Published on 4/6/09
I recently participated in a Listserv exchange concerning what has become a common issue: A law firm's largest client suddenly demanded a 10 percent rate cut. Without it, the client would stop sending new work to the law firm.
There was plenty of discussion about how the firm should respond. Some felt that there was no alternative but to agree because the recession has turned nearly all legal services into commodities. Others felt that the firm could push back by asserting the uniqueness of its practice and services - a stance that provoked comment that too many firms believe too much of their own rhetoric.
Then there was the partly tongue-in-cheek response that the firm should agree to the 10 percent rate cut but pad its bill by 10 percent. Certainly bill padding has been known to happen, and some have called it "the perfect crime."
The degree of "perfection" in being able to pull off this unethical action depends in part on how inattentive the client is to the lawyer's bill (except for having a vague sense that it might be too high) and on how lacking in detail that bill is. Press reports about the Bernard Madoff investment adviser scam noted that Madoff's client statements had very little detail, but because the bottom line on their investments looked so good, few clients cared to peek "under the hood."
It's ironic, of course, that the much-maligned billable hour came to be the invoicing standard in the 1960s because corporate clients saw it as a way to better document what lawyers were charging for. Billable hours in theory will provide the necessary details, but not with entries such as: "Work on summary judgment motion, 20 hours." Brevity is not a benefit in billing.
Ultimately, the viability of a billable charge is a matter of trust and agreement between lawyer and client. Value is ultimately determined by the client, not the attorney. But it is the attorney who must educate the client about "value." Most clients recognize the importance of and are willing to pay a fair fee for value.
Adequate billing detail can defuse suspicions that value is lacking in the services provided. A bill that says only, "For legal services rendered," or that is inaccurate or confusing potentially opens the door to concerns or actual allegations that the bill does not show value as measured by specific benchmarks or is padded.
That supports my own Listserv response about the law firm's dilemma. In my experience, the costs of legal services go down more readily when the client and lawyer act as a team and create a budget for future services. The parties generally find that each one will assume certain risks and that the costs will go down.
A general counsel told me some time ago that the mere fact of budgeting caused everyone to focus on the goal line and how to get there most efficiently. In one specific instance, budgeting saved more than $500,000 for this client - all without reducing the rates.
Of course, that reduction also means that the law firm revenue was affected, but rates were not, and the client got the desired result at a lower cost. And, of course, happy clients tend to bring the firm more work.
