Value for money.

• Author: Perry, William J.
• Position: Lawyers' fees - President's page

At the recent (splendidly successful) Corporate Counsel College in Chicago, one of the sessions was devoted to three in-house counsel explaining the payment and relationship systems they imposed on their lawyers. These structures varied enormously.

The first involved fixed annual lees (computed by reference to previous years' work), paid out in regular monthly installments, with adjustment by negotiation should the amount of work be radically different (whether increased of decreased) from the previous year as the current year developed. The second involved panel firms completing against each other in a Dutch auction to push the fees in respect of each piece of work downwards until the lowest bidder won. The third involved prior careful choice of selected firms (to be precise, IADC lawyers wherever possible) with agreed hourly rates (deliberately not the lowest available) and "treats" for the individual lawyers concerned to honour particularly successful work.

There are no prizes for guessing which model the private practitioners in the audience preferred. The question is: which actually offers the client best value for money?

Prima facie, it would appear that the second model would deliver the best financial results for the client. It drives down costs to the absolute minimum, by establishing a competition for each significant piece of work. That happens every time, thereby enabling the client always to take advantage of the lowest marginal costs of the firm most eager to put vacant capacity to work. One can see why the accountants and financial managers at that client love the model.

However, the argument that this produces the best financial results for the client concerned resembles that which says that the best financial result on legal cost is dependent on obtaining simply the lowest hourly rate. There are in both arguments hidden major premises.

In the case of the "lowest hourly rate available" argument, the hidden major premises are that the lawyers in the lowest rate firm are the same quality as those in a higher rate firm (in practice unlikely), that the lawyers in the lowest rate firm will work as efficiently as those in the higher rate firm (again unlikely if they are less talented), that the lawyers in the lowest rate firm will work at the same speed as the lawyers in the more expensive firm (again unlikely for the same reason), and that the lawyers and managers of the lower rate firm are just as honest as those in the higher...