Paying for Performance in the Legal Profession

law firmAbout one year ago I wrote about a common problem in the legal profession—overbilling—as a prime example of the Activity Trap.

It was a frightening example of “billable hours” gone bad and becoming a perverse incentive at a major law firm. So I was really pleased to read an article in the ABA Journal about a so-call “nonlaw” firm called Novus Law, a legal services company based in Chicago.

Apparently there are ways to get around BigLaw’s high billable hour costs, as the article’s title indicates: “Who’s Eating Law Firms’ Lunch? The legal services providers, law schools and new grads at the table.”

Firms like Novus are service providers, legal vendors that can and do perform legal certain legal tasks at a fraction of the costs that a typical law firm might charge.

“The legal profession focuses on inputs, number of people, hours and so forth, which is important if your revenue is driven by the billable hour,” Novus co-founder Ray Bayley says in the article. “Our model is based on outputs—how much we can produce in a given period of time while minimizing the cost of inputs and achieving world-class levels of quality.”

Does that sound like a Vested approach to outcomes and performance, and focusing on the what—not the how?

Of course not every large law firm can or should be tarred with dodgy billing practices—a perfect example of this is right in the Vested community, where Lindahl is Sweden’s third-largest law firm and is a Vested Center of Excellence. Lindahl’s David Frydlinger heads the firm’s TMT group (telecom, technology, IT and media) in Stockholm and is also part of the firm’s group for Strategic Contracts, both ranked as leading in Sweden. He also is a co-author (with myself and Jeanette Nyden) of Getting to We: Negotiating Agreements for Highly Collaborative Relationships. Lindahl’s group for Strategic Contracts provides advice and consultation for clients aiming to negotiate and enter into Vested agreements.

Other big firms are catching on to a degree—moving upstream to help companies craft highly strategic, collaborative Vested deals—but there is still a lot of work to be done.

At Novus, client engagements are priced on a predictable budget, defect-free work product and timely delivery, called the Novus One-Touch work process. In 2008, this resulted in Novus became the first nonlaw firm to win the InnovAction Award from the College of Law Practice Management.

The article continues: “Bayley and other legal service providers (some who’ve traditionally performed services for law firms, many who now deliver services in competition with them) who embrace technology and design and apply a scientific, process-driven methodology to this type of legal work offer an estimated $25 billion savings opportunity for corporate America, he says.

“With numbers like that, other legal service providers and new entrepreneurs aren’t just eating BigLaw’s lunch; they are eyeing breakfast and dinner as well. Most of this change has occurred under the radar as these new legal entrepreneurs started with so-called commodity legal work like document review. But why would they stop there?”

The answer is obvious with that kind of savings potential! I think it’s a healthy and welcome dose of innovation for outsourcing legal services: instead of hiring a big-shot law firm, collaborate with the eager legal vendor.

Image: “Johnson Law Firm” by Julius Johnson via Flickr

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