Alternative Fees and Technology
By Mark A. Robertson
No one can ignore the fact that law office technology has greatly changed the practice of law within the last two decades. Computers on lawyers’ desks, automated document drafting procedures, computerized legal research, tablets, smartphones, easy access to the Internet and dozens of other changes have impacted both the way lawyers work and the actual nature of what is considered legal work within substantive areas of the practice of law.
Lawyers have long used checklists, forms, brief banks and other methods of reusing work product and enhancing and developing im-proved documents. It is probably fair to say at this point that no law office can reasonably function without at least using computers for word processing functions and reuse of prior work product. By developing smart systems to expedite document production and retrieval of prior work product and forms, lawyers reduce costs of production. This can yield benefits for the law firm or the client or both.
Technology also can be the proverbial two-edged sword for the hourly-rate lawyer. Technology can relieve the lawyer from much mundane and repetitive work, shorten the time to complete tasks involving word processing and provide for a much more error-free final result. However, for the lawyer who bills by the hour, the use of technology often reduces the time expended on a project which often equates to reduced fees.
In a traditional law firm structure, where the experienced partner might be able to do a certain task in far less time than the new associate, the difference was noted by the partner having a higher hourly billing rate. But as technological sophistication increases in legal business operations, one has to believe that one cannot raise the billing rate high enough to cover future contingencies. The 10th time a similar type of transaction is done undoubtedly produces a better set of documents than the first. Can the lawyer raise her rate from $350 per hour to $700 an hour for this transaction if it takes half the time?
One can easily foresee a future where the law firm invests a huge amount of time and money into certain processes with the end result that the actual tasks only take minutes. It is no longer science fiction to envision a future where the lawyer first says to his computer, “Start with corporate form six, insert Mr. Toffler’s and his business partner’s data into it, incorporate special tax treatments A and D and show it being executed and filed here today instead of in his home state” and then reaches for the completed corporate documents as they in-stantly appear.
There is a very positive side to implementing law office technology improvements. These tools can free lawyers and their staff from many mundane repetitive tasks. Efficiency can be increased. Given the complexity of the law today and the length of many legal documents, having technology to assist with document preparation and other tasks is an absolute necessity.
Another positive aspect of technology is the potential superior service that can be rendered to the client. Not only can digital legal research be done more quickly than the traditional reviewing books in a library, but it can also be done more extensively. A couple of hours of traditional book research might have resulted in reading a dozen recent opinions and a few more often-cited landmark opinions. A skilled digital researcher can easily examine many more cases and on-line publishing increases the likelihood that more obscure sources of law may now be accessible. A good document assembly system can reduce drafting errors and result in quicker and better final documents.
TECHNOLOGY AND CLIENT VALUE
Sophisticated clients expect their law firms to have modern office technology. One cannot imagine these clients giving their business to a law firm today without email capability, Internet access and the ability to deliver, receive and handle digital documents. Staying up with the latest in law office technology costs money. Training staff to use the latest technology costs money. Compensating well-trained staff so that they stay with the firm costs money. Adding and training new staff costs money. Computers, tablets, smartphones, Internet access, web pages, virtual private networks and legal-specific software all cost money. Paying for necessary technology can be challenging if the lawyer only bills by the hour.
Unfortunately, the prevalence of technology within society also impacts the attitudes of our clients. Ideas and attitudes about technology are pervasive in society. One would have truly had to live as a hermit over the last several years to miss all of the media coverage of the rise of the Internet, the boom and bust of the dot-com businesses, Microsoft and its legal battles, Google and all of the many ways technology has impacted our lives.
Let’s discuss how this applies to drafting fairly routine legal documents, by way of example. In an earlier age, one of the bundle of values that the lawyer provided to the client was the mechanical ability to produce documents. Not everyone owned or could use a typewriter. This value was often overshadowed in the minds of both the lawyer and the client by the knowledge, education and experience that was provided by the lawyer in producing legal documents. But for many clients, particularly consumer clients, they lacked both the knowledge and the ability to prepare documents.
Now computers and printers are pervasive. Many consumers own them, and those who do not usually have access, either at a school computer lab, Internet café or library. Physically preparing and printing a document presents few challenges. There is no mystery. Many have gone to get a bank loan for example and watched the bank employee quickly prepare and print the loan documents. Everyone understands that legal documents are rarely written “from scratch,” but instead are compiled from forms and prior work product. Many consumers ask “Why pay a lawyer when I can find a form online and fill it out myself?” Many consumers are now answering that question with online cloud products like LegalZoom!
In fact, people do not appreciate how much time attorneys do spend in actually drafting language for unique situations. Lawyers are trained to identify many potential pitfalls that must be avoided. We appreciate the evolving nature of the law and how court decisions and legislative enactments alter our legal strategies and the language contained in the documents we prepare. We understand how adding a single unique aspect to a transaction may create the need for different provisions in several of the documents drafted. Those who do not regularly prepare such documents do not understand. Business clients in particular may use many forms generated on a computer for their office paperwork. While these may be generated quickly they usually are essentially the same transaction being repeated with only the name, address, quantity and price being changed — they see the paperwork only as a means to an end and, absent trouble, they attach no value to the document itself.
As noted previously, sophisticated clients expect their law firms to have modern office technology. They often have reaped huge benefits themselves from technology upgrades, often directly related to their paperwork production and reduction.
Consequently, lawyers are confronted more and more with clients and potential clients who believe that their legal matter is very routine and involves “just filling out a form” by the lawyer. Sometimes they seek to save money by completing it themselves or going online to a commercial website. In other situations, they discount the value that the lawyer brings to a transaction and, mentally, the legal fees that should be charged for “just filling in a form.”
In other words, the ease with which documents can be physically prepared has caused many to devalue the expertise, ability and time that goes into drafting legal documents.
These two aspects of technological revolution present a dilemma for lawyers. As we develop more effective methods of harnessing technology for speedy document preparation and document assembly, charging an hourly rate for the final steps that generate the document unfairly overlooks the investment the firm has made in designing its systems and effectively using its tools. But a switch to charging a fixed fee per document can generate a reaction if the client believes that this is merely an increase in the fees that the lawyer is charging just to fill out a form.
This stresses the need for good communication between the lawyer and the client about the varied complexities of a legal matter and the value of the lawyer’s advice. If the client believes that all he or she has received is a document prepared by using a computer to fill in the blanks, the lawyer’s service will be seen as negligible and minimal.
TECHNOLOGY IN FEE SETTING AND BUDGETS
Technology in the form of an electronically based billing system is useful for establishing budgets for projects based on similarity to prior work. It is through the use of technology already present within most billing systems that you can go through a task-based analysis and examine closed files (and accounting and billing records) to create mini-systems and to estimate or predict fees.
Nearly all computer-based billing systems on the market today have category and coding options that allow a lawyer to track not only similar types of cases and transactions in a larger macro context but also specific components or tasks within the case or project in a micro context. If each case or matter is coded with a category — “Merger/Acquisition,” “Incorporation” or “Divorce” — and possibly subcategory — “Merger/Acquisition: Asset Sale,” “Incorporation: Oklahoma” or “Divorce: Uncontested w/o Children” — then sorting prior activities and collections to determine what the last five or 10 or 100 of those projects took in time and other resources is relatively quick and painless. If the lawyer time for an Oklahoma business incorporation averaged 3.8 hours with an average billing of $1,140 in fees, then perhaps establishing a fixed fee for such work at $1250 might make some sense — particularly if the use of technology in developing an incorporation system with a document-assembly program could mean that the lawyer could reduce his or her average time down to two hours and increase their realization rate from $300 per hour to $625 per hour!
Many billing systems allow the lawyer to break the billing slips down into specific tasks and even integrate the information into task-based billing and transaction planning. Being able to quickly identify the cost and time for certain tasks that fall within a transaction or project will prepare the lawyer to better estimate and budget the costs of large projects. What did the last 15 corporate organizations cost, or what was the average time it took to prepare the last 10 shareholder agreements for clients? Being able to segregate this information in prior matters is crucial to proper budgeting for future business and establishing alternative fee arrangements that the clients will accept.
SUBSTANTIVE SYSTEMS AND DOCUMENT ASSEMBLY
Perhaps the greatest current use of technology in alternative fee arrangements for business lawyers is in the use of document assembly programs and systems to generate documents in a fraction of the time it used to take lawyers to produce them. By developing a substantive system and using document assembly tools — either with stand-alone systems such as HotDocs, TheFormTool and practice-specific programs, internal systems within word processing programs such as WordPerfect or Word or with tools built into practice management systems such as TimeMatters, Amicus or ProLaw — lawyers can cut the time it takes to develop initial drafts of documents and thus build a platform for charging clients for expertise and the documents provided rather than the time it took to prepare them.
If a client needs a business incorporated or a will, he or she likely does not care how long it takes you to prepare the documents, they want to know what the cost will be for the corporation or the plan documents. By developing a substantive system using document assembly as a tool, lawyers can use technology to provide better and faster services to the client and make more money than if they billed the work by the hour.
By developing a substantive system using document assembly as a tool, lawyers can use technology to provide better and faster services to the client and make more money than if they billed the work by the hour.
An organizational system applied to a substantive area of practice can be an effective tool in addition to enhancing the delivery of quality legal services. A substantive legal system is a documented system for handling transactions, procedures or work flow which has the effect of reducing waste, optimizing productivity and contributing to greater efficiency in the delivery of legal services. A substantive system could still be a manual forms system, but in today’s world, a computerized document assembly or expert system makes the most sense. A substantive system en-ables you to provide top-quality legal services promptly, thoroughly and consistently. In short, the law firm using substantive systems with document assembly in their practice can deliver quality legal services for a fair value to the client and lawyer while reducing the lawyer time involved in a transaction and giving the lawyer more time to do something else (work, develop clients or relax).
Substantive systems are not only useful for freeing up lawyer time, but the systems can also be used for marketing legal services. There are many areas of substantive law practice which lend themselves to substantive systems being used as an effective marketing tool. One example is our firm’s corporate practice. We represent many small and medium-sized businesses. These services include advice on structuring businesses, incorporation or organizational documentation, contract work, mergers, acquisitions, dissolutions and other general corporate work. The firm utilizes a number of substantive systems for doing this legal work.
We have a fixed-fee corporate representation service where we prepare annual minutes, act as a service agent, do a corporate compliance check and prepare special meeting minutes for clients for $200 per year. This is done with a substantive system using document assembly to generate the correspondence, reminders, minutes and questionnaires that in most instances requires only 10 to 15 minutes of a lawyer’s time per company per year. Some companies may require several hours of lawyer time, but the average, spread out over several hundred companies, still makes the work quite profitable — and yet a bargain for the clients. For an additional $300 per year, the business client has unlimited phone and email consultations with our lawyers. The firm is able to use this pricing strategy to attract new clients in addition to generating significant additional work as a result of the audit questionnaires and phone consultations, which often un-cover additional legal needs of the client. Being the service agent for the company also generates potential additional litigation matters since the law firm has received the service of process as service agent. By using this substantive system to do corporate work, the firm is able to organize its corporate work better while marketing additional services.
Lawyers can (and should) identify areas of their individual practices and develop substantive systems using document assembly to leverage their delivery of legal services with technology.
KNOWLEDGE MANAGEMENT TOOLS
If document assembly programs and systems are the current technology for alternative fee arrangements, then knowledge management will be the tool of the future. The most valuable asset in a law firm is its intellectual capital — not only the knowledge and wisdom of the lawyers, but the work product of those lawyers and the ability to reuse and share that work product within the firm and with clients. Knowledge management is about sharing and reusing knowledge.
Automated substantive systems are a part of knowledge management — the ability to develop and share a system with templates and forms used to develop a final document. Practice and case management systems networked in a law office can form a part of knowledge management. This ranges from something as simple as a new address inputted once and instantly available to the entire office to something as complicated as shared transaction documents on an extranet with client access to secure electronic conference rooms. Knowledge management is about technology — but also a lot more. Knowledge management is as much about the culture of the law firm that shares its knowledge with one another as it is the method and tools it uses to accomplish the task.
The actual time personally contributed to a task by a lawyer can be almost meaningless in regard to the value of the services. A very narrow and specialized medical malpractice case might require dozens of hours of research, consultation with experts and careful drafting just to prepare interrogatories. When the lawyer has tried four or five of these types of cases, preparation of the interrogatories can be based on prior work product customized with specific facts of each case and might take less than an hour or two. Would anyone doubt that, considering the experience of the lawyer, the interrogatories in the fifth case were superior to those propounded in the first case even though they took less time to draft?
Experience improves the lawyer’s work product and abilities. As experience allows lawyers to perform tasks more efficiently and quickly, the traditional response over the last four decades has been to raise the hourly billing rates. Therefore associates charge one rate, while junior and senior partners charge higher rates. Yet, as many lawyers have come to realize, experience may not always be rewarded with higher rates. If the medical malpractice lawyer mentioned above charged $3,500 for the first interrogatories prepared (10 hours at $350 per hour), can he or she raise the hourly rate to $1,750 per hour for the two hours it took to do the interrogatories in the fifth case? Is it ethical to “pad” the time to reflect 10 hours’ work when it only took two?
The ideas of knowledge management and reuse of prior work product have been utilized in law offices before computers existed. Paper brief banks and internal form books not only increased efficiency, but also helped provide a superior work product. Technological advances escalate these ideas. Thousands of briefs in research banks can be effortlessly searched using Google-type search technology. Similar transactions can be replicated to start a new project for a client. Knowledge management provides the tools to the lawyer to look beyond the billable hour in determining what a fair fee shall be for the services performed. If the culture of the firm is to share research, knowledge, ideas, data and even anecdotal information with one another, then technology can capture that knowledge and help the lawyer extract it when required for the next project, case or client need.
TRANSACTION FEES — SHARING THE COSTS (AND BENEFITS) OF TECHNOLOGY
As legal technology tools have increased, so has the lawyer’s ability to share the costs of those tools with the clients — particularly if the tools help reduce the fees that would otherwise have been charged for the services provided. More frequently, lawyers are building the cost of specialized programs into the fees charged the client for projects that the programs significantly reduce the costs and time it takes to deliver the service. Depending on the nature of the transaction, the program costs are sometimes a part of a fixed-fee arrangement or may be a separate charge in addition to an hourly rate or other time charge.
One common tool in which there is normally a transaction charge would be for one of the electronic research systems (WestLaw, NEXIS/LEXIS, etc.) wherein a lawyer may incur a charge for specific research or have a flat monthly cost arrangement and then bills the charges as a flat rate or includes the charge into an electronic research hourly rate that might be different from the standard rate as has been determined by the agreement with the client. Another common tool used in securities practices is a licensed document assembly system that generates blue sky forms and certain Securities and Exchange Commission filings in which the law firm might charge a fixed fee per filing that covers both the technology licence as well as paralegal and lawyer time in completing the documents.
Some lawyers may be concerned that exposing too much of the law office technology to the client in this way may affect the client’s perception of the lawyer’s value. Modern-day clients will, however, expect that their lawyers will incorporate technological tools into their practices in the same way that many of these clients have been forced to rethink their business processes in light of new technological capabilities.
Sharing information with one another and with clients can be a critical tool for moving beyond hourly billing as the only measure of value provided by lawyers to their clients. Technology can now be used to share information over the Internet through extranets accessible to the clients, lawyers and other members of a project team. Extranets can provide a cost effective and secure Internet-based storage center which allows documents, email, discussion group threads, calendars and other information to be stored in a secure area that can be accessed by those needing to participate. Different areas of the extranet can have different levels of security and access. Law firms are already building extranets for their clients as a part of the normal delivery of legal services. These firms are not only generating revenues from the use of such technology collaborations but also cementing the relationship with the client. The immediate access to all relevant information that these clients enjoy makes other law firms without such tools less attractive.
Law firms and individual practitioners are also using the Internet and document assembly technology combined with expert systems to work with clients in developing standard documents for routine transactions in which fixed fees rather than hourly billings are frequently the norm. An Iowa firm has a website within which individuals can enter the information online for their own simple wills. Another firm has established a loan document system in which the lender and borrower provide the information electronically and the documents are generated, reviewed, finalized and emailed for closing without a paper draft copy being printed — all for a fixed fee. An international financial printer has developed secure websites where multiple law firms, issuers and underwriters have access and can create, post and edit documents for the workgroup to use before electronically filing them with the SEC.
This article is intended to provide the reader with some examples and ideas demonstrating how lawyers can utilize technology to increase efficiency with their own resources and can think beyond the billable hour. Use of technology can be the great equalizer between large firms and solo and small firms — not only in the practice environment but also in providing creative ways to provide value to their clients and bill appropriately for that value.
More information on alternative fee arrangement can be found in two books published in 2014 by the American Bar Association: Alternative Fees for Business Lawyers and Their Clients by Mark A. Robertson and Alternative Fees for Litigators and Their Clients by Patrick Lamb.
Note: This article is adapted from a chapter from Alternative Fees for Business Lawyers and Their Clients by Mark A. Robertson, a 2014 publication of the ABA Law Practice Division, 2014© by the American Bar Association. Re-printed with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Mr. Robertson’s book is available for purchase at www.shopaba.org.
ABOUT THE AUTHOR
Mark A. Robertson is a lawyer with the law firm of Robertson & Williams in Oklahoma City. His practice is focused on cor-porate and securities law, and representing businesses and the families that own them. He received his B.A. degree from DePauw University and his J.D. from the University of Oklahoma College of Law. He also attended the University of Edinburgh, where he studied international law and Scottish culture.
Originally published in the Oklahoma Bar Journal, OBJ 85 2281 (Nov. 1, 2014)