General Practice, Solo & Small Firm DivisionMagazine
Billing A Solution to the Technology Dilemma
By Edward Poll
The story of a colleague of mine who recently took the computer plunge is a good example of a perplexing problem that, although rarely discussed, faces lawyers who decide to benefit from the efficiencies of law office technology.
My friend, a sole practitioner, decided to invest in a computer system. He really did his homework, and finally, he bought a new computer and started using it in his family law practice. But soon, he faced what I call the Technology Dilemma. He discovered that with the help of his fancy and expensive equipment, he was now able to perform the same services for his clients in half the time. And as he started billing for those services, he realized that he now had a difficult choice: Should he bill the same amount he always had, so he could take the time savings and pay for all that shiny equipment; or, since his billable hours were fewer, should he pass those savings on to his clients? He asked for my help, but before I explain how I advised him, a digression into the Rules of Professional Conduct is required.
The ABA’s Model Rule 1.1 states that "a lawyer shall provide competent representation to a client...." The rule continues to define competent representation as that which "requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation." This has usually been interpreted to mean that a lawyer must be able to perform services at a skill level generally available in his or her community.
Competence and New Technology
Now let’s take that same concept of competency and apply it to the use of technology. Lawyers everywhere are using computers and taking advantage of other advances in law office technology. That means that any attorney who is not using computers is, by definition, not practicing law at the skill level generally available in the community and may, in effect, not be competent! Such lawyers may now be exposed to malpractice liability.
So the professional rules place attorneys in a double bind: They are forced to keep up with the technology of their peers, or they risk not being able to meet their competency requirements. But keeping up the technology requires an investment of money to purchase the equipment and time to learn how to use it.
Who Benefits From Technological Efficiency?
My friend originally argued that the benefit of the efficiency of his new equipment and procedures should be passed on to him, the attorney. After all, he was the one who made the expenditure to buy the equipment. In most other fields, the benefit of improvements in service efficiency stay with the service provider. Why should the result be any different when an attorney is able to improve the efficiency of the law office? The client, on the other hand, would argue that a contract was signed with the attorney that calls for the delivery of services for a fee based on time spent. If the attorney spends less time on a matter, the client should be charged accordingly.
So this is the dilemma my friend faced. If he reduced his fee based on the time actually spent, he would be hard-pressed to recoup the cost of the equipment, assuming the same work load. And if he didn’t reduce his fee, he was setting himself up for a complaint and a possible malpractice claim. Here is what I suggested.
A Solution to the Technology Dilemma
The ABA’s Model Rule 1.5, after stating that the fee must be reasonable, explains "reasonableness," in part, by looking to "the fee customarily charged in the locality for similar legal services...." Thus, if other attorneys in the community are charging lower fees, which may be partly due to their improved efficiency, then your fees will feel downward pressure.
In other words, you are limited by the competitive level of the fees charged by other attorneys. Your hourly billing rate cannot be increased without ultimately losing clients to other attorneys. So the more money you invest to pay for new technology, the lower your total revenue will be, assuming the same amount of work ought in to the firm. You could also increase the amount of work to stay even, but this may not be practical.
The solution, in my opinion, is to get rid of the standard hourly agreement when signing a new client. Instead, the agreement should, whenever possible, have a laundry list of charges clearly explaining that specified services will be charged a fixed amount ($500 for a simple will, $250 for a set of interrogatories, etc.). All other matters not contained on the list can be billed based on a time-expended basis.
By disclosing fees or charges in this manner, there can be no argument as to how technologically proficient you are. The more efficient you can be, the more money you will be able to retain as profit, which can go to recoup the investment made to become more efficient in the first place.
Clients are ever more sophisticated, and they want to know in advance how much their attorneys will charge for services under consideration. This is also a good selling point for the lawyer. But, of course, by doing this, the client will have a greater ability to compare prices among legal service providers.
In the final analysis, my friend implemented a task-based billing system that took into account both the time benefits of using his new computer system and his need to pay off the equipment investment. n
Edward Poll is a certified management consultant in Los Angeles. He can be reached at firstname.lastname@example.org. You can also visit Ed at www.lawbiz.com.