denotes premium content | Oct 11 2008 
Feature
posted 25 Jul 2002 in Volume 5 Issue 3
Billing stories from the front line:
agreeing fees, delivering value and
ensuring client satisfaction
On the surface, billing might appear to be a fairly straight-forward process. There are only so many options when it comes to choosing a billing system and once you’ve agreed your fees, the next steps would seem fairly obvious. Simon Rous, managing partner at Bevan Ashford, Exeter, uses a typical example of a client meeting to demonstrate the real intricacies of effective billing and highlights the issues you should be considering to ensure a long-term productive relationship with your most valuable clients.
Alan and I sat facing each other across the conference table, a tray of coffee things between us. Old friends and sparring partners, today’s exchange would be more of a Samurai ritual than a fee fight. £31,000 was big enough to make the discussion interesting, but not enough to justify a row.
I had won Alan as a client ten years before in an MBO beauty parade. Despite my arriving late for the presentation, we had got on well and we were selected subject to agreeing fees.
“How will you charge us?” Alan had asked and was initially taken aback by my reply,
“Which ever way you would prefer... you choose.”
A lot rides on an MBO. If the MBO goes through, the team has a shareholding and well-paid directorships in the business. If the MBO fails, the team is out of a job. I had described a few of the choices available to them:
- Straight time;
- Risk sharing, i.e., time with a pre-agreed mark up or discount depending on deal success or failure. If the MBO was already in the bag, I asked them if they really wanted to pay me extra for taking a risk that was only remote;
- Fixed fee. I said if they went for this I would obviously have to build extra into the fixed fee in case the deal dragged on. If the deal went through quickly, I explained, the client would end up paying us more than it need have;
- Traditional, i.e., based on time, but adjusted at the lawyers discretion for issues such as deal success, speed etc.
By talking through the options together in this way the clients learned there is no magic formula for achieving low fees and no risk. A fee arrangement needs to be
fair to both sides. If the lawyers are to accept a risk then there will be an associated cost.
Giving the clients these choices established trust between us and they ultimately plumped for the ‘traditional’ approach.
Ten years on, having tripled turnover and profitability, the clients were now selling off some divisions. It was the fee for just such a sale we were now to discuss.
“What's with this bill then?”, was Alan's characteristically blunt opener.
Upside down I could read my letter across the table and the words: “This is not an invoice, merely a statement to keep you advised of costs accrued.”
I send these statements to make sure the client can raise any objections before the bill goes out. Although I could not see the statement beneath my letter I knew what it said.
We use SOS on-screen time recording. When our lawyers record time against a matter they also enter a note of the work done. The software does the rest so at any time the client can be told exactly what costs have accrued and what work done.
Some matters can be billed monthly, but many corporate deals can only be billed when the deal is closed. To avoid surprises I send periodic statements. The statement includes a transcript of all fee-earner entries. This can run to many pages and be pretty dull stuff.
Some colleagues ask why we include so much detail that the client seldom reads. I have three reasons:
- The client is empowered by having the same information as we do;
- Knowing their entries will be sent to clients makes fee-earners record carefully;
- It meets my “imagine you are the client” test.
I say to my assistants: “If you have a builder re-plaster a room at your house are you more likely to approve his bill if it just says: “Building works £4,000” or if it spells out in detail everything the builder did.”
So I say to Alan: "That is not a bill. Its an opportunity to talk about things before we bill. It advises you exactly what work was done, by whom, when, and at what cost."
I call this level of shared information ‘open book’. Clients like the approach, but (as with the wheels on the gladiator's chariot) the blade cuts both ways!
I learned this the hard way when I acted for a small radio conglomerate in 1999. The board had received an uninvited but attractive share offer valuing the company at £16.5 million. It was clearly time to sell and now only a question of getting the best price.
The directors interviewed a number of small merchant banks and brokers but asked my team to lead the sale. We ran the sale by tender with eight radio companies bidding and drove the price up from £16.5 to £25.6 million. We had always worked ‘open book’ with these clients and the fee ended up somewhere in the region of £100,000.
The clients told me later that, our having driven the price up and saved them a raft for corporate finance fees, they would have happily paid double what we charged. I console myself with the knowledge that if the deal had failed the clients would still have paid my time. I shouldn't expect to have my cake and eat it, though some corporate finance engagement letters make me wonder!
“Who are all these people? I never met half of them!” grumbles Alan. “It says someone called Alastair Bowyer advised on tax. I never met him and any way, there weren't any tax issues.”
I am ready for this. The number of fee earners involved is a common client attack. “You are right Alan. There wasn't much tax involved, just a few warranties. If you look at the detail you will see that Alastair ran up the princely time cost of £95. For diluting those warranties I would say that was good value.”
Alan shifts his ground. “Andrew and Isabel are down on this list. They are both property lawyers doing exactly the same work. There must be a lot of duplication.”
I agree with him, “You are right again. There was some duplication. The deal was off and on over nine months. Some duplication was inevitable. We offer depth of team to ensure continuity. It would be unfair to want the deal driven forward irrespective of holidays and then complain about some duplication.”
As Alan tops up his coffee I ponder the fact that as MD of an owner-managed business he gives me a harder time on fees than one of my global clients might for a fee ten times the size. We are at an advantage with international clients. Our low overheads in Exeter enables us to charge out partners at a mere £165 per hour, a third the cost of some London firms.
These rates have enabled us to attract a rising volume of instructions from clients such as Lloyds TSB Bank Plc, the Bank of Scotland, and Schlumberger (Paris and Houston).
With interesting work and a good family environment we ‘cherry pick’ from London and elsewhere specialist lawyers wanting something more from life than a twelve billable hour day. In the last two years we have recruited to Exeter tax, banking, telecoms, PFI, pensions, IT, IPR and other specialists.
Laptops, deal rooms, intranets, case management and electronic knowledge management systems are all a huge change from when Alan first instructed us on that MBO ten years ago.
I explain to new arrivals our way of doing things: “The new job might be in Aberdeen, the client might be in Houston and you might be stuck on another deal in Birmingham. The modern corporate client doesn't care where your office is, or indeed where you are, so long as you respond promptly, intelligently and at a good price. All you need is your mobile and laptop, a back-up team whenever is economic and a small London office for the closing.”
My musings are interrupted by Alan saying: “All this stuff, there's pages of it. You can't expect me to wade through it all. It doesn't prove any value added to the deal.”
I ask: “Would you prefer I sent you a one-line bill with the legend 'Advice £31,000?'. We have to start somewhere. Recording time is as good a place as any. You've had statements monthly since the file began.”
Alan's response was disarmingly honest “Oh I can never be bothered to read them!”.
We both laugh gently, but for different reasons. Then I take the lead: “I am not saying recorded time justifies our fee, but it is a useful indicator. The real test is whether you think we contributed value. How do you think we did on this deal? Did we get the result you wanted? Did we drive the deal forward?” We both know the answer to these questions is “yes”.
Alan says nothing. He shifts in his seat. He is about to capitulate, but I don't want him to. He may resent it later, so I quickly continue: “Perhaps there was more duplication than there should have been and anyway I want you to be happy. So lets say the bill is written down from £31,000 to £29,000 provided it is paid within thirty days?”
Getting below the £30K is good. Alan can report a victory to his board.
Alan accepts too quickly. I have a momentary pang at having given away too much, but the compromise was right. The moment has passed. The mood relaxes.
These amounts are trifling, but the discussion was never about money. It was about Alan reminding us fees are in exchange for value, not some disembodied metering process. The client must not be taken for granted.
It was also an opportunity for me to check that the client was broadly happy with our service and pricing.
The lawyer may have a cleverly worded engagement letter. He may coax the client into agreeing a very high fee. Sooner or later he will be found out, perhaps when the client compares notes with the other side.
The lawyer is as expert as anyone in reckoning a fair fee for his services. Shouldn't the client be able to trust the lawyer's judgement on fees the same way as he does for legal expertise?
If the lawyer charges a fee that he knows is fair and the client is still not happy isn't it better they part company?
Simon Rous is managing partner at Bevan Ashford, Exeter. He can be contacted at s.rous@bevan-ashford.co.uk
