Matter-based fee arrangements and the new paradigm of legal services

Matter-based fee arrangements for legal services is an emerging and alternative billing method to the traditional time-based pricing model. Increasing pressure from clients for greater value and transparency has prompted law firms to adapt their billing operations in order to remain competitive in a legal landscape that is being transformed by technology.    

A new paradigm of legal services

Recently, evolving client expectations driven by the digitisation of services has disrupted the traditional legal operating model.

The digital age has ushered in a new paradigm of legal services where clients now demand greater transparency, accountability and value for their money.

The new billing operating model offers alternatives to time-based and 6-minute increment billing practices to provide greater transparency, accountability, flexibility and customisation in client service delivery. These alternatives include matter-based fee arrangements such as value-based fees, estimated fees, capped fees, fixed fees, fee for phase of work, and any other methods agreed upon by the lawyer and client. Essentially, legal services are now a buyer’s market, where clients expect to know what they will be paying for up-front, have the opportunity to compare prices, in addition to increased service flexibility and service customisation. Accordingly, many legal departments are embracing the concept of Law-as-a-Service and shifting away from traditional time-based billing, where, the emphasis is now placed on the value of client service delivery, rather than the time taken to complete a task.

What are matter-based fees?

Matter-based fee arrangements is one type of alternative billing method emerging in the legal sector. Through this model, lawyers and clients mutually agree on the estimated fee for a particular matter according to the scope of work (or work brief) and whom the work will be completed by, prior to the lawyers issuing, or the client receiving, an invoice. As a result, the lawyer and the client can both have an increased sense of certainty, each knowing the parameters of their agreement through which they have the ability to budget their time and resources accordingly.

Some additional benefits of matter-based fees for the client include:  

• • Greater control over the billing process, expected outcomes and service delivery
  • Reduced likelihood that a matter will exceed the agreed upon budget without their express permission
  • The ability to compare prices of legal services with a like-for-like comparison

Some additional benefits of matter-based fees for lawyers include:

• • Establishing stronger relationships with clients
  • Opportunity to increase lawyer productivity, and the efficiency and effectiveness of client service delivery
  • Fostering a culture of collegiality and agility within the firm that favours quality of work, rather than quantity of work

How can a firm transition to the new legal service operating model?

There are a number of ways firms can transition their clients to alternative fee arrangements. For matter-based fees, a client can be asked to clearly articulate their objectives and expectations regarding the execution of a particular matter, including matter urgency, strategic impact, and even who they want to lead the matter (e.g. a partner, or an associate). Subsequently, the law firm can evaluate three criteria: responsibility, expertise and time to determine the services that will be required to meet the client’s objectives, as informed by a cost analysis of similar matters from preceding engagements.

In more specific terms, the law firm can identify:

• • The most appropriate person, team or process to be responsible for the particular matter
  • The level of expertise
  • The estimated and reasonable time it will take to complete the matter

As a result, the law firm can provide an informed cost of services estimate, which helps the client proactively budget their legal expenditure prior to receiving the invoice. Furthermore, a written notice can formalise the agreement by including:

• • A clear billing schedule based on the scope of work
  • The person, team or process that will be working on the matter
  • A requirement to notify the client if the cost of the matter is likely to increase (managing scope creep)
  • A requirement for the client’s expressed consent before a firm can exceed the agreed upon budget

A matter-based approach to fee arrangements removes ambiguity and allows both parties to come to an agreement that optimises service delivery and enhances the value of the outcome.

Optimising processes using technology – law firms

Another way that legal departments and their law firms can transition to a streamlined approach to managing alternative fee arrangements is through the use and integration of legal technology (LegalTech). According to a recent Westpac Smart Industry Report, many firms have begun to implement and partner with legal technology providers and start-ups to foster innovation and promote operational agility. It is important that while lawyers may not charge by the time spent completing a task, they can charge for the value of the work that they deliver. Thus, technology systems that streamline matters and reduce the time spent on manual tasks are effective tools that can increase business efficiency while reducing the risk of burnout.

Optimising processes using technology – in-house legal department

Technology systems used by the modern legal department can play a significant role in the successful implementation of matter-based fees with their law firms. Legal technology options include matter intake, matter-management and spend-management operating systems, that control and streamline the process of receiving business instructions, briefing and engaging law firms, as well as legal document preparation.

Matter management and matter intake systems can be used to create logic-based workflows that track and allocate matters based on expertise and capacity to reduce inefficiencies and optimise matter completion. This includes:

• • Ensuring instructions are sufficiently detailed
  • Streamlined briefing of law firms
  • Shared interface between client and law firm for collaborative matter management
  • Built-in workflows to manage requests and approval for change of scope and budget
  • Invoice receipt, review and approvals

Empowering collaboration

The benefit of having a secure and shared interface via a legal operating system is that the lawyer and client have the ability to collaborate, agree on fee structures, share relevant documents and monitor the task in a transparent and accountable manner.

Importantly, legal technology also provides access to data that reveals insights that can be used to predict and create standardised and accountable cost of service estimates based on previously completed tasks and the available resources.

Through this, private practice lawyers can more efficiently manage their clients’ matters and provide predictable budgets, while offering faster, seamless and a more valuable client service delivery. Consequently, their in-house legal department clients benefit from a higher level of transparency, customisation and quality assurance.

Conclusion

Alternative billing practices such as matter-based fee arrangements are likely to remain key features of the new, technologically advanced legal paradigm. In the past, time was the currency of legal operations, now however, the client’s experience is top priority, and the medium of exchange demands efficiency, transparency and service value. Accordingly, lawyers can adapt to the changing landscape by reassessing their billing practices and incorporating legal technology into their process to enhance client service delivery and remain competitive.