Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. We are an 18-attorney firm based in Tucson, Arizona. Our practice is a boutique general liability defense firm. Our clients tend to be self-insured large corporations and smaller business firms. Currently all of our clients are billed by the hour. Recently, we have been discussing whether we should propose an alternative billing approach to our clients. We would be interested in your thoughts.

A. I do not want to discourage alternative billing - there are a lot of benefits that can be obtained. However, I find that firms practicing your type of law with your type of clients that alternative is talked about more than actually implemented. You may find that your clients like the thought of the certainty of fixed fees, but have concerns about the quality of representation under such arrangements. Recently, a litigation defense law firm asked me to interview their clients concerning their satisfaction with the law firm. When asking one general counsel about his thoughts regarding alternative billing he told me:

"My concern with fixed fee billing is that there might not be the financial incentive for the law firm to dedicate all the resources and best efforts to obtain the best results for our company. I prefer hourly billing with case management plans and budgets. I want our law firms to be financially successful as long as they achieve results for our company and not be penalized or constrained by fixed fee arrangements."

You may find that your clients are open to discussing alternative billing arrangements but may be hesitant when it comes to implementation. They are comfortable with hourly billing.

With this said I think you should explore the dialog with maybe one pilot client and see where the discussion leads. Insure that you do the proper analysis of that client's billing history, overall risks, and develop a fixed fee strategy that not only allows you to attain your desired billing rate but provides for a risk premium as well. Also build in ability to take exceptions for matters that fall outside the scope of the fixed fee arrangement.

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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.