What follows are my rambling first thoughts about value pricing, penned without having read any of the leading treatises on the question, and without having read any sophisticated value pricing-based retainers. I am most willing to be shown the nuances and possibilities overlooked in my preliminary explorations. I am not wedded to any of the positions. I put them up for discussion. I think the hourly rate as currently applied is dreadful in many ways, but I have anxieties about how fixed fees and value billing would apply in practice outside the relatively even bargaining ground of major firms and major corporations’ in-house legal teams in which it seems often to be discussed. I have this anxiety that it is not going to do anything to remedy the most basic problem causing the cost of access to justice to be too great, the rapacity of mediocre lawyers, and may in fact exacerbate it. I suspect that well-drafted, well-regulated fixed fees will crap on the current regime, but think the current regime might be greatly improved, narrowing the gap. And I worry about the regulation of fixed fees, given our legal system’s prima facie reluctance to interfere in fairly negotiated contractual arrangements. In other words, I worry that the sanctity of contract will inhibit the adjustment by the courts of fees rendered by lawyers to clients.
When I think of fixed fees, I tend to think of them in very simple terms: ‘I will do your case for $100,000, including disbursements and counsel’s fees.’ There is a tendency to think of the $100,000 as a cap, but in a simple agreement like this, the lawyer will get the fee if the other side dies and the cause of action dies with him, or the other side settles a few days into the retainer, or the client stumbles across a smoking gun which renders their prospects of victory at nil. Galling as paying anyone $550 per hour for a job which may go on and on and on may be, paying someone $100,000 for next to nothing must be even more galling. Of course value pricing retainers may be very sophisticated, and I am guilty of myopia.
There is also, I think, a tendency to think of fixed fees as giving certainty at the outset in a way unique to this method of charging. In Victoria (and, I think, everywhere else in Australia), solicitors must by law estimate at or near the start of a matter its total costs — their fees, witness fees to be charged as disbursements, counsel’s fees, and other disbursements such as trial and transcript fees — or, if that is not practicable a range of the possible total costs. So clients should be entitled to be placed into the same position as the solicitor in terms of knowledge of how much their matter will cost, with the advantage of fixed fee being no more than the apportioning to the client the risk of the matter turning out to be simpler than the price justifies and to the solicitor the risk of it being more complex.
Because of the poverty of solicitors’ compliance with the obligation to give a good faith considered estimate of total costs at the outset (and the almost complete non-enforcement of the obligation), fixed fees represent a great improvement to clients who fix them in their interests. But at least some of that improvement could be achieved by fixing the current system by enforcing the requirement for good faith carefully considered estimates of total costs, rather than moving to fixed fees. Quite a bit more could be achieved by introducing penalties for solicitors who exceed estimated total fees without justification. More again by stamping out fraud. And I suspect that the very real practical advantage of fixed fees begins to diminish somewhat as soon as the fixed fee becomes a series of fixed fees, and subject to scopes of work such that disputes over variations assume all the difficulties of construction law, except that one party will be a lawyer who will not have to engage lawyers to have the dispute on his behalf. Especially is that so in the case of the ad hoc user of legal services who have no commercial relationship with the lawyers within which to negotiate.
I have this anxiety that what fixed fees are really about is allowing lawyers to sell their learning (aka ‘intellectual capital’) for fees much greater than usual rates would allow for the time involved in solving the client’s problem, or advising or representing them. This is where ‘value’ comes in, I worry: where the value of the lawyer’s services to the client exceeds the product of the lawyer’s time multiplied by usual fees, the client should be charged more to reflect the value to the client of the services.
And I think I have a problem with the entrepreneurial professional. No doubt some people think I am an entrepeneurial professional, what with my blog and all, but from time to time prospective clients inform me of their problem, I send them a seminar paper that covers what they know, and they get what they want with a few minutes of my time at no fee. More often, I provide advice for a few hundred dollars which a non-expert charging on time would be likely to charge substantially more for. I think of this as the upside of time based billing, a manifestation of the proposition of the profession as a public service. I want to make a good living, but if I can assist without spending too much time, then I feel some sort of duty to do so. Of course there is nothing about time billing which makes it inherently favourable to giving away your intellectual capital. Value pricers can be kind too. But I just get the impression that value pricing as a mindset will tell lawyers that they must charge a premium whenever a good chunk of their ‘intellectual capital’ is let loose. Continue reading “Value pricing”