More Lawyers Join the Shift Away from the Billable Hour

Ron Baker of Vera Sage Institute posted yesterday about yet another lawyer moving away from hourly billing in his post, Memphis Attorney Moves to Fixed Pricing. Attorney Scott Ostrow has decided that hourly billing no longer serves either him or his clients, and he's decided to move to fixed pricing. I look forward to hearing more about Ostrow, particularly since he is a business litigator, and in my many discussions of fixed fee pricing for lawyers, business litigators are the most adamant that such a pricing scheme is 'impossible' for their practice.

Baker's post references an article from the Memphis Business Journal entitled, "Memphis attorney goes to task-based billing, but don't expect local trend" and takes issue with a quote from Tom Clay of Altman Weil, Inc. that, "[v]alue billing is hard to communicate to clients. Who calculates that value? Clients' views may not be consistent."

As Baker points out, just because value may be difficult to communicate, and just because different clients may have different ideas of value doesn't mean you shouldn't discuss value. Even attorneys that bill hourly must communicate value to their clients if they want clients to understand the services they're being provided and be willing to pay for them. The fact that value may vary from client to client and may be difficult to communicate is an argument for, rather than against, value pricing. It's better to get clear at the outset about what the client values and get agreement about the fee (not the rate, but the fee) before the work is done. What happens if you bill by the hour and the client decides when they get the bill that they don't value the work you've already performed?

Critics of task-based pricing include lawyer Lucian Pera, who is quoted in the Memphis Business Journal article claiming that task or value pricing doesn't make sense because 'not every deposition is worth $500' (the amount the article notes Ostrow charges for "standard" depositions). While that may be true, the mere fact that Ostrow charges $500 for a 'standard' deposition doesn't preclude him from charging $1000 (or $300) for a particular (non-standard) deposition. The difference is that task-based pricing, as Ostrow himself notes, is a collaborative process with the client, which allows "the client to participate in the litigation process and evaluate which steps make financial sense to pursue."

Proponents of hourly billing such as Pera claim that clients "shouldn't" be surprised when they receive a monthly bill based on hours. And yet, whether they 'should' or 'shouldn't,' clients often are surprised - because the minutes add up quickly and the typical client can't estimate in advance how much time the lawyer will take to perform specific tasks - assuming that the lawyer has done a good job of communicating what those tasks will be in the first place. So clients are often surprised - after all, if lawyers insist they can't possibly estimate the time (and therefore the fee), how can clients be expected to?