Legal Project Management Whitepaper

In one of my legal project management workshops, a lawyer described litigation as one party trying to build a wall whilst another party tried to knock it down and a third party (the judge) tried to change the wall design.  The question was, project management is fine for construction, but how can it apply in a legal matter?

This document is a primer on Legal Project Management which is a useful introduction to the topic and provides some tips on using project management in a legal work.  It acknowledges that not all project management techniques are applicable to legal and others require adaptation.

Ideation work, workflows and Value

I love to cook - for me it is tune out time, and a way of giving my creative side a little air time. Whilst I am happy to experiment, I still tend to turn to cookbooks (and increasingly food blogs), for inspiration. When it comes to baking, I must have a recipe.

Some years ago, I attended a Melbourne Food and Wine Festival lunch hosted by Gary Mehigan of Masterchef fame. For me, part of the intrigue of the show is the ability of contestants to whip up a sponge, hollandaise sauce or some more elaborate creation, seemingly without a recipe in sight. Gary, when asked, divulged all contestants are taught the basic ratios, which can then be adapted for all sorts of dishes.  So I was intrigued when I heard about an ipad app which sets out ratios for baking, bread making and sauces. It appealed to my logical side. The premise of the app is that, once you know the basic ratios of ingredients, you can make baked goods and sauces without reference to a recipe.  

What does this have to do with legal practice? In reality, no matter what many lawyers may think, most legal work involves a variation on basic “ratios” of routine steps and practices. Yet too many lawyers seek to reinvent the wheel each time they commence a new matter. 

The value to a client comes from “ideation” work –problem solving, strategic insight and innovative thought– rather than the process work of execution.  If law firms can maximise the opportunities for this valuable work by reducing the time spent in the execution work, they truly become “trusted advisors”.   Utilising workflows to manage process work, enables a greater focus on ideation work.

Continuing the cooking analogy, workflows are the recipes, where the anticipated steps in a matter are set out. Many will be aware of the use of workflows in domestic conveyancing and ediscovery.  However, increasingly courts are developing their own workflows which are reflected in Practice Directions and Court Rules.  Innovative lawyers are utilising legal project management skills to create and manage case plans, incorporating templated workflows.

Workflows are powerful tools, as a quality control measure, as a means of capturing and transmitting knowledge and particularly as part of the planning process for any firm managing fixed fee agreements.  Some practice management programs have a workflow component incorporating automated tasks and template documents.  At a more sophisticated level again, workflows utilised in extranets enable client input into the process, thereby improving communications and timeliness.

"Smart" workflows will interrogate a user and create prompts for additional tasks, depending on the answers provided. In litigation for example, a positive answer to the question as to whether discovery of electronic material is to be provided results in additional steps regarding extraction and de-duplication of such material. 

Workflows clarify responsibilities and dependencies, and improve turnaround times.  This leads to a reduction in rework and double handling, which are leading causes of cost blowouts.  Workflows standardise work and enable many tasks to be appropriately delegated. 

Developing a workflow requires evaluation of business processes, and identification of more effective ways to deliver services in a cost effective and timely manner.  Look for opportunities to reengineer processes, eliminate waste and improve effectiveness. 

Atul Gawande in his book The Checklist Manifesto details how his work as a surgeon was significantly improved through the use of checklists.  Dr Gawande looked to the aviation industry to utilise checklists in medicine to reduce mistakes, and as a side effect vastly improved communications in medical teams, by empowering all members of the team and clarifying responsibilities.  Workflows can incorporate checklists as a further means of quality control.

Having developed workflows with legal teams across both litigious and transactional practices, it is clear that the process of workflow development in itself is beneficial.  The development process involves discussion and decisions about agreed quality of work, and often identifies inconsistent work practices within a team. In a workshop, to brainstorm a workflow for advice work, one team member identified 5 steps in the workflow, another identifying 25 steps – giving rise to an interesting and productive discussion about the approach taken to this work.

With the increasing commoditization of legal services, the introduction of new players in the legal market such as the US online LegalZoom service which offers online legal services, an increasing demand for fixed fee pricing, lawyers must look at ways to provide services most effectively.  Process re-engineering and use of workflows helps lawyers become Masterchefs able to astound clients with remarkable creations.

Design Thinking and Legal Advice

It surprises me how little thought lawyers give to the presentation and format of advices to their clients. I  rarely see the use of charts, diagrams, mind maps, or pictures in anything other than intellectual property matters, where visuals are often necessary to explain the distinguishing features of a patent.

The Psychologist’s View of UX Design is an interesting article by Susan Weinschenk, a psychologist who specialises in the design of technology.  Many of Dr Weinschenk's observations could apply just as readily to the provision of advices by lawyers:

• It is better to show people a little bit of information and let them choose if they want more details (progressive disclosure).

Provide a summary of the advice up front.  Provide the full explanation and reasoning after the summary.  The client can read it if they choose to do so.

• Instead of just describing things, show people an example.

Use analogies and examples, use diagrams, charts and mindmaps, particulalry for complex concepts.

• Only provide the features that people really need. Don't rely on your opinion of what you think they need; do user research to actually find out. Giving people more than they need just clutters up the experience.

Ask the client what they want, and in what form, particularly if they are a regular user of legal services.  Dot points, a summary for board papers, a particular focus to satisfy the CFO, an extremely simple "law for dummies" explanation of the case, a treatise on the particular legal point to put into their company's knowledge management library, a checklist which can then be used for internal training purposes, an answer to a legal problem to post as a FAQ on their intranet?

Recommendations for making an easy read are:

• Make the information easy to scan.
• Use headers and short blocks of info or text.
• People prefer short line lengths, but they read better with longer ones! It's a conundrum, so decide whether preference or performance is more important in your case, but know that people are going to ask for things that actually aren't best for them.

When so much work goes into the content of the advice, it makes sense to make it a comfortable and easy read

The meaning of Value

Economists accept that value is the arbiter of price and, in the context of legal services, price is the fee lawyers charge. A party to a transaction (buyer or seller) sees the price as reflecting value when they perceive they are receiving more than they are giving up. Value is not assessed by reference to the amount of labour required to produce the service (ie, the cost). Value is assessed at the time the price is agreed but also after the service is delivered or the product is used.

Section 172 of the Legal Profession Uniform Law (LPUL) provides a definition of “value” of legal services, mandating that a law practice must charge costs:

“that are no more than fair and reasonable in all the circumstances and that in particular are

1. proportionately and reasonably incurred; and
2. proportionate and reasonable in amount”.

So where does “cost” fit within this definition of “value”?

On the one hand, the Labour Theory of Value (LTV) proposes that the value of any service is determined by the amount of labour required to produce it, whereas the Subjective Theory of Value (STV) proposes that the value of any service is determined by the importance the purchaser places on the services for their own ends – value is in the eye of the beholder.

In the STV, the cost of production is only relevant as an input into the price to the extent that it determines whether there is a profit for the law firm. The STV is reflected in s172 of LPUL, which sets out factors which must be taken into account in considering whether legal costs are fair and reasonable. These include:

• the level of complexity
• novelty or difficulty of the issues involved
• the urgency of the matter
• the quality of the work done.

Under LPUL, the cost of delivery of the legal services has, at best, a limited role in the determination of value, as the labour involved and time spent are only two of the factors in s172. It is submitted that cost is only relevant to the extent that it must be accepted that the law firm is expected to make a profit. But if the way the services were delivered resulted in the price not equating with value, then the cost of delivery is irrelevant.

The requirements to provide an estimate of total legal costs at the commencement of a matter1 and to take steps to ensure the client agrees to the proposed course of conduct and proposed costs2 further reflect the STV. A value based price has been defined by Ronald J Baker, the world’s foremost authority on value based pricing in professional services firms, as the price a given customer is willing to pay for a particular service before the work begins.3

The dichotomy is that, with hourly based pricing, the price only crystallises at the conclusion of the engagement, and the price is determined by labour, invoking the LTV. In an hourly based arrangement, the price is set unilaterally by the lawyer after the services are delivered. What many lawyers don’t appreciate is that, even on hourly based pricing arrangements, clients (purchasers) have a perception of value reflected by their expectation of what the price will be.

If what is fair and reasonable equates with what is value to the client, then it is also necessary to accept the notion of price discrimination – that different prices can be charged for essentially the same service. For example, price discrimination may reflect the urgency of delivery of the service (attracting a premium) or the reverse – the delivery of the final product over a longer time frame (at a lesser price). It may reflect the client’s perception of the law firm brand or expectations about the nature of the delivery of the service or the expertise of the lawyer. Price discrimination is the reason Apple can charge a premium for its products. The factors in s174(2) impliedly support price discrimination.

Defining value in purchasing professional services has long been a challenge for procurement professionals. Most lawyers when defining the value they deliver are self-focussed and task orientated – they speak of particular tasks, the legal complexity and their own expertise. Many define value as the efficient delivery of legal services. But efficiency is not the same as effectiveness, and, as Baker suggests, instead of valuing efficiency what should be valued is efficaciousness – the capability of producing a desired effect or outcome. No patient is concerned about how efficient their surgeon is or the time taken to perform an operation. They are only concerned about the efficaciousness of the surgery – whether it achieves the desired outcome.

The difficulty in defining value in professional services is their intangible nature. Richard Susskind4 refers to a KPMG mission statement as a superb way of defining the value delivered by lawyers:

“We exist to turn our knowledge into value for the benefit of our clients”.

Hanohov5 proposed the following drivers of value for professional service firms:

• perceived quality
• service performance
• relationship management
• confidence
• trust
• price.

Tim Williams describes the intangibles of service, experience and transferable aspects of the matter that the client receives.6 David Maister describes “professionalism” – “predominantly an attitude, not a set of competencies. A real professional is a technician who cares”. It involves a “pride in work, a commitment to quality, a dedication to the interest of the client, and a sincere desire to help”.7

Other value drivers are those mitigating the client’s purchasing risks (performance risk, financial risk, time lost risk, opportunity risk). A fixed price provides certainty to the client and addresses the financial risk. A performance guarantee addresses the performance risk.

Ori Wiener8 references the Kano curve9 and posits that clients distinguish between two types of features in the delivery of services – those that are expected and those that are new. In their evaluation of value, clients will be sensitive to the absence or partial absence of expected features, and small shortcomings can have a disproportionate effect on client satisfaction. On the other hand, the existence of unexpected features can disproportionately improve client satisfaction. Tim Williams describes these as “delighters”.10

The difficulty becomes, when assessing value after the services have been provided, whether it is possible to understand what the client saw as the factors reflecting value at the time of agreeing the price. Part of the problem is that it is not usual for the client’s definition of value to be agreed at the outset, with the lawyer not having an understanding of the reason the client has chosen the lawyer and the client’s expectations about factors such as professionalism, service delivery and outcome. Too many lawyers don’t understand the client’s perception of “expected” services as described in the Kano curve.

Section 172(4) is important, as it provides that a cost agreement is prima facie evidence that legal costs disclosed in the agreement are fair and reasonable. As such, any fixed fee or value based fee agreed to by the lawyer and client is prima facie fair and reasonable, and arguably also means that any agreed hourly rates are also prima facie fair and reasonable. It is, therefore, not open to a taxing officer or the Legal Services Commissioner in assessing costs to assess a price different to that set out in a cost agreement unless the agreement itself has been determined to be not fair and reasonable.11 Section 172(4) supports the free market position that a price, once agreed, reflects both seller and purchaser’s perception of value, and there should be limited capacity to retrospectively adjust that perception once the bargain is struck. Of course, in an hourly based pricing arrangement, the time spent is still open to scrutiny, whereas the fixed fee is only open to scrutiny insofar as there is a consideration about whether the scope of work has been completed.

We need to be careful in our subjective judgment of whether the price reflects “value”, that we take both the client’s and the lawyer’s perspective into account. As Baker explains, economists look at the fact that both parties are giving up value in a transaction, and a transaction will not proceed unless both parties believe they are receiving more value in a transaction than they are giving up. Therefore, any consideration of value must look at both sides of the arrangement and take into account the value obtained by both parties. Unless lawyers are working on a pro bono basis, they expect to make a profit and any evaluation of price should take this into consideration as the retainer of a lawyer to provide services is a commercial transaction.

Any review of value must also take into account price leverage, and the assessment of value at the time the price was set, as a service or product is often worth more when it is needed than after it is received/delivered. Having said that, insofar as the experience of the delivery of the service is relevant to value, the assessment of value by the client can only be undertaken after the service is delivered. Accepting this, one queries whether the scale of costs or Practitioner’s Remuneration Order can be the measure of reasonableness of a price or individual charge given that a decreasing number of lawyers use these as the basis of pricing. The Legal Profession Uniform Law, unlike its predecessor the Legal Profession Act 2004, does not establish the relevant scale or Practitioner’s Remuneration Order as the default basis of charge in the absence of a cost agreement.

The message, therefore, is to ensure that, at the outset, the lawyer understands what the client sees as value. One of the difficulties in undertaking this task is the requirement of the LPUL to provide an estimate of total legal costs “when or as soon as practicable after instructions are initially given in a matter”.12 There are many instances where time is required to work through with the client what the options are and what the client’s expectations are that define value. As soon as that estimate is provided to the client, the client is anchored to that “price” despite the best endeavours of the lawyer to explain that it is an estimate only, not binding and subject to change once more information becomes available.

The other difficulty with the requirement to provide an estimate of total legal costs, and the interpretation of “total legal costs” to mean to the furthermost possible point in the retainer, can be that this is a price which the client does not see as value. Again, the psychological heuristic of anchoring can impact the client’s judgment in assessing value in circumstances where the total costs are not the likely price. The most common example is in litigation, where it is accepted that the vast majority of matters resolve at or before mediation, with only a very small percentage proceeding to judgment. Yet “total legal” costs has been interpreted to be the total legal costs to judgment.

It is suggested that the better option is to negotiate and agree a fee for the matter, or for a stage of the matter, ensuring that what the client sees as value is clarified and documented. n

Liz Harris is director of Allocatur Consulting and Harris Cost Lawyers, and is an LIV accredited specialist in costs law. She advises law firms on value based pricing and efficacious delivery of legal services, and clients on legal spend management.

1. Legal Profession Uniform Law, s174(1).

2. Note 1 above, s174(3).

3. Ronald J Baker, Implementing Value Pricing, John Wiley & Sons 2011.

4. Richard Susskind, Tomorrow’ Lawyers, Oxford University Press 2013.

5. Hanohav, I, “It’s about time, Challenging time based systems for pricing legal services and proposing changes to reform law firm pricing”, 2008, MBA thesis, Cass Business School, as cited in Wiener, O, High Impact Fee Negotiation and Management for Professional, KoganPage Ltd, 2014.

6. Tim Williams, Positioning for Professionals: How Knowledge Firms Can Differentiate Their Way to Success, John Wiley & Sons 2010.

7. David Maister, Managing the Professional Service Firm, Simon & Schuster, 1993.

8. Note 5 above.

9. Kano, N Nobuhiku, S, Fumio, T and Shinichi, T, “Attractive quality and must-be quality”, Journal of Japanese Society for Quality Control, 1984, 14 (2).

10. Note 6 above.

11. Mathieson Nominees Pty Ltd v AJH Lawyers [2013] VSC 325.

12. Note 1 above, s174(1)(a).

Cognitive biases and legal practice

Why don't law schools offer a basic psychology course as part of a law degree?  The best lawyers understands the psychology behind their clients' decisions and reasoning and tailor their advice accordingly.  An awareness of possible cognitive biases frames the position adopted by a client or opposing party, and enables the lawyer to take steps to cancel the bias, or at least bring it to the attention of the client or other party.

Cognitive biases lead to bad decision making, and explain irrational behaviour.  "Escalation of commitment to a failing course of action", can be a particular problem for a lawyer to deal with.  When  a client insists on proceeding with a course of action which the lawyer believes is doomed to failure, an awareness that this cognitive bias may be the reason for the client's position can help.

What we are talking about is continuing to invest in something after it becomes clear the investment will be unsuccessful or unprofitable - put simply, refusing to "cut your losses and run".  The client's position is "in for a penny, in for a pound", the lawyer sees it as "throwing good money after bad".

Irrational escalation occurs when people justify further investment in a course of action, when there is evidence that the decision is probably wrong, because they cannot accept that their previous investment was wrong.  Simple examples are  the gambler who keeps betting in an attempt to win, justifying that he has lost too much to back out now, or the investor who hangs onto shares which have dropped dramatically in price since their purchase, in the hopes the price will eventually rise.

In litigation, the investment can be the legal costs, time and energy spent in conducting a matter.  The greater the investment, the harder it becomes to back out.  An example is a client who has spent many  $1000s in running a case, and when a good settlement offer comes along, wants more because of the money he has spent.  He continues to incur more costs because he needs to get a better settlement to cover the increased costs, even when it is clear there is little likelihood of any better outcome than the current offer.

It is vital for the lawyer to keep the potential goal in front of  mind for the client, and aim to keep costs well under the potential rewards.  Once it becomes apparent that the current course of action is not a good one, focus on the outcome of continuing with the current course, rather than the process of proceeding with a plan.  Ideally, set limits for a client at the commencement of a matter.  This helps the client recognize when the costs are sunk, and encourages them to have the willingness to walk away.

Tenders and Alternative Fee Arrangements

The UK magazine Legal Week has reported on the review by the gaming group Ladbrokes of its external legal panel. There are a couple of features of the review which merit further consideration. It is clear that one of the objectives was to move the legal panel away from hourly billing to alternative pricing arrangements. This was achieved in three ways:

1. Ladbrokes required successful tenderers to move away from hourly billing by 1 January 2015, the halfway point of the four-year panel term
2. Ladbrokes were quite specific about the "granular approach" they required responders to the tender to take, about the nature of the alternative fee arrangements proposed
3. They focused on the value adds which responders proposed, and developed a "value menu" so that responses could be evaluated against each other.

Ladbrokes have also utilised technology as part of legal spend management, implementing Tymetrix software for billing review and panel appraisal.

The approach demonstrates best practice in legal spend management in a number of ways:

• The tender itself was very specific about the objectives sought to be achieved.
• The tender required responders to be very detailed about the alternative pricing arrangements.  By setting a deadline regarding when hourly billing was to cease, it forced responders to put specific proposals. Too often the request for an alternative pricing proposal in a tender is seen as an optional add-on, rather than the principal focus of the tender. Responders often simply indicate that they are happy to discuss alternative pricing arrangements in appropriate circumstances, without putting forward any specific detailed proposals.  Clearly this kind of nonresponse would not have been available to those responding to the Ladbrokes tender. It would have resulted in their tender response being deemed non-compliant.
• Finally Ladbrokes have taken a holistic approach by utilising sophisticated legal spend management software together with a sophisticated tender. This then enables proactive and positive panel firm management during the life of the tender. One of the failings in legal spend management is the management of panel firms following a successful tender. The tender process itself is simply the first step in an ongoing management process, and there will be little achieved in management of legal spend and outsourcing of legal work if the second and often more crucial part of the process, that is the proactive management and provision of feedback with, is not undertaken.

Buying holes not drill bits

Do you think about what you are buying when you purchase legal services? Do your lawyers ask you what you are buying? If asked, many clients would respond that they were buying one of the following:

• Time (the lawyer's)
• A work product (e.g. A lease, contract, advice)
• A legal outcome (e.g. A successful court case, an injunction, an effective contract).

Some more sophisticated purchasers of legal services may answer they are purchasing a solution. The truly enlightened will understand they're buying both the solution, and the effect of the solution and the experience of obtaining the solution.

In Bill What You're Worth , David W Cottle repeats a story from a surgeon:

Do you know how long it takes a good surgeon to remove an appendix from first incision to closure? Seven minutes.  If you gave me two hours with anyone smart enough to finish college in five years, I could teach him or her how to remove an appendix.  It’s really very simple.  But do you know how long it would take me to teach that same college graduate what to do if something went wrong while removing that appendix?  Six years of medical training.”

A couple of lessons from this – when purchasing a service, you should be paying for skill rather than time spent.

But even more importantly, you should be focussing on outcomes and the experience, which define value, rather than the mechanics of the task itself.  The value to the patient is the successful removal of the appendix, and resolution of any complications, rather than the time taken.  As someone else put its – you are buying the hole not the drill bits.

Some consultants, when advising about cost management, emphasise the desirability of ensuring that the least expensive fee earners do the greatest proportion of the work.  This can be a false economy – it may be more effective for a skilled and experienced lawyer to undertake the work, providing a better outcome.

You don't buy drill bits (the service), you buy holes, or the capacity to create holes.  When considering the value of the service, look at what you are actually purchasing.