The second biggest risk CFOs of firms worry about? Exceeding the investment on fixed-fee services

A survey by Sweet & Maxwell of finance directors at the top-100 UK law firms asked about financial threats the directors foresee. The most pressing was downward pressure on fees, but the second one deserves discussion.

“The second greatest threat identified was the potential cost overrun incurred on legal work paid for with a fixed fee,” according to Managing Partner, May 2010 at 8. That worry depresses me, for several reasons.

One reason is that it suggests that the top financial officers of these large and experienced firms place little faith in their partners’ abilities to project fees reasonably accurately. How experienced and good are the firms?

Another reason follows from the implicit premise that clients – law departments – show little sympathy or understanding if material conditions change in ways that could not reasonably have been predicted.

Third, where is the appreciation that partners can alter the mix of activities undertaken or timekeepers if expenditures strain against the budget?

And, finally, some fixed fee matters ought to conclude below the fee amount and thereby balance some of the overruns. The objective of legal departments is not to have law firms make lots of money on some matters, moderate money on other matters, and at least break even on everything else. Alternative does not always mean remunerative.

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