Time Billing v Fixed Fees – Legal Services
Posted: February 27, 2020 5:41 am Categories: Legal Costs
Recent Market research done by Lawyers Weekly reveals that about 40% of law firms are now offering fixed fees to their clients rather than time costing/billing them.
Law firms who time cost their work will usually charge their clients in 6 minute increments. They employ bill preparation software. Each lawyer logs in the units of time spent when working on the client’s matter. When its time to bill the client, the billing software prints out an invoice that itemises each item of work done and allocates the billable time units to each work item. This is totalled up to give the total price the client is invoiced for.
Lets suppose a client asks his lawyer to prepare a complex letter.
The service takes the lawyer 60 minutes to complete.
Let’s say the lawyer’s hourly rate is $400 per hour. This translates into $40 per every 6 minute billable unit of time.
The time billing lawyer completes the work and invoices the client $400 based on the time costing method.
The lawyer who offers a fixed fee will estimate the time and skill involved in offering a particular service – in this case drafting a complex letter.
The fixed-fee lawyer will tell his or her client – I am happy to prepare this letter for you and my fee will be $x.
Will that quoted fee necessarily be $400, same as the time costing lawyer? No.
The fixed-fee lawyer will factor in his/her estimate of time to prepare the letter (based on prior experience), level of skill required and also consider any reasons to discount the cost for this particular client. Reasons for discounting could include loyalty of client to the firm, how much work the client brings to the firm, client is a good client and always pays bills quickly and client brings a lot of other work to the firm.
So which is better for the client – fixed fees or being time billed? It seems the answer is “it depends”.
Depends on what?
A client’s preference. Some prefer to know that they are being billed strictly on professional time spent on each item of work. They can look at the units of time in the bill and raise a query or objection if it seems excessive.
Some client’s may be wary of a fixed sum quote as they don’t fully understand how it is arrived at.
Some prefer the certainty of an up front quote.
Time costing and billing is open to abuse and clients can end up paying for unproductive time.
Lawyers working in time billing firms are under constant pressure to chalk up maximum units of time each day, week, month and year to improve the firms bottom line.
Time billing exposes clients to being billed for unproductive time spent by lazy unfocused or distracted lawyers; or lawyers who overstate the time spent on particular jobs where it will be near impossible for the client to work this out.
A time billing lawyer who takes your phone call and speaks to you for 30 seconds with you will be forced to time bill you 6 minutes for that phone call. The time billing model will not permit anything the lawyer does on the client’s file to be billed for under 6 minutes.
Many clients find this aspect of time billing to be totally unacceptable. However, they are powerless to complain as every time billing firm has the client sign a cost agreement that permits the law firm to bill them in 6 minute time increments.
Fixed fee billing works best where the lawyer providing a legal service has had long experience in doing particular types of work and has a good understanding of the comparative going rate amongst his or her contemporaries for providing a similar service.
Clients are naturally anxious about being exposed to a big time costed bill “out of the blue” without any forewarning of the size of the bill.
Fixed fee billing gives certainty and peace of mind. Clients who accept a quote for a particular service know precisely what they are up for and when they will receive the bill. They can plan for it.
I hope this post will be useful to you in deciding which way to go on this issue.
Whitelaw Legal Group is in the 40% of law firms that offer fixed fees wherever possible.
In some types of work it is simply impossible to give a firm up front fee quote on the entire cost of the legal services being requested. This is often the case with litigation where it is impossible to know all the twists and turns of litigation that may go on for years.
What you can do however is break the whole of the legal service down into discrete parts, sections or steps and provide a quote on each part, section or step.
Christopher Whitelaw | Director | Whitelaw Legal Group