Risk can shift when law firm changes its billing approach changes
Joel A. Rose, a Cherry Hill-based management consultant who advises law firms, said alternative billing arrangements can pose challenges for both law firms and clients.
Many clients are wary of alternative fee arrangements "because they feel that at least with hourly rates, they know what the lawyers are going to be charging and they have some basis for projecting what the cost will be," Rose said. The client can also estimate fees under alternative billing, "but many of them don't understand how," Rose said. "The other problem is that a great many law firms don't know how to estimate what their fees should be."
Large law firms "are able to engage individuals who can help them determine what their costs would be, and they have very sophisticated ways of tracking costs. But not that many firms have that capability," Rose said.
Rose added, "When (lawyers) bill on an hourly basis, the client assumes all the risk. But if I (the lawyer) say to the client 'I think it will cost $10,000,' it is going to be up to me to make sure that I manage the work that I'm doing in my law firm to ensure that it's not going to exceed $10,000. The risk is assumed by the law firm to come up with an excellent work product for the fee that had been quoted. And this requires a lot of sophistication on the law firm's part."