18 February 2021

6 Success Factors for Matter-Based Fees

Insights

In Australia, many corporate and government legal teams are successfully utilising matter-based fees as an alternative to a focus on time-based billing. Across a range of industries, practice areas and work types this approach has been tried and tested in practice in recent years as a means to balance outcomes with predictable billing.

Both legal departments and law firms advocate for this paradigm shift and focus on project and matter scoping, fee estimates and fixed fees, matter and budget management, and importantly, valued relationships. We believe that it is through the successful implementation and execution of matter-based fees that we can ultimately envision a legal industry without 6-minute increments.

To achieve success with matter-based fees quality inputs from each sides of the legal services transaction is essential and there are 6 key elements: instructions, scope of work, sharing of expectations, framework for managing change, efficient transfer of information, and transparency.

Let’s examine each of these in turn.

1. Instructions

The adage of ‘you only get out what you put in’ absolutely applies to instructions or briefs that are sent to professional services providers. Instructions should include as much background, context and information as necessary for the efficient and successful completion of the legal matter. This will not be a ‘one size fits all’ and consideration should be given to what is required for each type of matter. Whilst clients are the ones who typically initiate instructions, law firms will also know the minimum details that they need to deliver results, so collaborate on this where possible.

Even small improvements in the consistency, completeness and depth of instructions can have an impact and will be welcomed by law firms.

2. Scope of work

There are good reasons why improving the scoping of matters is being hailed by many as the focus of 2021 with benefits including efficiency, reduced wastage, and enhanced matter outcomes. A well scoped matter provides a shared framework around the business problem, clarity over assumptions and sets expectations around the ideal outcome. Importantly, it highlights what is excluded or considered “out-of-scope”. A scope of work can be one-directional (client to firm) or a collaboration between the client and the law firm and include aspects that are foreseeable based on the experience of the law firm.

A scope of work can be applicable to the most complex of legal matters involving numerous stages and phases of work, right down to an agreed scope for work for routine business-as-usual transactions.

Best practice should mandate an agreed scope of work prior to commencement of all legal work.

3. Sharing of expectations

The psychology of buying behaviour highlights that a client will always have implicit expectations and as such it is important to share these explicitly so that this can be reflected in budget or fee proposals and project management outcomes. For example: does the client want a partner to run the matter, or would they prefer an associate to be the main resource? What fee structure is preferred? What impact does this have on the business? What is the strategic importance of this matter?

Sharing these expectations means that the law firm does not have to guess and also reduces the risk of over-delivery or over-engineering, such as a law firm providing and charging the equivalent of an ‘Audi’ when a ‘Ford’ would suffice at a reduced fee.

4. Framework for managing change

Fees based on a scope of work require a consistent and disciplined approach to manage changes to the scope of work. For example, when something that was previously considered out-of-scope is now required, how will the law firm and the client adapt and respond without reverting instantly to time-based billing? An agreed framework between client and the law firms should include a change-of-scope approval process where the client approves the updated scope of work and updated budget or fee arrangement.

5. Efficient transfer of information

This approach to managing matters and fees demands that all matter and budget information described above is shared accurately, securely, and efficiently. Technology can be an enabler for success and should not be under-estimated in delivering transformative change. Clients and law firms can automate the flow of work and data to streamline these processes and remove manual tasks and duplication.

6. Transparency

Time-based billing is incredibly opaque which is why corporate and government legal teams spend large sums of money on ebilling solutions that analyse, verify and investigate how law firms are spending client resources retrospectively. At the opposite end of this spectrum is transparency and visibility and this can be achieved using the approach outlined above: with clear instructions, an agreed scope of work, explicit expectations, an agreed framework for managing change and an efficient transfer of information between all parties.

Transparency can also be extended to the sharing of non-sensitive information between legal departments and law firms such as reports and feedback on why law firms have won or lost bids for work, tracking of spend vs agreed budget, how scopes and budgets are managed, and many other types of feedback that is both qualitative and quantitative.

Sharing of information and feedback such as this, along with collaboration and open communication is an excellent foundation for strong business relationships with benefits to all parties.

Pathway to change

Whilst there are law firms that advocate for project and matter-based fees and indeed build these processes and protocols into their ways of working, the most traction across the industry comes through buyer-led market demand. It is through buyers (the client) requesting, enquiring, or perhaps demanding this new approach that can bring all a client’s incumbent law firms on this transformation journey.

To be clear, the approach described in this paper is not theoretical or idealised, it is proven in practice, and we believe that matter-based fees, with the structure and focus on outcomes, predictability and transparency, will be the springboard for the industry to transition away from the over-reliance on the billable hour.

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