A Titanic mistake: why fixed rates are bad for clients and the legal profession
April 12, 2012 5 comments
“Lawyers rarely advance arguments entirely without some element of truth” said Adam Sampson, who is the Legal Ombudsman charged with policing solicitors, in a Guardian column last month. He was writing at the same time as his office published a report entitled Costs and customer service in a changing legal services market.
The article was headlined: “Lawyers beware: your clients are rebelling: For too long, lawyers have got away with arcane pricing and billing practices. Those who don’t change their ways will pay for it”. I wrote my post Et tu, Brute? The Legal Ombudsman attacks solicitors in reply, setting out exactly why I disagreed with the Ombudsman, and most of all, why I objected to what seemed to be an “anti-lawyer” tone.
I suspect I was not alone in expressing my disquiet, because Mr Sampson has adopted a completely different stance in his column for the Law Gazette this week. His audience is very much smaller and made up solely of lawyers, most of whom were unhappy with what he wrote earlier, and so in many ways I believe he has tried to appease us.
“No matter how often I tried to explain that the vast majority of lawyers are deeply committed to providing a first rate customer service …the interviewer would return to the previous formulation” said Mr Sampson of a media interview conducted at the same time as his post appeared in the Guardian. “Even the simple statement that most lawyers give good service would get lost”.
I searched in vain to find a similar sentiment in the Guardian post, which had sent me rushing for my iPad to reply. The best I could find was this:
“Of course there is some truth in their argument (lawyers rarely advance arguments entirely without some element of truth). Litigation can be very unpredictable and costs can vary hugely…”
Although, please don’t get too over excited by his acknowledgement of the situation as it certainly pertains to family lawyers, especially those who deal with financial matters, because he continues:
“But that is only true of a relatively small proportion of legal services”.
The message is repeated again in his Law Gazette column. Only this time it is politer and far more charming. We lawyers had better get used to calling our clients customers, treating them as customers and most importantly, offering them a fixed fee so they know exactly how much it is all going to cost. Then the complaints about costs are going to stop. But will they?
To persuade us he states the Ombudsman’s “role is not to punish, it is to try to help, to feedback information about what is going wrong and what lawyers might do to put it right. You pay us and I am acutely aware that the money we spend is money which you have provided…” But there is not a shadow of doubt: he is absolutely sold on the mantra of providing fixed price costs for clients. He describes the “sophistication” of customer pricing in other professional areas. He berates those firms who are “wedded to an hourly pricing structure for no other reason than it is the structure they are used to”. And some law firms, no doubt eager for praise, are stepping into line.
I am old enough to harbour serious doubts, because I remember witnessing similar sea changes when conveyancing moved to a fixed price model.
I believe that like the sinking of the Titanic, it proved to be the most expensive disaster our profession and its insurers have ever suffered. And as a result many thousands of firms have literally been forced out of existence.
Solicitors tried to do what we now see is virtually impossible. Fixed pricing structures drove competition up, with all of course intending to continue providing an excellent service. But to me, as a mere onlooker, the disaster was foreseeable. The market was opened up, much as it is now following “Tesco Law”, and was over stimulated by panic in law firms as competition on fixed rates began. Soon lawyers were desperately offering prices that would not only see off competitors, but also lead to far lower standards in many cases.
How many negligence claims now arise each year out of conveyancing? If conveyancing was not so cutthroat, if firms charged an hourly rate for the work they do, wouldn’t standards increase rather than decline? Yet because there is a single emphasis on competition I believe standards have declined, and insurance premiums have rocketed – sending many conveyancing firms out of business because they simply cannot be afforded.
All of this has been done by lawyers in the name of the consumer: to help clarify the “mystery” of legal costs. But the actual end result costs both the consumer and the lawyers.
So, does anyone remember the days that conveyancing was not cut price? I certainly do.
These were the days when the title to land was a task carefully researched by solicitors, not just given a cursory glance. The work was not cut down to the bare minimum, and clients actually got to see their solicitor not just once (if at all), but on several occasions. Sites were visited, boundaries and party walls were inspected, items included in the sale were carefully considered and long letters of advice were written. All of this was standard when I was training to become a solicitor and cut my teeth as a novice conveyancer. Do those same standards still exist? Even though conveyancing has become streamlined, surely the increase in mortgage fraud and the cost of insurance premiums for domestic conveyancing speaks volumes?
Nevertheless, the Ombudsman says in the Law Gazette that: “more commercially astute firms are moving to a more predictable price model…there will always be limitations as to how far that is possible”.
But what is “commercially astute” about “a more predictable price model” than what we do already? Costs estimates are intended to be a realistic guide of costs, and can include indications of pricing from stage-to-stage. We can’t forsee the future, or predict the unpredictable, and therefore with the best will in the world costs estimates can and do increase.
A recent example occurred with one of my own cases. I gave a costs estimate to a client on the basis that a certain path would be followed. The client then made an about turn and the costs estimate is altering accordingly. How can a fee earner predict all the twists and turns of a case at the outset, when it hasn’t yet got going? It’s unrealistic to expect absolute certainty.
I have the strongest doubts about the extent to which a more predictable pricing model will differ from what we do already, other than to cause complaints for a firm which does offer fixed price work upon the requirement for more to be completed.
Provision of family law services currently isn’t a major risk for legal insurance providers and therefore indemnity insurance premiums are low. Few negligence claims arise out of family law cases, for the obvious reason that sufficient time is spent on dealing with the work. If fixed prices begin, it is an unassailable fact that the time spent on case work will be reduced, and negligence claims will happen. And as a result insurance premiums will rocket, just as they have in conveyancing – putting law firms out of business and reducing the choice available to consumers.
It is also wrong to use legally aided cases as a reference point. The work done on legal aid is limited, and therefore can it always be argued that a legally aided client has had the best service?
I propose a different approach, one that I mentioned in the comments of my previous post on this topic. It is for a clearly defined “consumer’s charter” to be developed that documents the obligations both clients and solicitors have to one another. If the Ombudsman wants a more commercial approach then clients need to understand this shift. They will no longer be able to wait months or years to complain, simply ignoring their bills and storing grievances until the case is over. It’s a two-way street. Consumers must act swiftly in every other area to rectify perceived wrongs. Yet in this area, they are cosseted.
Which brings me to what I believe are the root causes of the huge number of costs-related complaints that the Ombudsman has highlighted as a major driver for change. I would suggest that the ability for erstwhile clients to later complain free of charge (to a service we fund), coupled with the current economic climate, is behind the upsurge. For as I’ve asked before: who wouldn’t complain, if they stand a chance to save or be repaid money at no risk whatsoever to themselves? If we are to move forwards in a meaningful way this imbalance must be urgently redressed, and a culture that suggests it is almost always the lawyer’s fault needs to change.
So my firm will not be taking a metaphorical trip on the Titanic, which was you will recall outwardly modern and sophisticated, but in fact ill-equipped for the challenges that lay ahead. We are not sailing blindly towards a cut-price fixed fees iceberg, because I am certain disaster will ensue for all the firms foolish enough to follow that route. Much like the captain of the Titanic, the Ombudsman seems to have overlooked the huge icy peril that so gravely damaged the conveyancing profession.
We will however continue to try and give the fairest estimates we can, and strive towards the highest standards of client care, without having to make any downward adjustments in terms of staff or the services we offer our clients. And we will do this regardless of the pressure applied by those who overlook the lessons of history.
April 12, 2012
Categories: Finances and Divorce