Pricing Practice: Exploring Costs in Victorian Legal Services
Examining the factors that influence the pricing of legal services, how practitioners communicate costs, and how they affect the lawyer-client relationship.
Background
Lawyers’ matter scoping and billing practices are central to the cost and market for legal services. They have a direct relationship with access to justice. Lawyer communication with clients about these practices is a major driver of client understanding and agency in the service relationship. This communication is also an important aspect of the quality of legal services and has a direct bearing on consumer experience.
The Victorian Legal Services Board + Commissioner (VLSB+C) commissioned this research to examine the factors that influence the pricing of legal services, how practitioners communicate with clients about anticipated costs, and how service costs, and communications about costs, affect the lawyer-client relationship.
The project was led by Associate Professor Catrina Denvir and Dr Jess Mant with Associate Professor Genevieve Grant from Monash University, and VLF Principal Researcher Dr Hugh McDonald and Research Director Professor Nigel Balmer.
Key findings
Pricing models and billing
- Time appeared to be used as a central measure for price-setting, even among practitioners who offered fixed fees and value pricing. As a result, fixed fee services are often reserved for matters where practitioners can accurately predict the time it will take to complete the matter.
- The opportunity for clients to negotiate on price tends to be limited, even where a costs disclosure agreement suggests otherwise.
- Practitioners identified some barriers to adopting alternative pricing models. Some hourly rate practitioners did not appear to have a thorough understanding of how fixed fee pricing should operate.
- Practitioners adopted a range of strategies to prevent bill-shock and support clients in financial difficulty. However, billing and pricing practices are constrained by practitioners’ aversion to financial risk, and reluctance to adopt alternative approaches.
Choosing a lawyer
- Although practitioners spoke of some clients ‘auditioning’ them and shopping-around on price, this was relatively uncommon. Many practitioners also reported that they used the first meeting with a prospective client to perform their own screening.
- Practitioners observed that many clients lacked the capacity to adequately assess the value of services being offered by them and others, and often had misconceptions as to the probable cost of services.
Estimating and communicating anticipated costs
- Practitioners adopted varied approaches to the ‘estimate of total legal costs’ required under the Legal Profession Uniform Law Act 2015 (Vic) (LPUL). Practitioners in the study thought that they must provide a ‘single figure’ estimate. This can, at times, result in highly unrealistic ‘worst case scenario’ estimates.
- Efforts to contextualise a ‘single figure’ estimate through provision of extensive cost breakdowns and qualifications, risks further increasing the cognitive burden for clients. Many practitioners already feel that clients do not engage fully with cost disclosure documents, given their length and complexity.
Controlling, monitoring and updating costs
- Practitioners used various strategies to minimise legal costs and mitigate risk up-front including factoring in foreseeable contingencies that might increase costs.
- Practitioners’ efforts to contain costs can be frustrated by external factors that increase the costs in unanticipated and uncontrollable ways.
- The ‘single figure’ estimate is actively monitored by practitioners, however updated disclosures may not be necessary based on the nature of the ‘single figure’ estimate. Some practitioners give higher worst case scenario estimates from the outset.
- There is uncertainty around the effectiveness of the updated disclosure requirements given that some practitioners give worst case scenario estimates from the outset.
Implications and way forward
The Efficacy of Uniform Law Requirements
- The Legal Profession Uniform Law Act 2015 (Vic) (LPUL) requirement to provide an ‘estimate of total legal costs’ may not be operating to enhance costs transparency in the manner intended.
- The obligation under the LPUL to minimise a client incurring unnecessary costs should be considered in parallel with courts’ case management duties and powers.
- Negotiated costs agreements rarely occurred in practice.
Improving Support for Legal Practitioners
- It is unclear how reliable ‘fixed’ fees may be in practice, given associated cost inclusions and exclusions, and the potential for costs to be updated.
- There are misconceptions about pricing models and what they require of practitioners, and the client groups for who they are most appropriate.
- Practitioners were concerned that cost disclosure and cost agreements had to be comprehensive, and that streamlining information to improve client comprehension, risked non-compliance.
Improving Public Capability to Evaluate Legal Costs
- It is extremely difficult for clients to make an accurate assessment of what constitutes value for money, and to meaningfully compare estimated costs.
- Additional public legal information may help clients to better understand the cost information supplied to them.
General Observations of Good Practice
There were examples of good practices among the sample of practitioners interviewed, including:
- The use of regular billing cycles to prevent bill shock and keep clients informed.
- Raising the matter of costs directly and up-front with a client at the initial interview, clarifying exclusions and inclusions, and providing price breakdowns in respect of complex or multistage work.
- Setting clear boundaries to help clients understand the service being provided.
- Adopting digital tools to track billing against the estimate.
Gaps in the Knowledge Base and Avenues for Future Research
- Further research to examine client comprehension of legal costs is necessary.
Examining the factors that influence the pricing of legal services, how practitioners communicate costs, and how they affect the lawyer-client relationship.
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