Upstarts push harder on the billable hour
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Critics call it “outdated” and “unsustainable”, yet the billable hour — a lawyer’s hourly fee for a consultation — remains the dominant method of charging clients.
But for how much longer? After the financial crisis, big law firms’ clients cut their legal spending. They moved more legal work in-house and were willing to try cheaper alternatives, such as outsourcing, negotiating a fixed fee for a piece of legal work or using technology to automate some processes.
Increasingly they also have the option of hiring a new breed of smaller, nimbler competitors to the big law firm. These upstarts do not charge clients in six-minute increments for advice but tend to offer a clearly defined product at a fixed price.
Belgian law firm De Groote De Man offers an online debt collection platform, Unpaid.be, that helps businesses chase unpaid invoices. Instead of billing customers for time spent, it has an online service at a flat fee of €40 for customers to begin the process without talking to a lawyer.
Jeroen De Man, managing partner at De Groote De Man, had the idea while preparing a spaghetti supper for friends. Stirring the pot, he was mulling over winning more leads to his firm and how to reach people who were intimidated by the idea of using a traditional lawyer. That led to the firm seizing on an opportunity created by the new debt collection laws in Belgium in 2016.
The rules now allow companies to receive a judgment directly without a lawsuit if an uncontested invoice remains unpaid after a set period of time
Previously, chasing outstanding invoices was costly and time-consuming for a business. Either it had to instruct a lawyer, at a typical cost of €125, or work with a debt collection agency that charged a commission of up to 30 per cent, so the case could go to court.
Mr De Man says Unpaid represents an “accelerating shift” from the law firm business model of billing by the hour for routine work. Clients value predictability on how much they will be charged, he says.
“Lawyers think they are different from other businesses — they are not,” he says. “Businesses do not want lawyers to say to them, ‘Let’s do so many hours and see how it goes’, and they don’t know what it will cost.” Mr De Man offers an alternative that is “like buying a car, for example, where you know a car will cost so much”.
“You are turning a service into a product. Unpaid is scaleable and we can handle more volume and more cases than a lawyer has time for,” he says.
The firm has an innovation manager, Peter Van Hende, who says De Groote De Man, which specialises in property, family and company law, is looking at expanding by using online platforms for emerging areas such as the EU’s forthcoming General Data Protection Regulation. “There is a lot of low-hanging fruit in the legal business — it’s not all artificial intelligence and robots,” he says.
So far the Unpaid system has been used by nearly 300 clients; the law firm’s objective is to win 10 per cent of the debt collection market in Belgium.
More legal work is shifting in-house, and strengthened legal teams in businesses are looking at value for money in their legal costs. Instead of hiring a law firm to do a piece of legal work, some companies are hiring freelance lawyers for temporary deals, often through online platforms such as Lawyers on Demand or Obelisk.
Lawyers On Demand (LOD) is one of a new breed of suppliers that promise to give lawyers more flexibility in their working life and to offer clients a cheaper deal. The model of LOD, set up in 2007, is to have lawyers on call for short-term projects. It has expanded as more lawyers seek flexible working and eschew the traditional career path of joining a large firm as an associate and working their way up to partner.
Simon Harper was a partner at law firm Berwin Leighton Paisner, when he came up with the idea for a flexible lawyering service while relaxing on the beach during a family holiday in the Turks and Caicos islands.
“I had a hunch that clients wanted a different way of working and I saw lawyers were increasingly rejecting the traditional way of working . . . Many did not want to be a big law firm partner or general counsel of a corporate but wanted to work in a way that was more autonomous,” he says.
Mr Harper, then in his mid-thirties, set up LOD, which was spun out of BLP in 2012. The platform was a draw for solicitors who wanted to devote time to a hobby or achieve a better work-life balance.
The 600 lawyers LOD has on its books range from one who combines his work with training for marathons to a solicitor who wants to qualify as a gemmologist. Its first lawyer on assignment, Darren Heath, still works with LOD while also running his film production company.
Mr Harper says the trend is not just limited to millennials. “More and more lawyers have come to us to say, ‘I don’t want to work five days a week but want to work in a way I have control over what I do’.”
Not all of them have an interesting hobby to put on the LOD website. “We say ‘that’s fine’.”
The business’s latest move is to launch Spoke, an online service that matches freelance lawyers to company legal departments. After feedback from clients, LOD increased the level of personal contact. “The clients wanted an element of personal contact to project-manage or concierge [the work] and make sure the lawyers are the right match,” Mr Harper says.
As for the billable hour, Mr Harper suggests its decline and new ways of fee charging are responses to new ways of delivering legal services. “It is about pricing things differently to reflect the new models and ways of working. Once the service is done in a different way you can price radically.”
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