ARCTIC OBITER

10 | ARCTIC OBITER
The New Rules of Pricing
By Jordan Furlong, Law21.ca
Recently, I’m told, several GCs and senior lawyers of large
law firms gathered in London for a high-level conversation
about new billing mechanisms. One noteworthy observation
to emerge from the meeting was the law firms’ insistence
that whatever new mechanism was developed, it had to take
into account chargeable time invested in the work. I wasn’t
there to see the clients’ reaction, but if a few eyes were
rolled, it wouldn’t surprise me.
Lawyers are going nowhere in this new marketplace unless
they can lose this obsession with the effort-based valuation
of work. At the heart of lawyers’ billable-hour infatuation,
even beyond the attraction of low-risk pricing and the
enablement of perfectionism, lies the basic belief that the
harder you work, the more you should get paid. “It took me
ten hours to do this, so I should be paid twice what another
task took five hours to do.” The nature of the work, its
relative simplicity or complexity, the knowledge resources it
did or didn’t require, and the value or relative lack thereof to
the client — all these variables are considered incidental to
the effort exerted, the expenditure of the lawyer’s precious
time, to accomplish the work.
Very few marketplaces, however, base price directly on
effort and time. Avatar cost 20 times what The Hurt Locker
cost to make and took years longer to complete, yet my ticket
to watch either Oscar contender costs the same. One real
estate agent might make ten times more effort at finding the
right buyers for a home than another, yet they both get the
same commission upon sale. I can
go to a global craft show and buy a
beautiful hand-made shawl that an aged, arthritic,
Guatemalan woman spent a painful three days to create for
less than a family dinner at the local pizza joint will cost that
same night. Price differences can emerge from expertise, or
from quality, or from brand assurance, or from customer
value — but they don’t emerge from how hard someone had
to work to make something.
Clients truly don’t care what it costs lawyers, in time and
effort, to do their jobs. All they care about is the price, and
the aptness of any price is ultimately judged by the
purchaser against the value that the purchase delivers. Price
is what the buyer will pay; cost is the resource drain on the
seller to make the product or service. Lawyers conflate the
two and base their price on their costs in time and effort.
Clients are saying: your time and your effort are not relevant
to the value of your service to me. What the current
unprecedented drive towards fixed fees for legal work really
signifies is a marketplace slowly but steadily shifting from
supplier-based pricing to customer-based pricing.
Lawyers are having a very difficult time with this, for three
reasons. One, as stated, is the realization that their time and
effort has little market value. A second is the subsequent
realization that they now need to understand and control
their own internal costs to a degree never before required,
and at many law firms, that’s a nightmare scenario. But the
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