Why Most Lawyers Won’t (or Can’t) Give Clients a Budget

Why Most Lawyers Won’t (or Can’t) Give Clients a Budget

John Toothman has this piece about legal fees in Great Britain getting a hard knock from a couple of their leading Judges and Justices:

Supreme Court president David Neuberger [stated] “where the service is legal advice or representation, there is a public interest in keeping the charge as low as possible.”

“In this connection, the centrality of the hourly rate appears to me to be malign”.

Roger Thomas of Cwmgiedd, who is Lord Chief Justice of England and Wales, called for consumers to use Skype, Facetime and teleconferences to brief lawyers outside London whose rates are generally lower than the prevailing rates in the British capital.

“As a matter of principle, [hourly billing] confuses cost with value. It encourages inefficiency or worse: if a lawyer is short of work it can be surprising how much time a particular task takes.

“Paying by reference to the hourly rate rewards the slow and the ignorant lawyer at the expense of the speedy and knowledgeable lawyer,” Lord Neuberger said.

The problem of uncontrollable legal fees does stretch across national borders.  The primary reason is that generally lawyers are very poor about providing budgets for legal engagements.

The measurement of legal services as a function of time creates multiple problems, the most significant is that there is zero incentive for lawyers to be efficient.  As Lord Neuberger stated, it rewards the slowness and encourages inefficiency. Other problems include false incentives for attorneys who need to achieve a “billable hour quota” to pad their bills, inflating their time spent on a given task, or to bill for minutiae, like billing a tenth of an hour to read a two sentence email.

Senior attorneys, those running Big Law and even smaller law firms, are wedded to the billable hour, not because it is efficient but because it is easy and lucrative. It is easy to lean on the unpredictability factor and then bill per hour spent at a fixed hourly rate.  Rate multiplied time minus any discounts given is a pretty easy and widely accepted billing method. So a monthly bill is sent to the client containing all the time spent on an engagement with almost no thought given to finding ways to control the time spent on a matter.

But for most businesses, large and small, the funds available to pay legal fees does not grow on trees.  As a result, business owners and C-level executives seek some predictability in the legal fees.  More and more owners and C-level executives want budgets and/or legal project management.  But most lawyers and law firms cannot give you an estimate or budget for a legal matter because they simply have not done the necessary work to truly measure time and effort and the reasonableness of that time and effort.  Far too often, if pressed for a quote, they are relying on gut instinct or long term experience and almost always include the caveat, “But we can’t be sure about that number because legal matters are inherently unpredictable.”  Big law partners and their smaller firm colleagues do not rely upon the hard data they have at their disposal.

But all law firms who use billable hours have at their disposal the ability to determine budgets.  Every bill sent to a client has the necessary data–the time entries.  Admittedly, the current data is not exactly perfect since it comes from an atmosphere of bill padding and lack of controls to make the provision of legal services a cost efficient exercise.  But, an analysis of those time entries for matters is relatively simple.  Assigning each task performed with a number of major and minor tags and/or categories then allows the data to be crunched, manipulated and studied to arrive at budgets or at the very least some guidelines for budgeting.  Given the past predilection for bill inflation, crunching these numbers would give a partner generally a high end estimate for all but the most cutting edge matters that have little or no precedent.

Client Takeaways

1.  Don’t accept from your attorney that a budget is not possible.  Tell them that they have the ability to at least compare your engagement with previous similar engagements and arrive at a probable budget.

2.  Scrutinize your legal bills to make sure you are getting efficient, effective and relevant services.