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LawBiz® Legal Pad: No, It's Not the Same: Pricing vs. Billing, Part 2
Ed advises: keep track of your work, bill timely, and collect efficiently.
Are your fees reasonable?
MyCase features my guest blog post suggesting that there is plenty of work for those lawyers willing to be realistic both in the nature of the clients they serve and the fees they charge.
While you're at their web site, check out their software. It has been reviewed by many and is well - regarded.
Legal expenses - perception is reality
There are at least two components of legal costs: Fees and expenses. When one is clearly out of line, the other is perceived to be out of line. Perception is reality.
Much has been written about the $1,000 per hour legal fee. It's out of line, too high, much too expensive, etc. But the writers fail to assess the competitive market for those services and whether those services have some very special expertise connected with the fee that justifies the fee. If, for example, you're in a "bet the company" situation, you want the best lawyer you can get. If you're in a criminal trial as was OJ Simpson, you want a particular lawyer and team of lawyers. You will pay the asking price.
If you're facing a normal contract dispute, one might consider this a commodity type of legal battle, one not requiring the best lawyer in the state; a good lawyer will suffice and the cost of his/her services will be adjusted downward accordingly. Some call this commodity pricing.
If you're a very large bankrupt company, you need specialized professional expertise. According to Bankruptcy Court filings (attorney fees need to be approved by the judge), many lawyers in this arena are receiving $1,000 per hour. Nothing out of the ordinary here.... this is reality.
However, when these same filings show application for expense reimbursements that are out of the ordinary, then questions arise. For example, why should the bankrupt estate pay for first class airfare, for normal photocopying charges, for faxes, for overnight hotel stays at the Waldorf-Astoria, etc.? Many such expenses are considered part of a firm's normal overhead; many such expenses can be lowered by conducting oneself in the "normal course of business," such as charging for coach airfare (not first class or business fare), hotel charges (at a Marriott, etc. rather than the Waldorf).
Any "over" charges should be at the lawyer's expense not the expense of the estate. After all, isn't that why the lawyer is receiving the larger per hour fees? It's when the lawyer begins to "nickel and dime" the client or take advantage by charging more than "ordinary" expenses, the perception of over-billing extends over to the fee itself. When asked, I usually advise my clients to reduce the expense charges and their fee charges will not be questioned. It's usually the $5.05 charge that brings the whole bill into question, not the other way around.
Does your insurance policy cover contract lawyers?
This issue has arisen in a number of conversations with clients.
Why would you engage a contract lawyer? For one of several reasons: (i) even out the work flow; ii) engage expertise you don’t possess at the moment; (iii) gain time to observe the quality of work of a potential hire; and (iv) determine if you have enough work in the long term to hire a permanent employee.
Once you hire a contract lawyer, whether for a designated number of hours or a specific project, do you know whether that lawyer is covered under your errors and omissions insurance policy? Often, policies are written to include all the attorneys you hire after your policy commencement date up to the end of that policy term period. Then, your premium is based for the following year on the higher number of lawyers now on staff.
But, the question remains, are you covered for what is, in essence, a part-time employee. Check with your broker; read your policy. Make sure you know the answer. Many lawyers require that their contract lawyers specifically name them on their policies with an endorsement. Of course, remember that most policies are claims-made policies, not occurrence policies. So, your policy must be written in such a way as to cover negligence asserted in the current period though the alleged negligence was committed by your contract lawyer in an earlier period and is no longer present. Ask. Be sure.
What's Wrong With Your Practice ... Perception or Reality?
Most of us can notice when something “isn’t right” with our bodies, and we often are quick to jump to a conclusion about the cause. Yet what we perceive to be the problem, and the reality behind it, may be much different.
A urologist recently shared an example with me, saying that many people come to him to “fix the problem” of an over-active bladder at night. They typically attribute it to a “plumbing” issue that a pill or even surgery can cure. Yet this doctor suggested that, as people age, they sleep less and they’re likely to be awakened more easily by sounds that didn’t disturb them in earlier years – a dog barking, the house creaking. Once they’re awake, they decide to honor the bladder urge so they can go back to sleep. The perception is that there is a physical medical problem. The real cause is the natural aging process and the best “cure” is to accept it.
Transfer this lesson to a law practice. Most lawyers are quick to perceive a problem when there is less money coming in the door. They immediately jump to a conclusion about “the cure” – do more marketing, or raise rates. The reality is that declining revenue typically began long before as a problem with receivables. Generating new work to cover declining revenue simply isn’t the answer. The strategy is to make sure clients know they must pay their bills within 30 days. And the way to do that is specify clear collection terms in the engagement agreement. Lawyers perceive every client as valuable and hate to cut them loose; the reality is that continuing to do work for overdue clients who don’t pay shows those clients are not worth keeping.
A new study by George Washington Law School showed that realization rates (the amount of money billed that is collected) average 83.6 percent for all law firms, a figure that is a historic low. If you perceive your revenue is down, and the reality is that you only collect 80 cents on the dollar, you’re like the urologist’s patients – you won’t get many good nights of sleep.
Feeling overwhelmed?
“I’m so overwhelmed, I just don’t have time to take care of myself.” Those were the first and last words of a very short conversation I had recently with an obviously harried lawyer. Do you feel the same way? Are you in the same position? See our newsletter for suggestions on how to address this feeling.
LawBiz® LegalPad: No, It's Not the Same: Pricing vs. Billing, Part 1
Ed advises: keep track of your work, bill timely, and collect efficiently.
Wisdom revised
From Alan Weiss, my coach, who develops pithy sayings to sum up the human experience. In his latest one, he says It's not "garbage in, garbage out" these days. It's "garbage in, garbage gets stuck and clogs everything up."
So let's look at the world as it is and, to paraphrase another saying, work with what we can control and ignore the rest. Our lives would be much happier and more productive.
Every time I have a complaint, I see the person next to me with a greater problem or challenge. I realize how blessed I am. Have a great Monday and rest of the week..
Do you need a little inspiration to keep going?
Last night, I saw the film, Life of Pi. It was a uniquely inspirational story of survival, a boy on a stranded raft in the Pacific Ocean. There are parallels in today's legal world where sole and small firm practitioners are struggling in the waves of our economy.
Today, I received a question from a reader, asking the meaning of "specialize or die." I responded that this is a catchy phrase used by those who believe that one can succeed only if they specialize. While it is true that the specialist generally earns more money than does the generalist, there still remains an important place for the generalist … and in a changing economy, the generalist will, again, generally, be more nimble and flexible to provide services in a changing marketplace of ideas. In both instances, however, there is a struggle to survive ... and to thrive. In all cases, however, the lawyer is providing loving and caring help to those in need. Money is merely the by-product.
Today, I also received an email about a cowboy and his dog, named Skidboot, in Texas. It is an incredible story and one of great inspiration. I hope you take the time, about 8 minutes, and enjoy and marvel at the dog as much as I did. This cowboy knows how to do more than survive with the blessings bestowed on him by his dog. I suspect we can all do more to appreciate what we have.
LawBiz Legal Pad: What Are Clients Looking For Anyway?
Ed talks about lawyers who provide solutions and who communicate effectively and often with their clients.
LawBiz® Legal Pad On the Road!: Old Files
Pop Quiz! When do you get rid of client documents? A) As soon as the case is over B) 2 years after case is closed C) Never. Watch this week's clip to hear Ed's answer...
Virtual lawyers in trouble?
Virtual veterinarian faces a legal test in Texas. He moved his practice online and talked to distressed pet owners by email and telephone. He charged a flat fee, generally, and recommended treatment options. The Texas State Board of Veterinary Medical Examiners suspended his license for violating the state law that prevents veterinarians from setting up a medical relationship solely by telephone or electronic means.
The AVMA claims that it is protecting the public's interest. The vet claims that the regulation is intended to protect the brick-and-mortar veterinarian practices.
Does this sound familiar? Every Bar regulation that I've ever reviewed (or testified against) has been sustained on the basis of protecting the public. Where are the interests of the membership, the very professionals who pay dues to keep staff employed? These interests seem to be relegated to the back of the bus, if not ignored completely. In the legal community, this "ship" has sailed. I don't think anyone would claim that a "virtual" law practice is illegal. It will be interesting to see how the Texas court rules in this matter.
Pricing contract lawyers
Are contract lawyers an expense or a fee item? This issue has been litigated before and, according to my reading, has been resolved in favor of the law firm. The law firm is entitled to engage contract or temporary lawyers for one price and charge the client a higher price. One rationale for this is that the firm can engage lawyers on a short term basis, without a long term commitment, to provide the work for the client that is necessary. When that job or assignment is completed, the law firm can sever the tie with the contract lawyer and retain a lower overhead. Everyone benefits: the lawyer who otherwise would not have been employed; the law firm that can take on additional work and its resulting benefits; and the client whose goals can be met more efficiently and timely.
The issue usually arises from a complaint by an insurance carrier who is responsible for payment of legal fees under a policy of insurance or a creditors’ committee that wants a larger share of available funds and finds the law firm(s) an easy target. Currently, the Citigroup class action legal fees are being challenged by a group called the Center for Class Action Fairness.
The allegations in this case go beyond the assertion that a law firm cannot charge more than it pays for legal talent. If this were the only issue, the challengers would have no standing; this issue has been resolved and it would be a major reversal of thought for the court to rule otherwise. But, the real issues are whether the engagement agreement mentioned anything about contract lawyers and, if so, what were the terms; what risk did the law firm accept when its fee was based on a contingency (was this a novel area of law or one in which plaintiffs had not been successful before); what was the expertise needed in the matter for which contract lawyers were engaged, and what was the expertise actually engaged; and were the fees charged “reasonable” under all the circumstances.
In this case, the total fees amount to less than 17% of the class action settlement. The court will have to decide whether this was a reasonable fee overall and/or whether each component of the fee requested reasonable. The added risk for any law firm taking on this type of case is that its fee is always reviewed on Monday morning ... the Monday morning quarterback always has a better perspective than does the game-day quarterback. While the large company client can protect itself by hiring the contract lawyers directly, though they could then hardly expect the law firm to oversee that portion of the work product. The client can further protect itself by objecting to paying the legal fee and litigating the fee. But, how does a law firm protect itself against the client (usually someone else speaking in the shoes of the client) so as to avoid an after-the-fact conflict?
Newsflash: McDonald's focuses on "value"
McDonald’s advertising is changing, according to one report. Last year, Big M promoted higher-priced menu items. While more healthy food is important, Big M couldn’t show the value of its new menu items to the consumer. Today, the company's emphasis is on “value,” the lower priced items that its customer base is accustomed to receiving.
If your market is the commodity-type legal services, then you will have less flexibility in setting legal fees. If your market is more toward the unique, the special or the bet-the-company type practice, then you will have greater flexibility and can charge more for your services. The key element is to understand the nature of your customer and then communicate effectively with the client.
