RISKVUE ARCHIVE | FEATURE STORIES

Watch Staffing And Billing Practices When Hiring A Law Firm

Staffing Practices

Often when organizations engage a law firm to provide legal services, they simply accept the prospective law firm’s methods of staffing and billing. However, organizations can save money on legal fees and benefit from improvements in service by negotiating changes in the firm’s staffing and billing practices. Organizations can use a written legal service agreement, negotiated before the law firm has been engaged, to clarify the organization’s expectations and to specify changes to keep costs down and service quality high. In particular, organizations should focus their efforts on making changes to the law firm’s staffing and billing practices, two areas where many potential problems can arise.

Like insurance brokers, accountants or doctors, not all lawyers are created equal. Although a law firm may have an excellent overall reputation and may employ many fine lawyers, care should be taken to ensure that the legal services provided to the organization are actually performed by the highest quality staff within the firm.

Demand Attorneys With Adequate Experience

Law firms often assign junior associates or summer clerks to work on legal matters as a form of on-the-job training. However, some organizations may not wish to bear the expense of training junior associates or summer clerks. As a result, an organization can specify in its service agreement that junior associates and summer clerks may not staff their matters unless they are performing strictly clerical or support functions. Or the organization may decide to allow junior associates and summer clerks to work on the project, but only at the law firm’s expense.

Organizations also should consider specifying in its service agreement what the allocation of work will be among the legal team members. For instance, an organization might specify that at least a specified percentage of the total hours be partners’ hours. For important matters, the organization may insist that the percentage of partners’ hours be high in order to avoid the inefficiencies or mistakes of inexperienced associates. Other matters, such as large litigations, may not require such a large portion of the partners’ time and use of more associates may not seriously effect the quality of the legal work.

Insist On Continuity

Organizations should satisfy themselves that the attorneys who begin working on the organization’s project will stay on the legal team until the conclusion of the matter. In some law firms, for example, a few partners have first pick of the best associates and will freely reassign the best associates from pending matters to their own projects. Such pilfering can have a devastating effect on the efficiency of a legal team and can lead to increased costs. Each time a new attorney is assigned to a project, the attorney must become familiar with the project, often at the organization’s expense. Organizations also should be aware of their law firm’s staffing practices that also could affect continuity of the legal team. For instance, some insurance defense firms pass case files from attorney to attorney. The first available litigator is assigned to cover each deposition, motion hearing, or status conference as it arises, regardless of whether that attorney has any familiarity with the case.

Organizations can remedy the potential problem of continual loss of attorneys to other projects and assignments of new lawyers to the legal team by specifying in its service agreement the particular lawyers responsible for performing the work and that the law firm will not change the composition of the legal team without the organization’s permission. The organization also should require the law firm to pay the cost of a new lawyer becoming familiar with the work, regardless of the reason the original team member becomes unavailable.¹

Billing Practices

Typically, law firms will bill their clients on an hourly basis; however, organizations may be able to enjoy reduced legal costs by negotiating alternative fee arrangements. Such billing arrangements can include negotiated hourly fees, blended hourly rates, fixed or flat-fee methods of billing, relative-value billing, and contingency-based fee arrangements.

Negotiated Hourly Fees

Organizations need not accept a law firm’s flat hourly fee. Hourly fees can be negotiated based on a number of factors, which can include the quantity of work or the efficiency of the work being done. For example, discounts may be obtained for large volumes of business or reduced rates may be applied when certain goals are not achieved.

Blended Rates

Blended hourly rates may be negotiated to encourage delegation of work from partners to associates or to other attorneys with lower billing rates. Blended rates allow the organization to be charged the same hourly billing rate for all lawyers working on the matter.

Unfortunately, such rates can create an economic incentive to assign as much work as possible to the less-experienced lawyers with lower regular billing rates. To avoid such problems, organizations that decide to use blended hourly billing should specify in their service agreements the members of the legal team and that junior attorneys will not do work that requires more experience than they possess.

Fixed Fees

Fixed or flat fees can be negotiated for services that are well-defined and where unforeseen difficulties are unlikely. If a law firm has provided similar services over a long period of time, the firm should be able to determine what a reasonable fixed fee per service would be. However, as the legal matter develops, it is a good idea to periodically reevaluate the fixed fees to see if they are adequate.

Relative-Value Billing

Organizations may want to consider relative-value billing, where billing rates vary based on the type of service. For example, a traditional example of relative-value billing is a higher rate of billing for the time an attorney spends in court. Organizations also can use relative-value billings for other uses, such as discouraging overstaffing of a legal team. For instance, organizations could decide to either pay a reduced billing rate for the time spent in conferences between lawyers of a firm or to pay nothing at all.

Contingency Fees

Organizations also may want to consider using contingency-fee-based billing. Contingency fees are a method of sharing the risk of litigation between the organization and the law firm, in which the law firm only gets paid for producing positive results. This billing method has traditionally been used in personal injury cases where the plaintiff is unable to afford legal fees, where liability and damages are relatively less difficult to estimate, and where counterclaims are extremely unlikely. Commercial and defense litigation cases are more difficult to put on a contingent fee, but may, nonetheless, be possible.

The case that the law firm would be willing to take on a contingency-fee arrangement likely is the type of case that an organization would prefer to pay for by the hour. The more difficult cases are those that the firm will least likely take on contingent fee, but which the organization would prefer to be done on contingency. Organizations should inquire as to whether their law firm will consider a contingency-fee arrangement or some variant.

There are several variations to contingency-fee arrangements that may be more acceptable to a law firm than a standard arrangement. For example, the amount of the contingency fee may be reduced in consideration for an additional non-contingent hourly fee that is at a greatly discounted hourly rate. Paying some hourly fee, even a discounted one, permits the law firm to cover its costs while reducing the organization’s expense if the litigation turns out to be unsuccessful.

Another possible contingent-fee variation is to combine a low hourly rate with a contingency fee that varies based on the result achieved. For example, organizations can deduct hourly fees paid from the amount of the contingency fee that is ultimately earned by the firm.

Conclusion

Although organizations can attempt to negotiate a written legal service agreement at any time during the engagement of a law firm, organizations have the most leverage during the selection process. After a law firm has been engaged, it may resist attempts to limit the composition of the legal team or to change its billing practices. Consequently, organizations should sit down with their law firms before an engagement and draft a service agreement specifying the organization’s expectations and requirements. Such an agreement can help to improve the quality of the legal services and reduce costs. 

Notes
¹ One method to ensure that this agreement is being upheld is for the organization to review attorney invoices to affirm that the same team of attorneys initially assigned to a case continues to handle the matter from month to month.

riskVue | The webzine for risk management professionals
April 2000