Wanted: The Billable Hour – Dead or Alive, Part II

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The first of this two-part series focused on determining and agreeing with your client on the appropriate contract form. What next? How do you arrive at an appropriate contract price or contract pricing? Even after you sign, what obligations do you and/or your client have to monitor the progress of the task?

The appropriate arrangement is one where both sides consider the deal fair. Th e outside firm should not lose money nor should it make excess profit. Th e corporation should not overpay for services nor should it reap an inappropriate benefit by underpaying.

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To accomplish these goals, the focus now shift s to estimating and managing the task at hand. Both, estimating and program (project, case or contract) management are skills for which lawyers are uniquely unqualified to do without training. Neither college nor law school teaches these skills and the ordinary practice of law does not usually suggest the need for either.

Estimating isn’t necessarily intuitive, but we all do it without realizing it. How long does it take to get ready for a party? Once you decide when you want to arrive, when do you start getting ready? You can estimate each step in the process: shower, dress and travel time. Or you may have experience with how long it has taken in the past. Perhaps more time for formal gatherings, or less time for informal ones. Traffic also has to be factored in.

The technical terms for these approaches are estimating by task or “parametric” estimating. Th e first breaks down the task at hand into the smallest possible sub tasks and assigns an amount for each. Th e second approach finds some parameter that closely correlates to the end product. Ask a home builder how much a new home might cost and aft er giving the required square footage and type of house (low cost, middle of the road or premium), the contractor is likely to give you an estimate. How? Collected and analyzed data have shown a high degree of correlation between square footage and final cost varying only by one of the three categories.

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Legal matters are no different. Predicting the cost to defend a workers’ compensation claim may be based on data from a large number of similar previous tasks such as depositions, motions, transaction draft s and many other legal matters for which data is available. If your excuse is that you don’t have the data, today is the last time this excuse is available – you should start collecting this data now.

Once you have arrived at a reasonable estimate for the task at hand, irrespective of the type of contract used, the task needs to be planned. When each task will be performed determines expenditure rate. What are the relationships between tasks – do certain tasks need to be completed before others can begin, or can certain tasks be performed simultaneously? Techniques called, “PERT” charts, milestone charts and other planning tools are helpful. Th e result will be a detailed plan for the project, including cash flow and person power.

Once the project begins, monitoring is necessary. Estimates to complete should be performed at appropriate intervals depending on the size and time frame of the task. Comparing percentage completion with amounts spent provides a good snapshot of whether the project is on time and on budget.

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Managing the case means staying on top of developments. Sometimes there is a need to rearrange tasks to accommodate the person-power plan, or reschedule tasks to meet interim/end requirements. Th e tasks should be re-estimated as required and person-power plans re-adjusted. Over and/ or under expenditures need to be managed. In the end, the number one enemy of a project is surprise. Your client doesn’t like it and you need to be sensitive to this requirement.

Recording data should be part of the task. As noted above, this will allow increasingly accurate estimates for the next time. Collect and categorize data, develop various statistical baselines, refine the data from case-to-case and analyze the data for possible parametric correlations. A veritable plethora of programs are available these days to assist. Since a long-term relationship is the true goal of any law firm, improving the management of legal tasks will play a key role in return business.

Is training available? Th e National Contract Management Association is a good source, as are post-graduate courses in math, accounting and project management. Instead of training all lawyers to be competent program managers, there are professionals in this field who can prove invaluable to any team. As with many things, the first step is recognition and identification of the issue. Shifting exclusively to fixed-price contracting is not the solution – the U.S. Defense Department found that out the hard way. We need to teach lawyers, inside and out, the skills of estimating and managing, even if a professional project manager will be used. Th e rest will follow once we shift our emphasis away from abandonment of the billable hour arrangement.

Project management is an acquired skill. It’s part intuition and part planning. It gets easier with practice, but then again, so does law! Marvin Genzer

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