Adopting a Technology Fee in Billing Practices

The billable hour model faces increasing criticism and skepticism, never more so than in recent years. With digital information so easily accessible, and countless online legal service providers offering nominal flat fees for routine legal work, potential clients often simply lack the need to hire an attorney on retainer in the traditional sense. Even in more specialized practice areas, hourly billing suffers as both a value and motivational proposition. Clients pay not for quality or results, but instead for time spent, and attorneys are, in turn, not compensated for skill or effectiveness, but rather rewarded more lucratively for performing a task somewhat inefficiently.

Oversimplified as that generality may be, technological advances enabling significantly increased efficiency in research, drafting, communications, and even litigation budgeting, among other operations, promote the far less-complicated notion that much legal work can be done quicker, more transparently, and cheaper. This equation puts displeased and overcharged clients past and present squarely at odds with veteran practitioners beholden to the billable hour and maintaining its status quo.

Further compounding the issue is the significant disruption of law practice by COVID-19. Already fighting an uphill battle against automation and technology, billing staples such as copying, printing, and travel were essentially rendered obsolete overnight as the world shifted into “remote” status. This transition further required an instantaneous strengthening of technological capability for firms of all sizes. Increased server space, reliable internal and external remote communication and operating capabilities, and secure networks to ensure client confidentiality presented additional, and costly, necessities for law firms already bearing the cost of licensing practice management systems, and now without reliably expected receivables from common hourly billing.

As the abnormal continues evolving into “new normal,” these survival-based adaptations seem poised to outlive their intended expiration dates given their outcomes. Put simply, COVID-19 unintentionally modernized law practice by forcefully pulling back the proverbial curtain. Attorneys can work productively from home and on flexible schedules. Virtual meetings, conferences, depositions, court appearances, and even trials can be conducted effectively. And, overall, legal work can be done more leanly, quickly, and cheaply; a realization highly favorable for clients, but much less so for practitioners firmly entrenched and dependent on the traditional legal business model. Before COVID-19, it was not uncommon for an attorney to amass multiple days’ worth of hourly billing by having a somewhat leisurely commute to and from the courthouse for nothing more than status conferences on four or five different clients’ files. Those days are no more.

Clumsy as early attempts at arranging work-from-home schedules and negotiating virtual court appearances may have been, they are improving by the day as firms intuitively adapt. For example, an equity partner of a small but highly profitable and successful matrimonial law practice in New York recently shared on social media his experience creating the functional equivalent of a broadcast studio for virtual court appearances and other important engagements (state-of-the-art server, fancy webcam, picturesque background, and stage lighting all included) while remarking on his joy in doing it. Various court systems nationwide have similarly expressed enthusiasm for streamlining operations virtually and through “hybrid” models, as well as their intention to continue doing so long after COVID-19 is squarely in the rearview mirror. Such cutting-edge, reliable, and arguably now necessary technology does not come cheaply, however, especially for firms still reeling from the unexpected lost revenue of established billable cash cows.

The educational and private sectors may provide a solution for advancing both the technical capabilities and archaic fee arrangements of law practice. Law firms should at the very least consider adopting a “technology fee,” growing increasingly prevalent in other fields, to offset losses incurred by the sudden loss of historically billable tasks, to fund enhanced IT support to adapt during COVID-19, and progress the practice of law to match the technological literacy of current times.

Most widely used in higher education, a technology fee is typically justified to acquire, install, and maintain up-to-date and emerging technologies to improve student-learning outcomes, and to ensure graduates are competitive in the technology-sophisticated workplace. Simply substitute the terms “student-learning” with “client,” and “graduates” with “attorneys,” and the underlying rationale remains equally valid.

Outside of college and university campuses, technology fees are additionally becoming more common in other areas as well:

  • Real estate transactions, where online advertising of a property can require tech-savviness rivaling high-end search engine optimization;
  • Franchise licenses, where franchisors provide, maintain, and support point-of-sale and other operational software for franchisees; and
  • Digital cable subscriptions, where in-home technology is installed and routinely updated and upgraded.

While technology fees may indeed frustrate or irritate students, purchasers, franchisees, and consumers alike, at the end of the day they pay them, and when challenging their legitimacy, discover a fairly straightforward and plausible explanation for their existence as a supplement to the underlying service.

In practice, incorporating a technology fee into legal billing can be accomplished in a seemingly infinite number of ways. Most plainly, it may be charged as a pre-set percentage of total billing, or a set flat fee encompassing the duration of representation on an individual case. In a traditional billable hour model, a technology fee can be more nominalized and added on to each individual hour. Where a broader or more nuanced attorney-client business arrangement exists, such as that between a large or midsized firm and an insurance carrier, a wholesale technology fee for all of that carrier’s cases may be appropriate, and more modern alternative fee arrangements or structures may require different strategies altogether.

In sum, the only limits on implementation are those inherent in a managing partner or solo practitioner’s imagination, or those proscribed by ethical rules. Somewhat resembling yet still very distinguishable from a technology fee is the charging of a “convenience fee” to clients for processing credit card payments. Some states’ ethics rules and/or governing bodies prohibit convenience fees, others permit them to the extent they are valid and reasonable, and most are completely silent on the matter. Restrictions on imposing convenience fees for credit card transactions, however, are not the sole domain of law practice, but rather ubiquitous to all monetary transactions in the states where they are at issue. In contrast, technology fees have never risen to such a level of conjecture.

For adoption of a technology fee in legal billing practice to work effectively, it would require buy-in from top-to-bottom and bottom-to-top, involving discussions in and advocacy from national, state, and local bar associations. While a technology fee could conceivably find some success when charged by some firms and not others, broad client acceptance is predicated on large-scale adoption. In other words, to be most effective, a technology fee must be most accepted, and with inconsistency across the legal field, many potential clients may opt to take their business to firms without the “extra fees” where all else is equal.

Anecdotal feedback on technology fees volunteered by several managing attorneys of firms ranging in size from solo to large was decidedly mixed. Of those enthusiastically embracing the concept, all agreed that clients, both individual and organizational, already crunching firms on fees, would never go for it. Again, though, for years clients paid for numerous tasks because they were commonplace or standard. In other words, they were accepted because all firms charged them. If all firms charged a technology fee, clients may not be thrilled with it at first, but they would likely come to accept it, even more so given its genuine necessity in current times. Asking a client to pay for hours spent sitting in a car or train versus paying to support the technology needed to best maintain their confidential files and ensure all work on their behalf is performed by the most current and effective standards is laughably rhetorical, further illustrating the point.

Managing attorneys dismissing the concept all shared a sincere and chivalrous sense of community, service, and openness to their clients. Admirable as this intimate, “neighborhood store” approach to law practice interestingly shared by respondents representing a wide variety of firm sizes may be, it will not help compensate for either lost revenue due to COVID-19 or fund the unintended technological advancement of law practice it left in its wake. Common among these responses, however, was the sharing of modernized alternative fee arrangements now being implemented that, while not accounting for enhanced technology, showed great creativity in demonstrating the innate ability of legal practitioners to adapt with sweeping change.

At the end of the day, that is what matters most. Whether a technology fee becomes a new standard in legal billing or is laughed out of a partners’ meeting, bar association gathering, CLE seminar, etc., it merits discussion because that discussion is what will inspire the truly transformative ideas to progress the legal field through COVID-19, into the future, and beyond as both a morally honorable and economically sustainable endeavor.

About the Author

William Murphy is a faculty member of the Division of Criminal Justice, Legal Studies, and Homeland Security in the Collins College of Professional Studies at St. John’s University. Contact him on Twitter at @profmurphysju.

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