Is Value Billing "Reasonable"?

08/01/2007
Reprinted from:

Published 08/07

Have you ever felt like you weren't getting enough value for your money? Lawyer fees can sometimes seem unreasonable to the client. Find the right ways to communicate value to your clients to ensure overall satisfaction and timely billing.

All pricing is arbitrary. Whether the pricing decision is to sell a pharmaceutical drug for hundreds of times its production cost, or to sell an automobile below its production cost ("and make it up in the volume," as the ads used to say), that decision is up to the seller. The seller must understand costs, set profit targets and gauge market demand. The decision ultimately is a matter of the seller's choice.

What Is Reasonable?

This brings us to lawyers. A lawyer in any given area of practice, at any given firm, can charge for services at an hourly rate, a flat fee, a contingency fee, or a mixture of these and other billing methods. Moreover, the amount of those charges can vary widely. The only requirement, according to the ABA Model Rule of Professional Conduct 1.5, is that "a lawyer shall not make an agreement for, charge, or collect an unreasonable fee." The Code defines "reasonableness" by such factors as:

  • The time and labor required
  • The novelty and difficulty of the questions involved
  • The skill requisite to perform the legal service properly
  • The customary local fee for similar services
  • The amount involved and the results obtained
  • The time limitations imposed by the matter
  • The experience, reputation and ability of the lawyer.
  • Some of these criteria are relatively objective, particularly time required and customary local fees. But to a much greater extent, the Code's guidelines of how to define a reasonable fee are directly related to the value that the client receives in terms of a lawyer's skill, responsiveness, experience, reputation and results.

Who Determines Value?

Value is determined (in my opinion) by the client, not the attorney. But, it's the attorney who must educate the client about "value." It's otherwise hard to use the value or alternative billing approach with clients who are not sophisticated in their own business matters and find it difficult to appreciate how value is measured in a transactional matter or in litigation, and whether the fee for value provided is reasonable. This, of course, brings us back to the need for communication and trust and rapport between client and lawyer so that value is expressed either in units (money) or some other format clear to the client.

Controversies arise over what is a reasonable price when a client fails to see the "value" being offered. Every time you go to a price discussion, there will always be someone who will be willing to lower the price further. Thus, it's important to stay away from that conversation. If you're talking in terms of price per hour, this is easy to reduce the number because you can always increase the hours without anyone being the wiser. It's the old butcher's trick of placing a thumb on the scale.

How Do You Document It?

Demonstrating your value enables you to make a convincing case about the reasonableness of your fee. Once you establish your benchmarks, bill in a regular and timely way, using statements that contain a full narrative of the work done and the goal accomplished by that work. This allows you to provide status updates easily and to reinforce that every action you took on behalf of the client had a purpose. Also, because legal services are often intangible, the more information you can provide about how hard you worked and what your work accomplished, the more likely the client will be to perceive the bill as fair and to pay it promptly.

"Good service," "value" and "solutions" shouldn't be vague buzzwords. All lawyers, in any size practice, can describe what they do to consistently encourage a high client perception of value. Basic elements of that may include:

  • Documented return of client phone calls, by yourself or an assistant, within two to four hours.
  • Visits to clients at no charge to learn about their concerns and understand their business.
  • Time spent preparing your clients for interactive events such as negotiation sessions, depositions, and testimony so they know what to expect and are prepared for what might happen. Don't scrimp on the time – incorporate various possibilities so that clients are not shocked if the outcome, over which you have no control, differs from what they had hoped.
  • Descriptions of promises made and kept, complete with examples of value and service as defined by both parties in the engagement agreement.
  • The number of times you asked clients for feedback (without charge) about whether they were pleased with your services. Give some sense of clients' satisfaction with the service provided, rather than on the results achieved.
  • Such value-added elements will let you generate billing statements that are easy to understand and that clearly list actions taken on the client's behalf while relating them to the time it took to realize that value. These billing statements will be more meaningful to the client, and will go beyond a mere laundry list of tasks performed or a vague notation like, "work on motion for summary judgment, 20 hours." Break any such charge into its basic elements, with the amount of time needed for each: review key documents and deposition testimony, draft statement of uncontested facts as required by court procedure, research precedents in four similar cases, and so on. Such itemization does not try clients' patience – it helps them understand just how much you did on their behalf.

What If the Client Disagrees?

While I endorse the concept of value billing, I will agree that any lawyer is safer, despite the billing methodology employed, when keeping track of time spent on behalf of a client. Where your billings may come into question, either by a judge needing to approve the fee, or because of a fee dispute needing to go before an arbitration panel, the tried and true method of demonstrating what you've done and the reasonableness of your fee usually comes back to hourly metrics.

One might ask, "If a client agrees to value billing, why should it matter whether we keep track of time?" The answer comes back to defining a "reasonable" fee. If a client wants to dispute whether a value charge for a service was reasonable, a time record can provide useful backup documentation. No lawyer should ever let it come to that. If the client pays each bill every month like clockwork, your relationship is working. But if the client owes money and shows very little inclination to pay it, the relationship is clearly on the rocks and the client thinks your fee is unreasonable. You truly have a good relationship with your client only when the client's account receivable is up to date. Delinquent accounts indicate that the client doesn't respect you, is attempting to hoodwink or undercut you, or is dissatisfied and considering disciplinary action against you.

Consistent with the Model Rules and local rules of professional conduct, you should stop work for clients who do not pay. That step should focus the client's attention on the problem. Ask the client what he or she would like you to do to resolve a billing dispute. Listen carefully to the suggestion. Clients who argue about over-billing are often just angling for a discounted bill. If, after all other efforts to collect have been exhausted, the client is merely interested in a fee discount, give it. Do it to get rid of the matter—and the client. Otherwise, Model Rule Professional Conduct, Rule 1.16 ("Declining or Terminating Representation") allows lawyers to withdraw if "the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled."

There's that word again, "reasonable." Make sure clients understand that they're entering a two-way relationship. The lawyer agrees to perform to the best of his or her ability in accord with professional standards, and the client agrees to communicate and cooperate fully – which includes paying the bill. That's a real definition of what's reasonable.

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