Consumers routinely seek estimates for many services, for example, buying a new roof, replacing an HVAC system, repairing a car repair, and even obtaining some medical services. The logic behind this should also drive general counsels to seek estimates for the cost of legal work.
Lawyers have long viewed law practice in mythical and mystical ways, which supports the belief that predicting cost is impossible. Myths die hard but desperate economics have a way of changing minds. Several trends – alternative fees arrangements (AFA), project management, and process standardization – work to de-mystify law practice.
So I disagree with Brad Smith, GC of Microsoft, who writes in his January 1, 2010 column in Inside Counsel, Alternative Arrangement, that “Some legal assignments are too unique to estimate in advance. Paying by the hour for such services can make good economic sense.” I agree with everything else he writes and was impressed to see he expects 45% of MS legal spend to be AFA.
Perhaps what he really means is that some matters are so complex that estimates are not reliable enough for either side to feel comfortable using AFA. If so, that does not warrant skipping estimates. Rather, it means variances between estimates and actual spend will be bigger than for more routine matters.
The right approach for one-off matters is to refresh estimates as the work progresses and to estimate by stage, taking into account the many discrete activities of each phase. Sophisticated clients and law firms should be able to combine personal experience with analysis of prior billing data to produce reasonable estimates at any given point in a matter.
We may need lawyers who specialize in estimating. And to avoid potential economic and other conflicts, it likely makes sense to have an estimate prepared by someone who will not work on the matter. This would be true even for work done purely internal to a law department. “Legal estimators” might add to cost short-term but over time, the discipline of making estimates and then comparing them to actual costs would add to lawyers’ understanding of complex matters and how best to manage them.
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