Issue link: https://epubs.iltanet.org/i/7694
www.iltanet.org The Business of Law 39 incurred. The client incurs all risk. If the project requires more work than is anticipated, the firm bills more hours, and the client spends more money. The same is true on recoverable expenditures. If the firm makes more copies than expected, the client pays for them. In recent years, corporations have tried to place some controls on their law firms, largely through outside counsel guidelines. Firms were generally limited in how much they could charge for copies or how many attorneys could attend a deposition. While this provided the client with more control, it did not shift any risk. Unless they were in direct violation of the guidelines, the client still had to pay the bill. Put another way, the firm might agree to bill no more than 15 cents per photocopy, but there was no limit on how many photocopies could be made. Since the beginning of this recent "Great Recession," more and more corporate law departments have been trying to shift risk onto their firms, asking firms to provide a simple "fixed fee" for a project. The firm provides a single number and that's what the firm is paid. (This is an oversimplification in many cases: the fees may be based on project stages or particular outcomes. But the premise holds true.) This environment forces law firms to do a better job of controlling costs, as the firms are no longer rewarded for overruns. fix The Leak Before you fix The fee Under an hourly billing model, it is necessary to keep track of the number of hours spent on a project in order to bill for them. With a fixed fee, it is necessary, instead, to track hours to make sure that the project is profitable. Similarly, in a traditional model, the firm must track recoverable expenses in order to bill them back to the client. In a fixed-fee environment –– despite the fact that these specific charges are no longer recoverable –– it is even more important to track all project-related expenses. There is no quicker way to get the firm in financial trouble than by quoting fixed fees without absolute clarity as to the firm's actual expenses related to the matter. For a law firm, fixed fees require a detailed profitability analysis by practice area, by client and even by matter. Some expenses, such as client lunches and business development costs, are clearly the firm's responsibility (overhead), but these still must be considered when calculating the profitability of a client or matter. Expenses related to photocopies, scans, faxes and phone calls are historically the client's responsibility, but they are not always fully tracked and sometimes not tracked at all. Other expenses that are "Since the beginning of this recent 'great recession,' more and more corporate law departments have been trying to shift risk onto their firms, asking firms to provide a simple 'fixed fee' for a project."