By Peter Dighton, Director, Law Strategies
Legal Project Management (LPM) has been embraced enthusiastically by large firms in the USA as a way of preserving margins when clients are unwilling to pay time-based charges. Certainly the application of disciplined procedures to legal work, with the aim of achieving greater efficiency, is laudable. However when we drill down further it might be observed that the US brand of LPM is not designed to service clients more efficiently, but instead has been adopted as a way for law firms to maintain their profit margins in difficult economic times.The US approach is really about commoditisation of complex legal work, in the same way as an Australian firm might commoditise a repetitive exercise such as conveyancing. So for example a US firm that works on a high volume of, say, corporate mergers and takeovers, will analyse the data from the transactions it has acted on over the last few years to analyse the actual hours spent by its lawyers and then, to the extent possible, this is then broken down to examine the seniority of the lawyers concerned and how much work they undertook at different stages of the transaction. From there the past data is extrapolated to future transactions to enable the firm to provide fixed fee quotes with confidence. In addition, templates of standard tasks or “Springboard Maps” are generated to cut down on the time to be spent on the transaction.
During execution of the work the supervising partner is alerted if a task is running over time and he or she will investigate the reason for the over-run, which might be attributable to inefficiency on the part of the lawyer or a miscalculation of the resources needed to execute an aspect of the job, or the reason may be attributable to the client, for example if there has been “scope creep”. The partner will then institute appropriate remedial action.
There are a few problems with the American approach:
- Every transaction is of course different; even if there is a reasonable frequency of a type of transaction, a firm on different occasions may be acting for different parties such as buyers, sellers or financiers who will have differing roles in the transaction
- One might also wonder how reliable the analysis of previous data will be when the assumption seems to be that people who worked on previous transactions were both efficient and honest in their time recording (although funnily enough if the time was inflated in previous transactions that might lead the firm to stipulate a higher price in the future, meaning higher profits if the work is now executed efficiently)
- Most pertinently to the Australian market, the size of the local market makes it difficult for even the largest Australian firms to rely on a high volume of corporate or commercial transactions and therefore the dataset on which a local firm bases its analysis might be quite thin.
In particular preparation of a PEP showing how work will be undertaken is the type of transparent methodology that may provide mid-tier or boutique firms with an advantage over their larger competitors. It enables smaller firms to impress a client with both their understanding of the job and their attention to the process side of the work. It can help remove the perception that it is safer to use a “brand” mega-firm on top-end work.
The planning process can be even more impressive if the client is asked to participate in the planning session (and if so the firm would be well-advised to have a dry-run beforehand!). Also if a smaller firm is not being considered for tender lists, it can try cold-calling businesses offering to do a free PEP on forthcoming projects as a way of getting a foot in the door.
It should be emphasised too that LPM is not just about reducing fees; if waste is eliminated fees should come down, but if the work is monitored properly there will also be opportunities for firms to charge extra for variations to the scope of work.
Preparation of a detailed PEP for a client on a transaction may be the best form of marketing a law firm can ever do. Moreover a properly prepared and executed work plan is likely to result in a happy client, thereby reducing the likelihood of disputes and leading to repeat business. Thus the emphasis in the US may be internal (maintaining margins) but the aim of Australian firms should be to adopt an externally focused (i.e. client-based) approach to discharge work efficiently and transparently.