Last week, we wrote an editorial on the various issues arising in the context of time-charging. Chief among our concerns is the scant regard that corporate partners give to the effects that time billing has on the mental welfare and professional development of junior lawyers.
We read with fascination the comments made by many of our readers. Thanks to everyone for contributing. Let’s hope the attention goes some way towards inspiring debate and facilitating positive changes in our workplaces.
On the very sensitive topic of changing time-based billing, you’ll recall our exclusive story earlier in the year that Mallesons was moving to a fixed-fee arrangement with its major client Telstra. We reported suggestions that:
Mallesons has agreed to a fixed price for legal services to Telstra for the remainder of the financial year. Subject to involvement in a major transaction not contemplated by the agreement, Telstra will be able to use as much, or as little, of Mallesons services for a set fee under the arrangement. Many figures have been thrown around, and it sounds to me like a lot. How this situation will pan out for cowering junior Mallesons lawyers remains so be seen.
Firm Spy understands that the catalyst for Mallesons’ move toward the fixed-fee arrangement was the pressure being placed on the Mallesons/Telstra relationship by Gilbert + Tobin and the fixed-fee arrangement G+T had created with Telstra. In our view, Mallesons is one of several major Australian firms that consider Gilbert + Tobin to be a major threat to their established client relationships. To this end, you’ll no doubt recall the embarrassing email allegedly leaked from a Blake Dawson partner which coincidentally involved Telstra (in this case the loss by Blake Dawson of Telstra as a client of its IT practice).
Well, if an anonymous Mallesons spy is to be believed, no sooner had the ink dried on the the Mallesons/Telstra fixed-fee agreement, than Mallesons took the opportunity to ‘improve efficiency’. Who would have thought?
FirmSpy,
I was struck by your article a few days ago regarding time-billing and agree that the current approach utilised by most firms needs refinement. That refinement is justifiable based on the mental stresses it places on juniors alone, but is also substantiated by the efficiencies it helps foster within firms and the money it saves clients.
Such is the case at my firm Mallesons.
For example, upon agreeing to terms of the’ fixed-fee billing agreement with Telstra earlier this year, an initiative was launched from within our Competition/Telstra group to improve efficiency. Staff were invited to reflect on the ways that our Telstra relationship could be optimised and to submit those ideas to partners who would ultimately decide on which new protocol would most improve efficiency.
The prize? $500.
Makes you wonder if other clients stuck on time-based billing would benefit from increases in efficiency too…
Agreed. To join the dots for those new to the law, when a fixed-fee arrangement is reached, partners suddenly have an incentive to get work completed as quickly as possible; the money is already “in the bank” and the sooner the work can be completed, the quicker that lawyers can be deployed on other time-based billing projects. The upshot? Partners want the fixed-fee work done as efficiently as possible, while the time-based billing can be done inefficiently because the more inefficiently it is done, the more money partners make. Or, as Justice Byrne would say, the more that partners can “make a meal” out of the billable unit.
Unsurprisingly, an email sent to some of the Mallesons top brass (including CEP Robert Miiliner) went unanswered:
-------- Original Message -------- Subject: Alleged Efficiency Competition Date: Mon, 22 Nov 2010 15:32:16 From: <news@firmspy.com> To: <annelise.cleary>, <murray.prior> CC: <robert.milliner>Dear Annelise & Murray,
We wanted to give Mallesons an opportunity to respond to the allegation we have received from an anonymous source that, immediately after agreeing to terms with Telstra on the fixed-fee billing arrangement earlier this year, Mallesons invited employees working specifically with Telstra to participate in an “efficiency” competition. The aim of the competition was allegedly to elicit the best idea for establishing better efficiency in the Mallesons/Telstra relationship, apparently owing to the fact that Mallesons would no longer profit from pre-existing inefficiencies.
We are hoping that, in the event Mallesons confirms such a competition took place, the responding comment will address the obvious issue that arises for clients still stuck on the firm’s old time-billing protocol. That is, how can these clients be confident that the inefficiencies that were eliminated by reason of Mallesons’ fixed-fee arrangement with Telstra and through this competition aren’t still unnecessarily driving up client bills that are calculated through the billable unit?
Warm regards,
Firm Spy
Although this email yielded no response, we do have the comments made by Mallesons partner Cheng Lim in the current edition of BRW(18/11) on a related topic. Mr Lim made was interviewed by BRW in relation to the prospect that the firm would soon be outsourcing some of its back-office work to legal-outsourcing hotstpots like India . Mr Lim said Mallesons:
“is always looking at how to get efficiencies and if [outsourcing] means being more efficient and scalable then we’d look at that.”
So if the efficiency sought relates to an expense, then the firm is “always looking at how to get [it]“, but if creating the efficiency might drain an income stream… the firm waits until a fixed-fee billing arrangement turns that inefficiency into an expense before it acts? Can’t say we’re surprised.
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Generally, I would read the philosophy that “Partners want the fixed-fee work done as efficiently as possible” as implying that:
Partners would be happy if the fixed-fee work -appears- to be done as efficiently as possible – requiring lawyers to work just as hard, if not more, to get the job done quickly and well, while simultaneously under-recording time to the matter internally in order to appear efficient.
To Curious above: I think the opposite. The work does need to be done as efficiently as possible, to free resources for time-billed work, but there’s no imperative to under record Telstra work. On the contrary: it’s advantageous for recorded billables to significantly exceed the cap, as this can be used as leverage to increase the fixed fee when it’s reviewed.
Billables aside, from Telstra’s POV, the upside of the fixed fee arrangement is that less consideration needs to be given to the type of work that is outsourced; the downside for lawyers in the firms is that the volume of work increases, while the quality declines.
I wonder if PwC will be put on a similar fee arrangement. Would kill PwC the way they milk Teltra.
Anonymous: You’re probably correct about the Telstra deal. My concern is more for fixed fees offered on a job-by-job basis, rather than a retainer for a period.