Harry A. Payton Commercial Law Blog on Lawyers.com

“Value” is the word of the day, and rightly it should be.  In these times, more than ever, every service provider is challenged to provide value.  Alternative fee arrangements are generally thought of as providing value.  The question is:  “Do alternative fee arrangements really provide value, or do they merely shift the risk from the client to the attorney?” The answer is that they can provide value, risk shifting, or a combination of both.

The purchaser of legal services cannot know if an alternative fee proposition is better than an hourly fee arrangement unless he understands whether his hourly fee arrangement is based on efficient or less than efficient services.  The alternative fee comparison holds up only when the provider and purchaser can agree that the services provided under the hourly fee arrangement have been provided in an efficient manner.  In today’s economic environment, we frequently hear it said, “If you can’t measure it, you can’t manage it.”  So, if you don’t know whether hourly billed services have been provided efficiently, you cannot know if an alternative arrangement is better.

 For over 18 years, the Committee on Corporate Counsel of the Section of Litigation of the American Bar Association has been grappling with increasing legal fees and corporate America’s struggle to bring escalating fees under control.  That effort produced the Uniform Task-Based Management System, often referred to by the acronym “UTBMS.”^[1] Using this system, billing for legal services follows a standardized format that allows analysis of the past, a picture of the present and useful information for projecting the future.  Most legal service billings do not employ this system, and to my knowledge most purchasers of legal services do not request such a format.  If that is the case, then how can one argue that alternative fee billing is preferable to hourly billing in controlling legal costs?  I do not believe one can.

I am a proponent of the UTBMS.  (I ought to be, since I designed the original protocol along with Rich Alpert, who, at that time, was in-house counsel with Xerox.)  The reason is simple.  It breaks down legal services into recognized stages of litigation.  The five phases of litigation (case assessment, development and administration; pleading; discovery; trial prep and trial; and appeal) are further broken into tasks of as few as three (appeal) and as many as seven (case administration et al. and trial prep and trial).  So, just as with recognized financial statements, the discerning purchaser of legal services can determine on a month-to-month or other periodic basis as well as on a cumulative basis how efficiently the lawyer or law firm is performing.  That analysis can be compared to other suits and other lawyers and law firms, which is one of the major benefits of a uniform system.

Do I favor alternative fee arrangements?  Yes.  Do I use them?  Yes, and fairly frequently—from straight contingencies, to hybrids of part fee and part contingency, to performing blocks of work for a fee with a cap.  There are some cases in which I have given the client the choice of several alternatives, any one of which would have been acceptable to me.  I do this because I am able to make projections based on my use of the UTBMS. I know what I have in my database.  That is, I know what my blended rate is to a fair certainty; I know the proportion of senior time, to junior time, to paralegal time for complex business litigation; I know how much time is required for trial preparation. I know a lot of the metrics involving my business because I have been tracking fees and ratios for the last 17 years.  Can anyone state from memory the range in percentages of costs to fees in a complex commercial dispute?  What do you tell the client when he asks how much he can expect to spend in costs?

The point that I am making is simply this: we have the means and the know-how to measure what we as lawyers do.  A purchaser of legal services cannot effectively measure the value or efficiency of legal work merely on the basis of a bill produced in chronological format. If purchasers of legal services are not taking advantage of a task-based bill, then they cannot effectively choose between hourly billing and an alternative fee arrangement without simply shifting the risk to the attorney.  A client cannot know what fee arrangement is most cost-effective (exclusive of shifting the risk) unless he can ascertain the provider’s efficiency under an hourly billing arrangement.

Short of the client knowing what he has and what he is paying for, I see alternative fee propositions merely as risk shifting and it is usually a shift to the lawyer.  Clients can smartly select alternative fee arrangements when they fully understand the efficiency with which their lawyer or law firm has performed in the past or can be expected to perform in the future.  If you can’t measure it, you can’t manage it; and if you don’t know what you have, you can’t know what you are getting into.