Disadvantages of Time Based Billing (Part 1)
At Lynn & Brown Lawyers we believe that there are significant advantages to you as a client of Agreed Fixed Pricing. We also believe there are also significant disadvantages in the model of time billing.
In this article I discuss some of those disadvantages that present to you engaging legal services on a time billing basis. As well as the advantages that we have written about in our article from last month’s newsletter, these are some of the reasons why we have changed our pricing model. As discussed from 1 July 2017, every new matter that is commenced at Lynn & Brown Lawyers in all our areas of practice is being provided on an upfront agreed fixed price and will not be billed on a time basis.
Conflict of interest
Time billing creates a conflict between the interest of the client to achieve a quick resolution and the interest of the lawyer in billing time. In litigation in particular the client has an interest to reduce steps and the time taken between the commencement of the proceedings and their completion, whereas the lawyer has an interest in maximising them. The client’s interest in early resolution by agreement is the opposite to the lawyer’s financial interest.
Client bears all the risk
Time billing passes basically all the risk of what the costs could be to the client. It is very unusual in a commercial transaction for one party to bear all the commercial risk. Where that does occur, it is usually reflected in a very modest profit to be obtained by the party bearing minimal financial risk. That is not usually the case with lawyer’s services.
No upfront price
A lawyer’s “quote” of an hourly rate is not really a quote. Lawyers are required by law to provide an estimate, which is not a quote, and the ultimate price to the client may be much higher. I have been advised by a corporate lawyer who purchases legal services for a large Australian company, that when requesting the pricing of those services she would often ask the lawyers if they could fix the price at the higher of their range of estimates. She advised that she was very rarely able to do that. This is the inherent problem with estimates and hourly rates that the client cannot budget or be aware of what the likely cost would be.
High levels of complaint
The Legal Services Commissioner estimates that approximately 80% of complaints by clients relate to charging them. The dominant charging method the subject of these complaints is time costing.
Focuses on hour not value
When a lawyer charges on a time costing basis, they are not focused on production of value for the client as it rewards effort not result. There is a promotion of quantity over quality and repetition over creativity.
Fosters a production mentality
Time billing discourages efficiency or innovation because time costing and profit therefrom would reduce by the development of efficiencies.
Time costing can encourage a lawyer to look down every rabbit hole and over allocate resources to an issue. It discourages finding the most effective and efficient way to work towards a resolution of a matter. Time billing discourages communication between the lawyer and the client. The clients are aware that every time they contact their lawyer it increases costs. There is therefore a natural instinct of the client to communicate as little as possible with their lawyer. This can prevent the lawyer receiving the full picture or information necessary to advance the matter to as quick a resolution as possible.
Discourages strategic case planning
Significant matters such a complex litigation or complex commercial transactions require careful planning if they are to be conducted effectively. Techniques of project management can greatly assist this and minimise costs and increase efficiency. This is often not effectively adopted in law firms as the time billing method does not incentivise this to be done.
In next month’s newsletter we will explore more reasons why we at Lynn & Brown believe that time billing is not the appropriate way to charge for legal services.
If any of these matters herein resonate with you and you are in need of acquiring legal services, we would appreciate the opportunity to provide you with a proposed agreed fixed price for our services.
Call us today to make an appointment on (08) 6141 1513.
About the author:
Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.