Lawyers are often criticised as being resistant to change, whether it be procedure, ways of working, or technology.One area those in practice probably do like to see keep with the time is that of fees.The notion that all lawyers are “fat-cats” is quite simply a ridiculous prejudice, one that has been a central argument to the Legal Aid row currently boiling over in England. But fees are a vital area of discussion, as they are a measure on how well a company or individual solicitor is doing, and the generation of increasing fees is a basic essential to grow any business.

 

Fat profits 

 

News recently that leading firms in London are being “squeezed” on “fat profit margins” would no doubt be met with glee in quarters outside of law.One reason for the slimming down of these margins is put down to a growth in clients asking for fixed fees, instead of hourly rates. The Times reported that a survey, by Thomson Reuters, found that the purchasing power of clients was part of the reason. Nearly half of the finance directors of top 100 law firms saw fixed fees as the “No 1” threat to their profit margins.

 

Rather than seeing it as a threat, it should be seen as inevitable, something that is happening and to be embraced. 

The chatter of the onslaught of fixed fees is not new bulk providers of legal work have been insisting on them for more than a decade. But reluctance to embrace them, particularly for commercial litigation means it has taken time for them to become a fixture. It is true there are difficulties in introducing them across all areas of work. Banks and other sophisticated litigators are starting to ask for fixed fees and looking for more certainty of the cost at the start of any litigation.

 

Commercial litigation 

 

Clearly, in large commercial litigation, fixed fees are more difficult as the very nature of the work has varying degrees of uncertainty, and flexibility, attached to it. But the model should test lawyers, and create a new set of skills when it comes to setting out predictions and estimates. Again, in litigation, lawyers will need to put a firm handle on how many hours they will spend taking witness statements, gathering research and putting a case together. 

They will have to be far more specific in terms of what they are going to do, when they are going to do it by and how many lawyers it will take to do it. Requests for fixed fees increases the pressure to more accurately predict the costs.Cost budgeting under the Jackson Reforms is another, and indeed the two can be seen to go hand in hand.

 

Play by the rules

 

The fall out of the Andrew Mitchell libel case has shown the urgent need to solicitors to play by the rules when it comes to Jackson. Regarding Jackson, we now learn that litigators from many of the City’s top firms have expressed deep concerns about the impact of the reforms. The general grumbled is they have increased the cost of litigation without improving its efficiency. The litigation committee of the City of London Law Society, in a paper it has submitted to the Civil Justice Council, focussed criticism of costs budgeting and the impact of the Mitchell ruling. Whether that is true, lawyers are simply going to have to sharpen up in these areas if they are going to avoid being left behind.  They will have to develop budgeting skills.

 

Market forces

 

Hourly rates of up to £850 have been reported among the Magic Circle firms and the public and businesses are mindful of reports of ridiculous figures being charged. Market forces, like any other industry, will determine the rise of fixed feeds and less focus on hourly rates without limits.  Coming out of recession, there is certainly a growing need for consumers of any product or service to know exactly what they are getting. Law is no different and the uncertainty for clients faced with paying hourly rates for lawyers will lead to a great number of them asking for a firm estimate.

 

Estimates

 

A law firms can of course refuse and stick to the old models – but there will be others ready to step into its place to offer fixed fees or other means of more certainty. The estimate then becomes a danger in itself. Low-ball the fee, and the firm takes a sizeable risk of getting involved in work which runs over time and over budget, and leaves them counting the cost. Go in high and as explained, market forces come into play and just as a customer would in say the construction industry, the law firm is open to the potential client seeking a quote elsewhere.

 

The key is to not only arrive at the right quote but also to manage the work so that the result is delivered within the agreed fee. Third party litigation funders will also embrace the new mood for fixed fees and other methods to provide more certainty.  They already must have detailed budgets and the more accurate they are the more likely it is that funders will be willing to remove the risks for the clients and provide the funding. Whatever may be the desire of commercial litigators in the City, budgeting is here to stay and fixed fees will be demanded increasingly by clients.

 

William Evans is a barrister and consultant to litigation funding company Vannin Capital.