Law Times

Law Times • June 15, 2015 Page 11 www.lawtimesnews.com Client cost pressures Lawyers urged to look inward to consider pricing alternatives By Marg. BruineMan For Law Times f it were just up to the lawyers, the bill- able hour would probably live forever. After all, it transfers all of the risk to the client and can allow the lawyers to dig deep into the file and ensure they cover everything. And it might just live forever but it will likely need to share the invoice pad with other models. "We got away with it for so many years because we could bill our services by the hour," says Jordan Furlong, principal of international consulting firm Edge Inter- national. "It allows us to take all the time we need to do our work. The billable hour is also great because it shifts all of the risk onto the client. Being able to price our services according to time and effort without lim- its allows us to develop bad habits." But as buzzwords like efficiency and innovation permeate the legal lexicon, it's clearly no longer up to the lawyer. British expert Richard Burcher says clients are driving efforts by lawyers to seek alternatives. "The unfortunate reality is that the profession had little incentive to change the way that it had traditionally ap- proached the pricing of its work. The impetus for change has come almost completely from the client side of the equation," says Burcher. The response from lawyers is that ei- ther they don't share any great sense of urgency about the need to change or they feel they're on a burning platform but don't quite know where to start when it comes to change, says Burcher, managing director of Validatum, a company that helps law firms establish pricing practices designed to respond to the new demands. "All clients think about is price," says Furlong. "Traditionally, lawyers have not had a good response to this." Bad habits could include not know- ing general and specific costs, something Furlong says he sees far too much of in the legal profession. He has seen some lawyers get into trouble by offering fixed prices to clients with no regard to their own costs. Looking at general overhead includ- ing rent, staff, services, and utilities is the starting point for pricing work. The next step is determining the price of the task or work the client is requesting. Af- ter that, there are a number of secondary considerations that could come into play in pricing legal costs. For his part, Furlong approaches legal services as a commodity. Under that ap- proach, lawyers who know the market for their specific service are a step ahead. If theirs is the only service of its kind, they can demand a premium. Understanding the clients' situation and the lawyer's relationship with them should also be a consideration. An ur- gent situation also demands a premium. A lawyer who can marshal cost, market, and the circumstances of the client is on the doorstep of project profitability and having a happy client, says Furlong. Burcher has written about the many options including price elasticity of de- mand, yield management, first-mover pricing, price discrimination, primary and secondary segmentation, pricing psychology, price waterfalls, price band- ing, and price fences. There's no doubt that legal assistance, like other professional services, will always be relatively expensive. In addition to the cost and effort of obtaining certification and establishing a business, the work is very labour intensive. But the idea is that intelligent and more sophisticated pricing does have the potential to make legal ser- vices available to those who need them. Burcher says lawyers could even im- prove the existing models of hourly rates and fixed fees. There are also "more thoughtful and underutilized pricing methodologies" that share the risk with the client, he notes. That sharing already happens with contingency-fee arrange- ments in litigation, but Burcher says there's no reason why that same concept can't apply more broadly to non-conten- tious work such as corporate commercial and property law. Burcher's firm has 15 pricing models all with varying degrees of benefits and advantages for both the lawyer and the client. But he says it's the philosophy be- hind the effort to move away from the billable hour that's particularly impor- tant. And what's key is putting the client first. "What they should all do is put the cli- ent at the centre of the pricing conversa- tion," says Burcher, adding that lawyers need to address clients' expectations around things like budgetary certainty and predictability, transparency, and a sense of value. But the billable hour will never disap- pear, some lawyers suggest. "Our philosophy has always been that clients should be provided with pricing methodology choice and for this reason, paying by the hour is something that will suit a given client on a given matter. Why would you not offer that as part of the pricing menu?" asks Burcher. "What I would say, though, is that the billable hour has over many years as- sumed a degree of primacy to the exclu- sion of other more imaginative, client- centric, and profitable alternatives about which most lawyers unfortunately still have very little understanding." LT FOCUS O ntario jeopardized the lives of winter motorists but saved millions of dollars by con- tracting out highway snow clearing, not insisting on proven methodologies, and poorly overseeing the ser- vice, Auditor General Bonnie Lysyk says in a revealing new report released May 29, 2015. The report states that there was an increase in the number of deaths on Ontario highways in 2013 where snow, slush or ice was a factor. The Auditor General's report says "… the safety of the public and of provid- ers of emergency services were put at risk because contractors did not plow or salt at all, did so far too infrequently, or drove equipment too quickly for the plowing and salting to be effective." In 2013/2014, for example, there were 1,100 instances where contrac- tors did not meet multiple outcome targets. But why were the contractors doing so poorly? The Auditor General faults the Ministry of Transpor- tation's move in 2009 to implement "performance- based contracting" which gives contractors full autonomy in determining how they would meet the Ministry's winter highway maintenance outcome standards. By so doing, the proven historical prac- tices were dropped from the contracts. The Auditor General also found that "the overriding criterion used by the Ministry to award contracts was the lowest bid, [so] there was an obvious incentive for contractors to minimize their equipment and use of winter treat- ment materials." For example, in one contract area the amount of anti-icing liquid decreased from 3,200,000 litres in a winter to 9,500 litres, and contractors took more than twice as long after a storm to restore bare pavements (4.7 hours) than prior to 2009 (2.1 hours). In fact, 75 per cent of the winning proposals sampled did not ob- tain full points in the area of winter highway mainte- nance, such as the contractor's ability to meet required circuit times with the proposed level of equipment. The Ministry advised the Attorney General it "believed actual loss or damage that the Ministry could accrue as a result of failure to provide the service." The Auditor General's report focuses exclusively on provincial roads. However, there is an equal or greater problem with municipal roads that has not been examined by the Auditor General. Like pro- vincial roads, between 1996 and 2002 the Ministry of Transportation oversaw a transition from process- based practices to "performance-based contracting." It also oversaw the drafting of a regulation that set outcome targets much lower than the historical standards and provides immunity from lawsuits to municipalities that comply with the low expectation. The regulation is called the Minimum Maintenance Standards for Municipal Highways (MMS). The MMS was introduced in 2002, but it has un- dergone several iterations following successful lawsuits brought by BolandHowe LLP in Thornhill v. Shadid, in which Justice P.H. Howden criticized the winter pa- trolling requirements and questioned the regulation's legitimacy. The second was Giuliani v. Halton in which the Court of Appeal strictly interpreted the MMS and recognized that under the standards, "a municipality is not liable for negligently failing to maintain a highway if it complied with the minimum standards that applied to its failure." The third, Silveira v. Regional Municipal- ity of York and HMQ, was also brought by BolandHowe and Alan Rouben, counsel on Giuliani. That was an application to strike the regulation as ultra vires, for prescribing a standard of care that is less than reason- able. The Ministry, York Region, and the Ontario Good Roads Association avoided the challenge days before it was argued, when York Region withdrew its reliance on the MMS in the underlying action. The Minister of Transportation, Steven Del Duca, has said in response, "I am committed to getting it right so that Ontarians can drive on our highways review the municipal roads, too. Sponsored by Ontario jeopardizes lives of winter motorists By Darcy Romaine, BolandHowe LLP I

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