Thirty-five years ago, lawyers told me fixed fees could never work. A skyscraper and a quarter helped me address their concerns but nothing ever changed. AI gives us a new reason to listen. There is plenty of talk today about whether AI will end the billable hour. If work that once took hours can be […]
Thirty-five years ago, lawyers told me fixed fees could never work. A skyscraper and a quarter helped me address their concerns but nothing ever changed. AI gives us a new reason to listen.
There is plenty of talk today about whether AI will end the billable hour. If work that once took hours can be done in minutes, how will firms replace the revenue? Fixed fees offer an appealing answer: clients can pay less while firms earn more by working efficiently. But this debate has a long history. I spent years making that case myself.
Thirty-five years ago, the view was different.
Thirty-five years ago, when I was a young partner at Holland & Hart, an Am Law 200 law firm, Lexis paid me to travel around the country speaking to managing partners about moving beyond the billable hour. The talks were often held in lunch clubs at the tops of skyscrapers, in rooms full of suited partners who had built successful firms billing for their time.
John Tredennick spent 20 years as a trial lawyer and senior litigation partner at Holland & Hart LLP before turning to legal technology. In 2000, he founded Catalyst Repository Systems, an international ediscovery technology company acquired by OpenText in 2019. He is now CEO and founder of Merlin Search Technologies. He has authored eight books and dozens of articles on legal technology and AI.
I was a practicing trial lawyer. My firm had handled several million-dollar projects on fixed fees, and I had seen how agreeing on a price changed the way we worked. We had every reason to plan carefully, manage the work, and find a better way to get it done.
But despite my reports from the field, the partners always offered two reasons why fixed-fee billing would never work for their firms.
- “Humph, the legal work we do is too complicated to estimate in advance!”
- “And besides, complex litigation is too uncertain. Who knows what our opponents or the court might do?”
I understood both objections. I had faced them myself while developing an approach to fixed-fee billing for cases we were handling at the firm. I learned some of that discipline from clients building large condominium complexes at Beaver Creek, the Colorado ski resort. Their project managers mapped out the work, estimated what each task would take, and tracked progress against the plan. I began using project management software to do the same for my cases.
I came to those talks with two fun responses to the objections I knew would be front and center in their minds.
“Our work is too complicated.”
After acknowledging the first objection, I asked them to all take a look out the windows.
We were surrounded by tall buildings. I asked the audience to raise a hand if anyone thought those buildings had been built on an hourly fee.
No hands went up.
Then I asked them to consider what building a thirty- or fifty-story tower required: architects, engineers, hundreds of subcontractors, enormous quantities of materials, regulators, inspections, and a schedule in which one crew’s delay could hold up everyone behind it.
I asked whether anyone thought their case, however complex and important, was a more complicated undertaking than that.
The builders had figured out how to bid their work by keeping their history.
A drywall contractor knew what it cost to hang drywall because the contractor had tracked previous projects. A crew digging trenches knew what different jobs required, how long they took, and what happened when conditions were difficult.
They knew the averages. They knew the range. They knew which circumstances called for a higher bid.
Each project made the next estimate better.
Complexity made that discipline necessary. It did not make pricing impossible.
Law firms had plenty of time entries. But knowing how many hours you billed on a case was not the same as knowing what it cost to prepare a deposition, review a document collection, or try a particular kind of dispute.
The builders had turned experience into a basis for bidding. Lawyers could do the same.
“But we can’t control what happens.”
The construction argument usually got a nod, or at least I had people thinking.
Then came the second objection.
“An opponent could make the case harder. A judge could rule against you. A witness could surprise you. How could you agree on a price when you did not know what might happen?”
That was when I reached for the quarter in my pocket.
I would flip it, cover it, and ask someone in the front row to call heads or tails. They would venture a guess.
“Great,” I would say. “Now let’s bet your house on it.”
There was some nervous laughter. The answer was always no.
Of course it was. A single toss of a fair coin gave them a fifty-fifty chance of losing the house.
Then I changed the bet.
What if I tossed the coin one hundred times, and all they had to bet was that heads would come up at least twenty times?
You could watch the room reconsider.
No one could predict the next toss. But they could see that the second bet was very different from the first.
Insurers make their living with that distinction. They cannot tell you which driver will have an accident next year. Across thousands of drivers, they can estimate losses and set a price for taking the risk.
Lawyers also accumulate experience across matters. We learn which disputes tend to settle, which tasks tend to grow, and which circumstances make the work more expensive. If we record that experience, we can use it.
A unique, open-ended case may call for a different arrangement. We can price a defined phase, spell out assumptions, and agree on how to handle changes in scope. We can also decide that a particular risk is one we should not take.
The question is whether we understand the risk well enough to price it.
That requires a history of the work, including what happened when things went wrong.
A trial nine months away can be late today
Over the years, I put those ideas to work in my own practice.
I tracked how long depositions took, including preparation. I looked at how the amount at stake affected the work and how the number of depositions related to the length of a trial.
I wanted to know what drove the cost, so the next estimate would rest on something more than a lawyer’s instinct.
Construction projects taught me another lesson.
The project managers on those Beaver Creek developments tracked the work every day. If a crew estimated one day to dig a trench and took a day and a half, the manager knew about it while there was still time to act.
Add people. Change the approach. Find out what was going wrong.
The building might be a year from completion. The delay mattered that day.
When I tried that approach with lawyers, I sometimes heard that the trial was nine months away. We had plenty of time. We would work on it as we went.
But a project can lose money long before the deadline arrives.
I used an early DOS project management program to break cases into tasks, estimate the time required, and track progress. I also used decision trees to examine the issues and uncertainties, drawing on what I learned from Marc Victor, a friend and pioneer in applying decision analysis to legal matters.
The work became something we could plan, measure, and manage. We could spot an overrun, understand it, and respond while our choices still mattered.
Agreeing to a fixed fee made us responsible for how the work got done. That was healthy discipline.
The freedom of being on the same team
The greatest benefit, though, was what fixed fees did for my client relationships.
With hourly billing, there is a question behind every assignment: How long is this going to take?
The client wants the work done well and efficiently. The firm earns more when it takes longer. Even in a relationship built on trust, that tension sits in the background.
Agree on a project and a fixed price, and something liberating happens.
You are on the same team.
You both want the work delivered. You both want it done well. And you both have a reason to keep it moving.
I experienced that in my law practice and again at Catalyst, when we undertook software projects for fixed fees. We agreed on what we would deliver and what the client would pay. Then our attention turned to delivering it.
We had made the bargain at a moment of mutual respect: the client valued the work enough to buy it, and we understood it well enough to commit to the price.
A better process became good news for everyone. We could improve our margin without increasing the client’s bill. The client could ask about progress without worrying that every conversation was adding to the meter.
That is a much better foundation for a working relationship.
Faster work can be better business
AI makes this opportunity far more compelling.
Thirty-five years ago, greater efficiency was something firms could choose to pursue. AI may turn it into something clients expect, making the old billing model harder to sustain.
If a firm can find important evidence sooner, understand a document collection faster, or substantially reduce the labor required for review, it can offer a more attractive price and still earn a better margin.
Consider an illustrative project that costs a firm $80,000 to deliver and is priced at $100,000. If a better process reduces the full delivery cost to $40,000, the firm could charge $70,000.
The client saves $30,000. The firm’s profit rises from $20,000 to $30,000.
Both benefit from the improvement.
That is why the old lessons matter now. The firm needs to understand the work, account for the technology and supervision, and measure what the new process actually costs. Then it can price the work with confidence.
Efficiency becomes something to pursue enthusiastically. Better tools become a way to strengthen the business and the client relationship at the same time.
I tried to sell that idea thirty-five years ago. I cannot point to a single managing partner I converted. I gave my talk, got whisked out of the room, and flew home.
I also spent six years as Articles Editor and Editor in Chief of the ABA’s Law Practice Management magazine, publishing articles about moving beyond the billable hour. That did not seem to make a dent in the industry either.
The billable hour continued its reign over legal practice.
Alternative Billing Is Like Teenage Sex
I always closed those talks with a comparison that got the partners’ attention.
“Alternative billing,” I told them, “is like teenage sex.”
A hush fell over the room.
“It really is,” I said.
“For one, a lot more people are talking about it than actually doing it.”
A few smiles.
“For two, those who are doing it don’t know what they are doing.”
By then, they knew it was a joke.
“And for three, the one thing you can be sure about is that nobody is taking proper precautions.”
That got the laugh. But it also brought us back to the point.
The precautions were what the builders had taught me: keep your history, define the work, understand the risk, and manage the project.
Thirty-five years later, AI gives us a remarkable opportunity to deliver better work, charge clients less, and earn more. Will it finally make fixed fees the norm?
This time, let’s stop talking about it and start doing it. But be sure to take proper precautions.
