Business Law Today: Section's Experts

ABA Section of Business Law
Business Law Today
November/December 1998

The Section's experts speak

But are those billing alternatives ethical?

By RAY DeLONG

Is your law firm handling its billing right? Are you getting paid a figure that works with both the firm and with your client? If both sides are happy, does that mean that your approach is ethically pure?

These were some of the topics addressed at a Section meeting in St. Louis earlier this year. The program was titled, "Business and ethical implications of alternative billing practices." The panel was composed of a couple academics, a couple lawyers from firms, an in-house lawyer and a supreme court chief justice.

The justice, the Section's "own" Norman Veasey of Delaware, framed the discussion in terms of today's legal environment: "Life is complicated now because we have so many lawyers chasing clients . . . Of the people who have hired lawyers, less than half believe they were charged the right fee."

Both speakers and the program's booklet outlined some of the choices facing firms when it comes to billing methods:

hourly rates (standard or discounted or "blended bulk" — regarding volume)
partner-based compensation
cap rates (hourly based — not more than a certain amount per hour)
value billing
contingency billing
incentive billing
cost-plus billing (based on actual costs plus an agreed-on profit per matter handled)
budget-based billing
fixed-fee billing (regarding specific types of matters)
task billing

The assorted presentations at the meeting ran quite a range, from reasoned presentation to a slide show complete with sounds of toilet flushing (that would be Ron Rotunda, law prof from the University of Illinois, who has since gained fame as the final copy editor on the Starr Report).

Judging by some of the comments, a number of law firms don't really know what they're doing when it comes to covering costs. George Bermant, Snowmass Village, Colo., noted that "law firms are just learning how much it costs to open the doors. You have to figure out how you're going to get that money back and still make a reasonable profit. . . . If you want to be unethical, there's no billing arrangement to protect the client."

And speaking of ethics, one of the program co-chairs, John Olson, Washington, reminded those present that there are a few bad apples out there: "We are concerned about the damage to the profession by the well-publicized abuses using the hourly-billing method."

In the program materials for the session, the Section's Lawyer Business Ethics Committee, the Law Firms Committee and the St. Louis Chapter of the American Corporate Counsel Association pointed out that "A primary criticism lodged against hourly billing is that the system neither encourages nor rewards efficiency."

One of the strongest recommendations made in the program booklet was that "every alternative billing arrangement be memorialized with a written engagement letter signed by the client."

For a fuller discussion of the various alternative methods, call the ABA at 800/285-2221 for the program materials. Ask for the booklet ($10) with the same title as the program (see above).

One of the panelists, Michael Roster, Stanford University's general counsel, may have summed up what all the fuss was over: "What we're really talking about is that we don't want to be regulated by some kind of consumer protection agency." That's why, he said, we're suggesting rules for alternative billing arrangements.

DeLong is editor of Business Law Today.