Time To Change Clock Watching.
by David Vilensky
Georgina Dent, BRW, March 2012
Since June 2010, Perth-based law firm Bowen Buchbinder Vilensky has improved its client relationships, increased staff engagement and boosted profitability. The firm has also attracted several new clients, has better cash flow and its managing director, David Vilensky, says he is regularly fielding emails and phone calls from lawyers eager to join the practice. All this has happened because the firm implemented fixed-fee pricing. Vilensky has only one regret since he abandoned time billing: “That we didn’t do it many years ago.”
Time billing has been a blessing and curse for law firms.
The pluses come from having a model where every moment spent working on a client’s matter is paid work. To achieve this, lawyers record their time at work in six minutes blocks and at the end of each month, the time sheets are aggregated and the client receives a bill detailing every minute spent on their matter. It’s also bred a highly competitive culture as the clear path to being a big biller has been to spend more time working.
The downside has been the pyschological pressures of clocking in and clocking out, with lawyers knowing that every minute not spent on client matters is a minute where they are not billing. A bigger minus has been the inherently unproductive logic of time billing
which means that there is no incentive for lawyers to do things faster. However, despite these problems, lawyers have been unable to adopt an alternative model such as fixed fees because, in many ways, while time
- Link to the original article >>billing makes lawyers depressed and clients unhappy, it’s made the profession very profitable.
Vilensky himself was a sceptic about fixed fees until, in early 2010, he attended a presentation by US author and professional services consultant Ron Baker, a passionate advocate for abandoning billing by time. “To be honest, I was sceptical but after seeing Ron the penny just dropped,” Vilensky says. “So much of what he said resonated.”
However, his fellow partners thought he was mad. “It’s a quantum leap when you’ve spent your whole career selling time,” Vilensky says. “Selling intellectual capital is a very different concept and you need to be convinced of it.”
So Vilensky flew Baker out from San Francisco, shut the office for a day and had all 25 staff members attend a full day presentation. “It was brilliant and the best money we’ve ever spent,” he says. “Everyone was impressed and we decided to move in that direction.”
The firm set July 1, 2010, as the starting date and embarked on creating the systems to support the new pricing model. “We had to invent our own infrastructure from scratch because there were no templates,” Vilensky says. Four partners spent weeks drafting the necessary documentation, including fixed-fee agreements and variation orders, establishing the mechanics for a value pricing committee and creating guidelines for scoping work. “It was really difficult to do and we made a lot of mistakes,” Vilensky says. “We underquoted on several matters and were then locked into those prices but we’ve got much better at it.”
The benefits for clients, employees and the firm have been convincing. “The change in atmosphere is probably the biggest advantage,” Vilensky says. “Without the relentless drive to reach billable hour targets, lawyers are free to just get on with practising law. Timesheets are a terrible way to live. I hated it.”
Aside from giving clients certainty on fees and reducing the time pressure on lawyers, the process of pricing each matter upfront is valuable to all parties. Every piece of work is presented to the pricing committee before being accepted by the firm. “Each matter is effectively brainstormed by three or four lawyers before we even start,” Vilensky says. “The lawyer leaves that discussion with a much clearer understanding of what work will be required and the client doesn’t pay for that.”
The client then receives a quote for the work which they can accept or disregard. The firm will not negotiate on its first offer and has had a 95 per cent take-up rate. “It saves so much time because instead of sending out long bills justifying every minute of time each month, we send out the bill with ‘fee as agreed’,” he says. “It’s not always cheaper for clients but they get certainty and efficiency upfront.”
BBV is one of two law firms in Australia that offer only fixed fees. Despite the consensus in the profession that billable time has its failings, alternative models have rarely been adopted wholesale. “There is an ongoing discussion, particularly in law firms, about the relevance of billing by hourly rates,” Johnson Winter & Slattery managing partner Peter Slattery says. “We have embraced some alternative billing arrangements because of the disconnect between hourly rates and value.”
Bridging that gap is the major stumbling block. The amount of value a lawyer creates on a deal is subjective, and lawyers naturally prefer objective criteria. “It’s a genuine dilemma that firms and clients are grappling with,” Slattery says. “If it was easy it would have been fixed.”
Gilbert + Tobin’s managing partner, Danny Gilbert, agrees. “It is difficult to see the link between value and hourly rates,” Gilbert says. “But just because it has deficiencies doesn’t answer the question of the best way to bill.”
That kind of response frustrates Baker. “I’m stymied that lawyers, very intelligent people, deny the reality that the billable time model is broken and there isn’t an alternative,” he says. The alternative is value pricing, which is the way most companies from airlines to management consultants sell services. In contrast, few occupations sell their services solely on the basis of time and Baker says pricing lawyers that way is imprudent. “Lawyers are knowledge workers and people engage their services for their output,” Baker says. “Putting those employees in a situation where their only valued contribution is time is a terrible way to live. That’s why so many people leave the profession.”
Baker admits it’s not a straightforward transition. “It’s a huge project because it’s not just a change in pricing,” he says. “It’s a paradigm shift that changes the business model. It requires a firm to consider how it creates value for its clients and how to capture that.”
However, Baker says there’s a chance the legal profession won’t embrace fixed fees in his lifetime.
“We’re nowhere near tipping point yet,” he says. “I think the significant driver for change will be the competition for talent as lawyers will be attracted to employers who don’t value them on their time in a cubicle.”