Negotiating Fees

[pswope]

Consumers are more sophisticated about

the economics of commercial sex than legal billing.

With all due respect, what is the underlying principle that should permit law firms to increase fees if they give a raise to associates. Isn't that a risk that tthhe firm undertakes when it takes on a matter.

The whole system of legal billing is in my mind archaic. It promotes inefficiency and dishonesty (padding hours/ egging clients to litigate instead of settle...I can go on & on).
If clients took the time to understand the value proposition of lawyers, they would not tolerate it.
In fact the growth of in house legal staffs are a direct function of this.
Although this doesn't not apply to every firm or individual atty, it is pervasisv enuf to be a fair generalization.

 

[justlooking]

It's a risk firms assume if they take on a matter at a pre-negotiated by-the-job price.

If they take on a matter on an "hourly rates" basis, how do they assume the risk that salaries will rise during the course of the matter? The only way they could cover that risk would be to charge higher hourly rates at the get-go, to hedge against the near-certainty that salaries will go up while the matter's proceeding.

Your problem really is with hourly billing. Which, as we all know, is a debatable proposition. But once you're doing it, I don't see how rates couldn't reflect salaries.

 

[pswope]

If the retainer states hourly rates are subject to change then I agree. I just do not think it is implicit,specifically when as part of the pitch the supervising partner states that Annie Plotz will be doing most of the work at 175/hr. If the firm gets a rent roll back, does it lower its fees? If It fires 3 associates and splits up the work among the remaining ones?

I do have a problem with the whole structure of legal economics ,but as a disbarred ex, it just comes off as sour grapes.

 

[justlooking]

Do you really see retainers that DON'T state that?

 

[justme]

The problem is that the legal culture is so well ingrained that there is little room for a firm to operate under a billing model that was more in line with every other industry.

The other problem is that the way the legal system has settled in, (expensive) lawsuits are almost unavoidable). FWIW, I believe the current civil legal structure is one of the bigger impediments to free markets and ultimately democracy.

 

[pjorourke]

jl, the unstated assumption you are making is that the clients have a responsibility to provide law firms with constant margins. Associate salaries are just one of the costs that a law firm has and one of the components to profitability. Of course, the biggest driver of profitability is revenue – which is not equal to available hours times billing rates.

Consider the fact that General Mills buys oats to make Cherrios at different prices every day. They don't adjust the price of the ceral box mid-bite to reflect these differeng costs. (or even to stores on a weekly basis) To me, this makes as much sense as law firms automatically changing the price to their clients mid-engagement.

It has been my experience that attorneys in private practice have very little sense of economic reality. Historically, their clients have tollerated these quaint practices. However, as pswope noted, the times they are a-changin.

 

[pswope]

jl

shockingly yes.


jm

The legal industry was able to adapt sufficiently to include value added bonuses to M&A work. It certainly has the wherewithall to adjust its billing paradigm in the other direction as well. The market has not compelled that broad change,although many large corporations have done it an an ad hoc basis.

I've come to conclude that the resources the industry takes in is highly disproportionate to the value/product it gives to the market place.

 

[Slinky Bender]

jl,

The biggest problem I have with the logic you are using is that 1) just as the costs of the client in opperating thier business are of no concern to the attorney, the same holds true vice versa*, and 2) if you want to argue the hourly rise is justified because of increased costs, how do you explain a $12.50 and hour pay raise geting translated into a $50 fee hike ? ( NB I understand how it is justified on new matters, just not on existing business. And if you want to argue that the associate is worth more since he has a year's more experience, isn't it a little like double dipping, since ( assuming a reasonable amount of time was spent on the instant case by the associate ) the "training" has already been paid for by this client ?


* i.e. when I hire an attorney/begin a suit, it is based on the economics of the "deal". If my attorney's costs go up, I don't make any more money if the litigation is successful.

 

[justlooking]

I guess I'd better get a lot of whoring in short-term.

 

[justme]

I've come to conclude that the resources the industry takes in is highly disproportionate to the value/product it gives to the market place.

Despite what anyone says, I think this is the underlying reason for contempt towards lawyers.

(Not that I don't think that there are cases where individual lawyers or firms provide excellent value)

 

[Slinky Bender]

Originally posted by justlooking
Do you really see retainers that DON'T state that?

Originally posted by pswope
jl

shockingly yes.

1) me, too.

2) More than that, as PS stated, it's never discussed, so to hide it in the 'fine print' woudln't really be "Kosher" anyway. Are we going to see a specialty practice of negotiating other firms retainer agreements soon ? ( although I must say that most of cases I deal with only have a rudimentary "Engagement Letter" which gets passed of as a Retainer Agreement ).

 

[justlooking]

Originally posted by pswope
I've come to conclude that the resources the industry takes in is highly disproportionate to the value/product it gives to the market place.

Do you know a single lawyer who doesn't agree with you?

 

[justlooking]

(Other than the one you're probably going to mention.)

 

[pswope]

Yeah. Best friend from L School ( a partner at one of the elite white shoes) no longer speaks to me because I expressed that very sentiment to him.


(otoh, the fact that lawyers seem to comprise one of the largest populations of johns in NYC seems to validate your post)

 

[justlooking]

I said other than him.

 

[pjorourke]

Originally posted by pswope
(otoh, the fact that lawyers seem to comprise one of the largest populations of johns in NYC seems to validate your post)

So next the attorneys will suggest that if the fees charged by their hookers increase, hourly rates should as well. Makes as much sense as the associates.

 

[justlooking]

There's this story that I'm NOT telling right now.

 

[Wwanderer]

Venues

I think SB put his finger on it (first in this thread) when he points out that there are venues and transactions in which negotiating price is totally normal and expected and there are others in which it is unheard of and implicitly insulting/outrageous. The problem is that we don't have any general agreement about which category is the correct one for hobbying transactions. You can say it is like items on a menu in a restaurant or that it is like hiring an attorney or accountant all you want (see above), but I don't see why it is inherently like either one. These are arbitrary market conventions and cause few problems as long as everyone is on the same page and understands the system. There are cultures where nearly transaction is negotiated, even if it is only buying a piece of fruit for packet change, and others where essentially only unique, one-time-only types of transactions are negotiated.

Note that in markets where negotiating is truly the norm, sellers routinely inflate their first quoted price with virtually no expectation that anyone will ever actually pay it. It is not my impression that this is common practice among providers, either indies or those working for a service.

I have been told by many providers that they feel offended by attempts to negotiate a price; some say they simply won't do it; others say that they don't like it but will still give the customer the same service. In my opinion, the latter are probably not as good at covering their feelings as they think!

-Ww

 

[justlooking]

When you think about it, what it's really like is audio equipment.

 

[Wwanderer]

Speaking of transactions

How much would you charge to stop bringing up that topic, jl?

-Ww