How Changes in Legal Fee Structures Are Affecting Paralegals

If you wake up every morning with a very strong urge to log your sleep time toward some client or case account, chances are you work in legal services. For paralegals, hourly billing has become an ingrained habit.

Accounting for how you spend your time, in six minute increments, every hour of every working day, can do strange things to your brain.

But recently, hourly billing practices are getting a lot of pushback in the legal profession. Clients have a lot of concerns, some of which are well-founded:

  • The system is susceptible to manipulation and error
  • Accounting rarely lines up precisely with actual efforts
  • Results are in no way reflected in the ultimate bill

Even in a field as steeped in tradition as the law, custom will eventually bow to competition. Today, new billing practices are starting to find their way into legal services. Paralegals need to get ready to deal with the changes.

Alternative Fee Arrangements Are In Your Future

The American Bar Association calls these alternatives to hourly billing “Alternative Fee Arrangements” … clients just call them “a better deal.”

That’s because they work toward creating an alignment between the client’s interests and the law office’s interests. When hourly fees are the rule, then it’s in the interest of the legal practice to work as many hours as can be justified. And you know exactly how thin that justification can be sometimes. Even in the most ethical practice, if there’s a rational choice to be made between a quick fix and a longer one… well, you already know what the solution will be.

But AFAs can set up relationships so that the best thing for clients is also the best thing for practice profitability… keeping everyone happy.

Value-based Billing

Traditionally, the difference between good and mediocre legal services has been reflected in different hourly rates. A less experienced lawyer, or one with a less stellar reputation, could be expected to charge less than an accomplished and experienced lawyer.

But clients aren’t thrilled at the idea of paying high hourly rates for commodity services.

Intrepid lawyers are dealing with this challenge by basing their fees on the value of the service to the client.

For instance, drafting a contract to protect a $20 million procurement deal might involve the same type and amount of language as a contract for a $20,000 deal. But on the face of it, it’s crazy to charge the same amount for both services—the client has a lot more to lose if things go wrong with the larger contract.

In practice, this isn’t necessarily different from taking cases on contingency. Lawyers in some areas of practice have long joined clients in accepting some of the risk of failure, in return for taking a healthy chunk of settlements when they succeed.

Now, lawyers are applying this approach to all sorts of cases and services.

Discount and Performance Bonus

A related trend is offering service guarantees. Some firms are dealing with client dissatisfaction by offering money-back guarantees for work that is less than satisfactory.

As with any kind of guarantee, particularly when dealing with something subjective, some of the risk is shifted to the provider. But the flip side of these arrangements is that they also usually include a bonus for performance. A client might agree to pay an additional 20 percent if a legal matter is concluded favorably and within a certain time span if they are offered a 50 percent discount in the event of an unfavorable resolution.

This motivates everyone—clients and the legal team—to work as hard as possible for the desired outcome.

Fixed Fee Services

For other services, flat-rate deals are becoming more and more popular. By treating common services – things like contract generation, drawing up wills, and even handling entire divorce cases – like commodity offerings, law firms can offer them as package services and charge fixed rates.

This approach offers a lot of transparency that clients can appreciate. They know exactly what they are getting and what it will cost them, up front and aboveboard. It’s also more predictable for the firm itself. Although the highs and lows that come with hourly fees aren’t there, the smooth predictability of the revenue stream has its own accounting benefits.

Structuring certain offerings as flat-fee services can have additional benefits to the firm. It can force you to establish an efficient and standardized service offering instead of taking on the inefficiencies that come with bespoke services for every client. In turn, this pattern can be tweaked and optimized for maximum efficiency, giving the firm an opportunity to optimize the revenue stream for those services.

Alternative Fee Arrangements Are About Transparency As Much As Value

Even in cases where firms are hanging on to their hourly billing practices, many are opting toward greater transparency and client feedback on bills and billing.

Electronic billing systems help with this practice by instantaneously providing a detailed accounting of charges. Many now allow firms to deliver those bills online, providing detailed statements to clients through web-based interfaces that are driven directly by the firm’s accounting databases.

Changes are also happening internally. With a reduction in emphasis on billable hours for revenue generation, firms have to find other ways to identify and reward top-performing staff.

In an industry that has long worshipped the supremacy of the billable hour, this can be a challenge… don’t be surprised to see your managing partner sweating and moaning in their office as they try to come up with alternatives.

Get Ready For Different Performance Metrics As A Paralegal

Without the grail of the billable hour as a management tool, firms are having to reinvent the wheel to evaluate employee performance along the same lines as companies outside the legal profession have done for decades. Performance-based evaluations that account for more than just the time you spend with your nose to the grindstone are probably coming to a law firm near you soon.

There are other trickle-down effects that can help or hurt paralegals as well…

The upshot – The transparency in billing arrangements mean clients can see who in the firm is performing what tasks. When high-priced lawyers are doing paper shuffling, clients want to know why… and along with this comes pressure to push more tasks down the pipeline to paralegals. That’s great news in terms of expanding the type of work you could be tasked with, something that will increase your value to the organization, and ultimately may mean more pay for paralegals.

Possible downside – On the other hand, it’s also forcing some law firms to tighten up staffing. A move toward using contract staff and outside services firms can put your job at risk. Although the role itself will still be available, you might be doing it without any of the traditional protections or benefits that come with being a full-time employee.