winning parties by the courts were based on hourly cost scales.

“How do you work that out? No-one is addressing that issue yet,” he said.