I read an interesting article (requires online subscription) in Monday’s Wall Street Journal (24 August, 2009) about the pending demise of billable hours at law firms. It appears that lots of large corporate clients, who also use outside counsel to augment their corporate legal teams, are driving some hard bargains and asking law firms to drop the highly profitable billable hours compensation model. Any time I see lawyers making less it makes me smile a bit, though, before I started getting too giddy, I kept reading. The article gives the impression that both sides are on board with it and that it’s pretty good for everybody involved. The article made it seem that there are some very open discussions between clients and vendors (let’s face it, if you work in client service then you’re a vendor) about what you get for certain agreements, and there is still the ability to revert to hourly for really large, complex cases. That’s when it hit me and made me jealous, for just a second, of the lawyers.*
The article, in its most refreshing passage, quoted a lawyer who said of these agreements that
a client can’t expect to have the absolute best team of [trial] lawyers from a firm and have the lawyers give up all the other work they could be doing on a regular fee basis to work 18 hours a day for months of time on a flat fee engagement.
Right there is the difference between agencies and law firms. I guarantee that even when an agency says we’ll work for that, and we’ll get it done for next to nothing, they never follow it up with “but we’ll put our b-team on it, they’ll work no more than 40 hours/week, we will not deliver our best work as we could for more money and we will ruthlessly manage your scope so that not a single comma will be moved, nor a logo enlarged even 1% after the allotted two revisions.” Sure, it’s written in scopes and terms etc., but it never happens like that in practice. Agencies, “invest in the relationship” and reduce their margins in an effort to hang onto business. Sometimes, this is warranted, but eventually it makes for bad relations between agency and client, as well as the team being put through the grinder by the client on one side and management on the other.
Agencies should follow the example of the folks in the law firms. Be blunt. Be up front. Be strong. Agencies have long worked on fixed cost projects, and have always striven to lock in long term retainers, but they rarely stand up for themselves within the frameworks of these agreements. Given the plight of so many shops today (though the market does seem to be stabilizing, somewhat), they will be more loathe than usual to stand up for themselves and say “this is what it takes to do this, We can work under this agreement, but you need to give us latitude and you need to understand very clearly that the scope means what it says.” I hope that large corporate clients and their large law firm-vendors acting like rational organizations and altering their relationships in the context of the current economic climate, can be a positive example to agencies and that the latter can learn a thing or two to help them down the line. Maybe, agencies need to hire lawyers to help with these conversations. Or, if an agency would rather not pay the hourly fee they, could talk to their outside counsel about moving to a fixed rate agreement and get some pointers for when they have the same discussions with their clients.
*Major Tangential Aside: Could you imagine an agency that got paid for every hour it actually worked for a client? Imagine if agencies were more like lawyers (used to be)? We’d all still be sitting in private offices with credenzas filled with booze a la Don Draper and the boys of Sterling Cooper (those were the days!).