#RIP to the #RFT?

I came to Australia in 2007 to fill a tender writing role. Till then, while I was familiar with responding to tenders, I hadn’t comprehended that responding to tenders could be a full time role.

Since 2007 though, on average, I’d guess that I have responded to one RFT – panel or project – per week (and I should add that during this period my roles have changed from tender heavy to tender light to tender heavy without that much difference in tender workload). I would guess that I also probably respond to one Request for Quote (RfQ) every two days and I must assist with at least two capability statements per week.

What I’m trying to say is this:- I’ve worked on a lot of proposals over the past decade.

And why wouldn’t I have? So far as I’m aware, in Australia:-

  • every level of government – Federal, State, Territory and Local – is panelled to some extent. A number of states, including NSW, QLD, Vic and WA also have collective Local Council panels.
  • approximately 80% of the ASX 200 is panelled.

That’s an awful lot of tenders – some of which are public and others invitation only.

Right about now you’re probably asking why this all matters?

The answer is this,  last Friday Corporate Counsel reported that ‘Barclays Looks to Shake Up Law Firm Panel Model in Coming Years‘, going on to state that:-

“Beginning in 2021, Barclays will ditch RFPs and adopt a more flexible approach to outside counsel management.”

[Noting that the terms RFP and RFT are largely inter-changeable]

Having been at the coal-face of requests for tenders for so long, this is music to my ears!

Only, as a half decent tenderer can tell you, on closer inspection it isn’t.

Chris Grant, the head of Barclays’s firm relationships, has come up with guidelines that the Bank hopes will allow them to build better connections with their firms. These include Barclays using a “gateway process” that includes a probationary period for new legal service providers.

Hang on a second – this is suddenly sounding like an ad hoc – as opposed to a structured – RFT process.

Shame really as one day B2B clients will come to realise that legal panels are a very costly and time consuming process.



Law firms need to change their definition of “success”

Read an interesting post by Alison Laird last weekend. Interesting as it was, Alison’s post (‘It’s Time’) isn’t the first to call ‘time’ on hourly billing. Nor, in my opinion, will it be the last.

Why do I say this?

Because, as important as the calls for “more for less” and “cost certainty” have been for in-house lawyers and clients more generally, behavioural evidence has shown they’re not really that important to law firms and that clients (in the more general definition of that term) are not willing to push their legal service providers to move away from hourly billing, if – caveat –  they can get a “quote” (read cap or fixed fee expectation).

In short it’s a game. Client says: “we want cost certainty”. Law firm says: “we bill by the hour”. Client says “meet you in the middle – capped/fixed/discounted fees”.

But it doesn’t have to be this way.

What if your law firm really wanted to be “entrepreneurial” and decided to think outside the box – starting by changing its definition of “success”?

What if, instead of defining “success” as being the number of hours a year a lawyer works (note not paid for), and/or the amount of revenue the lawyer earns (note not profit), the definition of “success” becomes:

Success is measured in terms of the value received by the customer and the law firm.

I agree, not perfect.

But imperfect as it is, it’s a start. A start of a conversation we need to have as a profession: “How do we measure success?”.

Because until we have this conversation, all other conversations – including that around hourly billing (not pricing) are meaningless.


Because it’s 1 July…

…my health insurance premium has significantly increased,
…my home contents insurance premium has significantly increased,
… my car insurance premium has significantly increased,
…the daily daycare cost (of both) my children has significantly increased,
…my coffee shop has increased the rate of a large, and
… my lawyer has increased his rate.

Such is life in Australia.

Fine by me, but in every single one of the increase fee notifications above (all by letter and none via an actual conversation with me) the underlying reason for the increase was cited as being an increase in ‘costs’.

My two take-outs: (1) if we all stopped increasing our rates in July maybe increased costs would be less of an issue, and, importantly, (2) if you can hold a conversation around “value delivered” rather then cost, you’ll be streets ahead of the competition.


Report: Billable hour remains the pricing method of choice for Australian law firms

[This post first appeared on my LinkedIn page on Tuesday 14 November 2017]

Despite the rhetoric we read each and every day around NewLaw, law firm innovation, value-based pricing, fixed fees and alternative fee arrangements, Macquarie Bank’s recently published ‘2017 Legal Benchmarking Results – An industry in transition’ report confirms that the crusty old ‘billable hour’ remains the pricing method of choice for the majority of Australian law firms.

While the report evidences a ‘gradual transition’ away from the billable hour – with 33% of law firms stating that they planned to use a method other than billable hours as their primary pricing method going forward, the term ‘gradual’ here would probably be better described as ‘glacial’ – as this figure is up a mere 2% since 2013.


Interestingly, the report breaks down the preferred pricing method of choice by State (see image above), with Victoria and Queensland leading the way on ‘value-based billing’ (15% and 14% respectively) and NSW smashing it on ‘fixed fees’ (at 26% – which looks to be mostly property related matters) [Anyone else out there as surprised as me with the QLD result?].

Disappointedly, ‘value-based pricing’ is not the term used in the report (and thus I have to assume not asked) as ‘billing’ implies an after the fact approach which almost certainly means there has been no upfront discussion around needs, process maps, project management, white-boarding or any of the other methods of communicating a mutual understand of ‘value’ before a task is undertaken.

At the end of the day though, this report seems to show/indicate that roughly 2 out of every 3 matters undertaken in Australian law firms is being done ‘on the clock’ (i.e. billable hour). And while it doesn’t show what the realisation rates are around this method of pricing, it does provide evidence that law remains a highly profitable business – thus, by extension this method of pricing.

Overall though I found reading the results in this report depressing.


Because I actually enjoy reading all that rhetoric every morning about how law is changing and becoming more innovative – and to be confronted with evidence this may not actually be the case is, well, depressing.


[ps, if you haven’t downloaded and read the report – do!]

When is a billable hour not a billable hour? – and other billable hour issues!


When it’s about 48 minutes.

The ‘billable hour’ issue has reared its ugly head once again on LinkedIn in the past few days following [re-]publication of a post by Sue-Ella Prodonovich ‘Don’t Abandon The Hourly Rate Just Yet‘.

I’ll start this post by saying there’s a fair amount that Sue-Ella and I will never see eye to eye on about pricing and the billable hour, but core to my objection with this particular article of hers is the assumption that all ‘billable hours’ equal an ‘hour’, when all the data shows us, including the chart above, that it clearly does not.

Which brings me to the point of this post: what exactly is a ‘billable hour’?

My experience has been that the answer to this question is far more complicated than the question would at first blush suggest. That’s because, in reality, most firms don’t have a ‘billable hour’, they have several.

What do I mean by this?

This: fact, not only do most firms have several billable hour rates within the firm for different practice groups, but they also have several billable hour rates within the same practice group, to be used as the circumstances warrant.

Which is to say, a lawyer in a bog standard average corporate practice in Australia may well have a ‘rack rate’, a ‘discount rate’ (between 5 and 10 per cent, but possibly more) and a ‘do not go below rate’ – unless, that is, management has approved this as a loss leader so the firm can win other work, in which case we gave another rate: a win the work at any cost rate.

All of which is to say, not only is the term ‘billable hour’ rather meaningless; but, cruically, it is anything but fair and transparent.

So far as fairness goes, as I have advocated in the past, the billable hour is typically unfair to loyal paying customers because, more often than not, discounts on the billable hour are given to new clients while loyal clients pay a premium (if not full rack rate).

Don’t believe me, have a look at the 80/20 breakdown of your firm’s client base. I’ll bet you that the majority of your higher earning clients have a higher average billing rate – which, remember, under the billable hour system has little to do with complexity or value.

As I hope you will agree then, the ‘billable hour’ is a fairly meaningless metric, especially of comparison.

Importantly for clients, here are some of the things the billable hour  doesn’t do:

  • denote expertise – you are more likely to have a higher charge-out rate based on the number of years you have been alive on this planet than the number of relevant deals you have worked on;
  • denote value – unless what you are selling is your time;
  • promote speed and efficiencies – unless, that is, you have a penalty clause if you don’t complete within a certain time or a bonus clause if you do;
  • assist with transparency – because in order for transparency to exist you need to know upfront what you are getting and you don’t typically get to know what you have got until after the fact with the billable hour.

But I’ll wrap this post up by letting you in on a little secret: the real reason why, under current performance metrics used in Australian law firms, we will never get rid of the billable hour – and that is utilisation.


The R.U.L.E.S revisited

In August 2013 I posted ‘Is it time for law firms to break with the RULES when looking at profitability?‘ on my old blog platform Australian law firm business development. It is without doubt the most read post I’ve ever written. And, as the recent publicity around DLA Piper’s decision to make equity partners clock 7.5 hours a day of time (not necessarily billed) shows, it remains one of the least followed and understood.

So what is the “R.U.L.E.S” system – and, three years after I last posted on this: do we, once again, need to promote its demise?

The R.U.L.E.S.

Taken from Robert J Arndt’s relatively short (at 31 pages) 1988 publication ‘Identifying profits (or losses) in the law firm‘, the acronym R.U.L.E.S stands for:

  • Realization – of billing rates
  • Utilization – of attorneys
  • Leverage – of lawyers
  • Expense – control of (both the fixed and variable kind), and
  • Speed – of the firm’s billings and collections.

For more than two decades the R.U.L.E.S have been the foundation for law firms looking to mine their financial information beyond the mere top level question of: ‘Did the firm made any money this year?’. Indeed, it could be argued that they were the precursor to the Balanced Scorecard in that they help determine:

  • which lawyers and partners are making a profit,
  • which practice areas are making a profit,
  • which matters are more profitable than others, and
  • which clients are more profitable than others.

But, in today’s world the R.U.L.E.S are not without fault. For example,

  • Realization is generally accepted as being the amount collected (ie, in the bank) against the effort to produce (ie productivity); or, as Altman Weil defines it: “realization is fees collected divided by the standard value of the time worked“.

On an individual fee earner basis, what this means is that if you set your fee earner a standard billable hourly rack-rate of [say] $100, and they charge the client $90 per hour (after write-offs etc) for work done, and for which the client pays $85 per hour (after asking for a discount etc) for the work, then the realization rate is 85% [I note that some firms adopt the practice of looking at realization as being the amount paid against the amount billed (94.44% in this example) but this is not the methodology used in RULES].

On the other hand, if the same fee earner does a fixed fee job for $1,000 and it only takes them 5 hours to do the job (cost of $500), then the realized rate is $200%.

While this may have been a good indicator of individual lawyers’ profitability in the past, increasingly it isn’t – not least because clients see through this BS and will not pay for their lawyers on a fully rack-rated hourly basis.

  • Utilization is the yardstick by which we determine how busy fee earners are. To determine this we look at the annual budget of hours the firm has set each relevant fee earner against the amount of billable time they have put on their time-sheets (daily, weekly, monthly or annually).

As I mentioned in 2013 – and nothing has changed – there are two principal flaws with this use of utilization:

  • the first, as shown by the likes of Crowell & Moring and others, is that the annual billable hour figure is a moving goal post.
  • the second, and more important, reason is that utilization sees an hour billed as “king” – it trumps all.

Today, where clients are looking for, among other things, an understanding of their business (non-billable hours spent attending industry events) and corporate social responsibility, utilization seems an outdated profit related performance metric.

  • Leverage is the number of fee earners you have to partners.

A reading of Maister’s Managing the Professional Service Firm will tell you, leverage is a key component of a law firm’s profitability. In order for a law firm to be more profitable, the maximum amount of work possible must be pushed down the chain to the more junior ranking lawyers.

Unfortunately, today this cannot be done so easily. Clients are simply not willing to pay for you to train your junior fee earners!

  • Expenses are both fixed (ie rent) and variable (ie salaries and bonuses) and are always going to be an important factor in determining a law firm’s profitability.
  • Speed of collection is generally determined as being the time from when you did the work to the time you are paid for that work.

Sometimes known as “lock-up” days, speed of collection will have a massive effect on the firm’s profitability.

Having bagged the R.U.L.E.S – again, the question remains: ‘What are the alternatives?’ The answer to that is that there are probably far more now than there were three years ago, but they are start from the same place:

(a) Do you have a satisfied client, and (b) Do you understand the value you bring to that relationship?