The Truth About Client Budgets

I received a recent comment on this blog which suggested that budgets are a bad thing for clients and are somehow a fraud. It was unclear from the comment in what way budgets could possibly be bad for clients. It was also unclear in what context under which a budget would be a fraud. I can certainly think of situations where law firms provide budgets for clients and then don’t operate within them. It would not surprise me if law firms set budgets with clients as a carrot and then used the bait and switch in order to increase billings. But, I can’t imagine working on any legal matter with a client without discussing budgets. Much of my work now is done on a non-traditional hourly/max fee basis. In matters where I can’t get enough information in order to do it on a flat fee, I will simply indicate that we will do it on an hourly basis consistent with our value billing model but in no event shall the fee be any greater than the max budget. Of course, the project is defined in enough detail to be able to determine what is included and what is not. In terms of the hourly billing, we do it consistently with our value approach in which we never bill for any activity that doesn’t provide value to solving the clients legal problems. Examples of our value based billing model include:

• We do not bill for administrative or transmittal activities. Anything under ten minutes of time which is better classified as "busywork" shows up as an activity on the client’s bill, but at a zero rate. Further, we do not charge clients for any phone call under ten minutes or any phone call, no matter how long it is, which involves update or general information.
• We do not bill for reviewing activities, for example, reviewing motions by the other side. We would bill for marking up the motion as a .pdf and embedding thoughts and analysis into the document. This is a good example of the distinction between an activity and an activity which adds value to solving your client’s problem. Often times, lawyers simply read things and apparently keep those thoughts only in their head or make a short memo and send it to the file which they never review. We tell our virtual workers that they are not allowed to bill for any activity where they are not only analyzing the matter, but recording that analysis for the client or another attorney to review.
• We do not bill for defining projects or making proposals to clients about projects, including obtaining and reviewing basic information. In short, when a client comes to us with a problem, the billing clock does not start until they accept our proposal and fee structure.

And, every step of the way, the client is involved in budget discussions. When I first started this firm, I was very hesitant and uncomfortable with these discussions based on the false premise that clients did not want to have those discussions. I could not have been more wrong. What I have learned over this past year is that clients are extremely comfortable having discussions about legal budgets and in fact appreciate that as much as anything. At other firms in which I have worked, budget discussions were avoided at all costs, as though they might somehow pin the law firm down in terms of the total amount the client could be billed.

I would be interested to hear from anyone who has a real world example of a budget discussion which went awry or was somehow anti-client. Because, I think that legal budgets are a cornerstone of any law firm which hopes to achieve innovation and client relationships in its practice. I think it is important to analyze and discuss. Thank you in advance for your input.