Richard Burcher, chairman of Virtual Pricing Director®, is a recognised global authority on legal sector pricing. Here, he explains how technology is transforming how law firms manage the pricing and profitability of matters. At the end of the article are some more detailed examples of the multiple options that such software can provide. (Updated 13 December 2022)
Research by Virtual Pricing Director® suggests that the UK top 200 law firms wrote off over £4 billion last year in recorded billable time. Client expectations around value for money, cost savings, cost predictability/certainty and price transparency continue to apply unrelenting pressure.
At the same time, partners loathe pricing and this whole aspect of the client relationship. Few partners have ever had formal pricing training, pricing is viewed as an administrative/regulatory ‘pain in the neck’, and fee-earners usually can’t record the time spent pricing towards their personal targets. Often, partners have no idea whether the job that they are pricing is profitable or not.
The traditional approach
Many partners still approach pricing in an unsophisticated way, which leads to the huge and costly write-offs.
It remains the norm for partners pricing a new job to look a bit like this… “What do we normally charge for a job like this, what did I charge on the last one like this?” They then wander over to the window, scratch their heads and say to themselves something like, “Oh, it feels a bit like £15,000. No, wait a minute, the client will choke on that, I’ll make it £12,000”.
Later on, when scope creep and other matters have given rise to a cost blowout, the first the client may learn of it is at the end of the job.
This is far from ideal.
- Pricing is inconsistent and lacks transparency.
- Time is wasted reinventing the wheel for each new proposal.
- Clients rely on the price, including it in their project budget - with inevitable client dissatisfaction and pushback later on.
Templating
One way to address this is the use of pricing templates. Lawyers are already heavy users of templates and precedents for speed, convenience, and quality control. It makes sense to apply the same principles to the development of pricing proposals.
Rather than developing your own template from scratch, the right pricing technology can recommend phases and tasks for you to select from and tweak for your proposal. A detailed breakdown provides clarity to the client on what to expect and helps the firm plan the necessary resourcing.
Technology can also help clarify the assumptions underlying the pricing proposal, as well as any generic or workstream-specific exclusions. Being transparent in this way significantly reduces the risk of misunderstandings and disputes. A detailed proposal can also provide the basis for discussing the cost implications of different possible scenarios.
Phases and tasks
If you are advising a client on a commercial property purchase, the phases to choose from when writing a proposal might include:
- Instructions and preliminary steps
- Investigations, searches, and enquiries
- Undertake searches
- Properties with occupational tenants
- Long leasehold
- Construction due diligence
- Environmental due diligence
- Negotiating documents
- Conditional contracts
- Overage provisions
- Exchange and pre-completion steps
- Finance and post completion
Each phase is then broken down into a list of tasks to include. For example, in the case of long leasehold the list of tasks might include:
- Receive copy lease and all supplemental deeds and documents and accompanying information (eg service charges and insurance policy).
- Investigate title to the property and any superior title as set out in the tasks below and provide you with a brief report on the key matters.
- Raise further enquiries.
- Prepare a full written report to you on terms of lease.
- Serve notice of assignment on Landlord on completion.
See the list of example phases and tasks at the end of this article.
Assumptions
Assumptions are another critical component of the proposal. Too many assumptions can irritate clients and undermine the credibility of your proposal, so it is a case of picking the ones that are most likely to occur and are most likely to cause significant problems.
For example:
- Any third parties (eg landlords, mortgage lenders and their respective solicitors to the extent they are involved) are cooperative, responsive, and deal with the matter in timely fashion.
- You or your other advisers (such as surveyors) will be responsible for the physical investigation of the property and there are no discrepancies between the extent of the property as described in the title and as apparent on the ground.
- The other parties are represented by solicitors, are advised competently, and instruct their solicitors on the same timescales.
- We will not be providing tax advice, property agency advice or asset valuation advice unless they are specifically included elsewhere in this proposal.
See the list of example assumptions at the end of this article.
Exclusions
For the avoidance of doubt, a clear articulation of exclusions should round out the proposal.
For example:
- Advice on the commerciality or financial efficacy of the transaction.
- Advice regarding site suitability and condition, boundaries, and environmental issues.
- Unregistered property.
- Searches that may be applicable to unusual site-specific matters.
You can also use exclusions to rule out whole phases of work, for example:
- We will not be providing advice on occupational tenants as the property is sold with vacant possession.
- We will not be providing advice on any long leasehold interest as we understand the property is freehold.
See the list of example exclusions at the end of this article.
Historic insights
Modern legal pricing technology can also assist by providing partners with actionable historical insights with a single click. Let's assume for a moment that you want to base a new pricing proposal on a similar matter that you completed six months ago. In an ideal world, you should be able to click on a single button that will give you a summary of that historical matter, including:
- what fee was originally proposed to the client
- what fee you ultimately agreed with the client (if different from proposal)
- how much billable time accrued on the matter
- who worked on the file and how much time they each recorded
- what was ultimately charged
- whether there was an uplift or a write-off
- what the gross margin on the final fee was
Strategic and tactical pricing
Lawyer-friendly pricing technology can help firms make speedy and informed decisions around the impact of everything from rate increases to discounts and write-offs. As well as better decisions on individual matters, this body of pricing data also allows firms to implement better strategic and tactical pricing decisions.
Pricing strategy should always be developed as part of a coherent, data-driven approach that is aligned with the firm’s broader strategic objectives. For example, when a regional firm acquires a smaller local firm, there is usually a pricing mismatch between them. Often the strategy is to bring the pricing of the smaller firm up to the pricing level of the regional firm, knowing that some clients will be lost in the process, but sufficient high value work will be retained.
Tactically, you need to be able to quickly establish the cost and profitability of comparable matters your firm has done previously. While it may take some time to build up enough data to reveal the cost details, this data is the key to undertaking fixed fee work profitably. (See Validatum®’s ‘8 Steps to Profitable Fixed Fees’.)
Monitoring
Once you have produced a comprehensive pricing proposal for the client, how do you then monitor the cost against the budget? What about scope creep?
If the job is turning out to be unprofitable, can you ask for more money? If so, how quickly can that conversation take place, to avoid the extremely awkward situation of asking after the work has been completed?
Modern legal pricing technology can assist here as well, if it is integrated with a firm's practice management system and time recording system. When this is done, pricing technology can provide fee-earners with real-time dashboards that will inform them of such things as:
- accrued billable time - budget versus actual
- who is working on the file and accruing time
- gross profit margin of the work as it is being undertaken
- project milestones
Providing fee-earners with real-time insights such as these metrics allows them to respond proactively to developments that can otherwise result in unhappy clients and poor financial outcomes for the firm.
Where it becomes obvious that the budget is going to be blown, the fee-earner can take immediate steps to agree a price increase or an adjustment to the scope.
Or where it is obvious that a deteriorating gross profit margin is attributable to inadequate delegation on the file, those responsible can halt the overuse of expensive senior fee-earners.
Software selection
Legal pricing solutions tend to fall into these three categories.
1. Spreadsheets
Advantages: Ubiquitous and cheap.
Disadvantages: Lawyers don’t like them or use them. Spreadsheets have extremely limited functionality and no real-time functionality. They are error-prone and a point of failure risk as few people in a firm know how they were constructed.
2. Matter management software
Advantages: One-stop-shop solution, guaranteed PMS integration, bundled in the price.
Disadvantages: Tends to be limited, entry-level functionality. Designed by software engineers and analysts, rather than lawyers.
3. Point solutions (such as Virtual Pricing Director®)
Advantages: Best-in-class solution for optimising pricing, with an attractive ROI. Built by lawyers, for lawyers. Customisable for small, medium, and large firms.
Disadvantages: A more expensive entry cost. While PMS integration is not particularly difficult, it is less straightforward.
Implementation challenges
There are several factors to be considered when it comes to implementation.
Practice management system integration
Historically, law firms have found a single platform solution provider to be an attractive option. However, as the legal tech market has become increasingly sophisticated, firms are now more inclined to seek out what they regard as best-in-class solutions, subject to one vital caveat; the different elements of the IT stack must be able to communicate with one another. Happily, virtually all legal software is now built in a way that allows for seamless integration.
Workflow
Lawyers are busy people and don't take kindly to being told that they have yet another thing to do at the beginning of a job before they roll their sleeves up for the legal work itself. Thoughtful incorporation of legal pricing technology into lawyers’ existing matter opening workflow is crucial to adoption. It must make their life easier, not more difficult.
Pricing knowledge
Technology on its own is rarely a panacea. In fact, in the worst instances, it can worsen the problem. Most law firms have come to realise the importance of simultaneously addressing the trinity of people, process, and technology. This means that if legal pricing technology is to fully deliver on its potential, lawyers need at least rudimentary training in the art and science of pricing.
Pricing using technology top ten
Law firms can use powerful, purpose-built, lawyer-friendly legal pricing technology to:
- Help you scope every job properly for speed, accuracy, quality control and consistency.
- Surface data for fee-earners on historical matters to help them make informed pricing decisions.
- See if your pricing proposal is profitable or not before you send it out.
- Provide your clients with complete pricing transparency and clarity.
- Provide your clients with a higher degree of budgetary certainty.
- Enable your fee-earners to provide fixed fees with confidence.
- Provide you with real-time visibility of budget versus actual cost, and real-time insights into the profitability of the work as it is being undertaken.
- Provide you and your colleagues/supervisors with early warnings of scope creep.
- Keep your clients informed on costs on a regular and timely basis.
- Professionalise the pricing aspect of your relationship with your clients.
Example phases and tasks
If you are advising a client on a commercial property purchase, the phases and tasks to choose from when writing a proposal might include:
Instructions and preliminary steps
- Obtain detailed formal instructions by telephone or in writing to discuss the constituent parts of the transaction, your aims, and timescales.
- Obtain detailed formal instructions in a meeting to discuss the constituent parts of the transaction, your aims, and timescales.
- Deal with initial formalities including conflict checks and other regulatory matters.
- Undertake a site visit.
- Prepare or approve heads of terms to reflect the key terms of agreement you have reached with the seller or their agent.
- Prepare or approve a confidentiality agreement with the seller's solicitor.
- Prepare or approve an exclusivity agreement with the seller's solicitor.
Investigations, searches, and enquiries
- Receive draft contract, title, and other property information from the seller's solicitor.
- Investigate title to the property and carry out the following tasks and report to you on any main concerns [list tasks].
- Review replies to standard enquiries.
Undertake searches
- Review planning permissions and related documents.
- Raise further enquiries arising from the information received.
- Prepare a full written report for you on results of searches, investigations, and enquiries prior to exchange.
Properties with occupational tenants
- Review the occupational leases at the property and provide you with a brief report on the key terms.
- Review and negotiate provisions in contract for purchase relating to occupational lease matters.
- Review and negotiate documents to deal with assignment of tenant's rent deposits.
- Prepare a full written report on the occupational leases.
- Review seller's completion statement at completion in relation to rental and related apportionments.
- Send out rent authority letters at completion.
Long leasehold
- Receive copy lease and all supplemental deeds and documents and accompanying information (eg service charges and insurance policy).
- Investigate title to the property and any superior title as set out in the tasks below and provide you with a brief report on the key matters.
- Raise further enquiries.
- Prepare a full written report to you on terms of lease.
- Serve notice of assignment on Landlord on completion.
Construction due diligence
- Establish nature of works carried out.
- Receive and collate construction documents.
- Review draft construction documents.
- Raise construction enquiries.
- Negotiate amendments to the purchase contract and related assignment documents in so far as they relate to the provision of construction documents.
- Prepare a full written report for you on the final construction documents.
- Receive and check documents for completion and arrange execution.
- Completion formalities at the appropriate time.
Environmental due diligence
- Consider environmental issues relevant to the property purchase and report to you and environmental consultants on the information received.
- Undertake relevant searches.
- Raise additional enquiries.
- Negotiate amendments to sale contracts in relation to environmental issues and other relevant documents.
- Prepare a full written report for you on environmental issues and your future liability.
- Post-completion formalities.
- Negotiating documents
- Review draft contract and transfer deed to ensure these reflect the agreed commercial terms of the transaction.
- Negotiation of draft contract with the seller's solicitor.
- Negotiation of draft transfer of whole title with the seller's solicitor.
- Negotiation of draft transfer of part of a title with the seller's solicitor.
- Prepare a full written report on contents of the final documents prior to exchange.
Conditional contracts
- Review conditional elements of the purchase contract and report to you on its key terms.
- Negotiate changes to conditional elements of the purchase contract.
- Prepare a full written report for you on the conditional elements of the purchase contract.
- Liaise with you and seller’s solicitors over progress of the satisfaction of the conditions after exchange of contracts.
Overage provisions
- Review draft overage agreement and report to you on its main terms.
- Negotiate changes to overage agreement.
- Prepare a full written report for you on overage agreement.
Exchange and pre-completion steps
- Agree date for completion and exchange contracts.
- Send contract and deposit to seller's solicitor.
- Send requisitions on title to seller's solicitor prior to completion.
- Review replies to requisitions on title and seller's completion statement.
- Undertake pre-completion searches.
- Request and receive relevant funds from you.
- Prepare stamp duty land tax form.
- Prepare documents for completion and arrange execution.
Finance
- Receive instructions from lender direct or from lender's solicitors.
- Report to lender direct or respond to requirements of lender's solicitor.
- Prepare a full written report to you on lender's requirements and your liabilities under the mortgage deed.
- Arrange execution of mortgage deed.
- Register mortgage at Companies House.
- Register mortgage at Land Registry.
Completion and post completion
- Completion formalities including actual completion and payment of purchase monies and SDLT.
- Send counterpart transfer to seller's solicitor.
- Receive and check completion documents.
- Register transfer at Land Registry.
- At the conclusion of the matter, liaise with you about storage and safekeeping of original documents (in both hard and electronic format); ensure you have copies of all appropriate documents in a suitable format and all financial transactions have been properly concluded.
Example assumptions
1. All parties involved in the transaction are organisations registered in the UK.
2. Any third parties (for example landlords, mortgage lenders and their respective solicitors to the extent they are involved) are cooperative, responsive, and deal with the matter in timely fashion.
3. The project proceeds in the anticipated time frame and all parties negotiate in a reasonable and commercially pragmatic manner.
4. We will not be monitoring key dates such as rent reviews after completion.
5. You or your other advisers (such as surveyors) will be responsible for the physical investigation of the property and there are no discrepancies between the extent of the property as described in the title and as apparent on the ground.
6. You will ensure that we have the support of your other professional advisers where required.
7. The other parties are represented by solicitors, are advised competently, and instruct their solicitors on the same timescales.
8. We will not be providing tax advice, property agency advice or asset valuation advice unless they are specifically included elsewhere in this proposal.
9. This is a transaction with vacant possession and no advice will be provided in respect of any occupiers or occupational leases unless specifically included elsewhere in this proposal.
10. There is no conflict with other parties.
11. Estimate of time for site visit includes journey to and from site.
12. No renegotiation of the heads of terms is required.
13. A standard form confidentiality agreement is sufficient.
14. A standard form exclusivity agreement is sufficient.
15. Seller's solicitors have sent all necessary title documents, replies to standard enquiries and draft contract.
16. Property is freehold, registered in seller’s name and all physical deeds and documents required are immediately available.
17. No restrictions are on the title which will require third-party consent before completion.
18. Seller has prepared comprehensive replies to standard enquiries.
19. Usual searches only are required: Local land charges, Local authority, Drainage and water, Environmental (desktop), Chancel and Index map.
20. The seller has a full planning history available and limited additional investigation is required by us beyond reviewing local search results.
21. For properties with occupational tenants, all deeds and documents have been properly executed.
22. For properties with occupational tenants, all leases are broadly in the same format.
23. Any rent deposits are to be assigned to the buyer on completion.
24. Rent apportionments are calculated correctly.
25. For long leaseholds, all deeds and documents are immediately available.
26. For long leaseholds, an existing leasehold interest is being acquired.
27. For long leaseholds, property leasehold is registered to seller.
28. For long leaseholds, no restrictions are on the title which will require third-party consent before completion.
29. For long leaseholds, there is only one additional superior lease.
30. If construction works are a consideration, the seller is selling the property with the benefit of an existing suite of pre-agreed construction documents.
31. If construction works are a consideration, the works have already been carried out and are available for inspection by the buyer.
32. If construction works are a consideration, not more than 4 professionals and 1 main contractor are involved.
33. There are no provisions under which the seller is carrying out construction work, rather it is just passing on the benefit of warranties provided by others.
34. All parties are ready and able to complete on proposed completion date.
35. If appropriate, an environmental consultant's report accompanies the contract pack, or you have undertaken one.
36. Seller's replies to standard enquiries suggest there are environmental issues.
37. Environmental reports may include consultant's report, searches revealing information about flooding, past-use, contamination, waste, emissions, Japanese knotweed, water pollution, common law nuisance, asbestos, energy efficiency, habitats, species, etc.
38. Amendments and other relevant documents regarding environmental issues may include reliance letters for seller's reports, assignment of appointments or reports, remediation requirements, environmental warranties, allocation of environmental liability between parties, environmental indemnities, and transfer of environmental permits.
39. Environmental permits/allowances to be transferred to buyer.
40. You have provided details of capital allowances or other taxation issues that may affect drafting or structure of the transaction.
41. Documents comprise only a contract for the sale and a related transfer document.
42. Only minor amendments and subsequent negotiations to contracts are required.
43. Conditional elements of the purchase contract broadly reflect terms agreed between parties.
44. You will rely on others to establish whether the conditional elements of the contract have been satisfied (eg in the case of planning conditions, because this will be dealt with by your planning consultants).
45. Seller's solicitor is drafting overage agreement either as separate document or as part of transfer deed.
46. Parties have clearly agreed overage terms to insert in agreement.
47. Seller’s solicitor is readily available to exchange via telephone.
48. Funds are readily available and sent to us in one transaction prior to completion.
49. Your VAT registration number or UTRN is readily available.
50. You are available in the UK to attend offices to sign or receive documents in the post for signature.
51. Lender's or lender's solicitor's instructions are in a relatively standard format.
52. The only security required by the lender is over the property being purchased.
53. Lender’s requirements are limited to title, usual search results, replies to standard enquiries and occupational tenancies (if any).
54. Mortgage deed can be submitted for registration via Companies House WebFiling.
55. Mortgage can be submitted via Land Registry portal.
56. All parties are ready and able to complete on contractual completion date.
57. Seller's solicitor provides all documents relevant to the transaction in accordance with Law Society's code for completion by post.
58. Transfer can be submitted via Land Registry portal.
Example exclusions
1. Advice on the commerciality or financial efficacy of the transaction.
2. Advice regarding site suitability and condition, boundaries, and environmental issues.
3. Unregistered property.
4. Searches that may be applicable to unusual site-specific matters.
5. Utilities searches.
6. Any advice or commentary by us on environmental, flood or similar searches that may require further specialist input from surveyors or consultants in relevant areas.
7. Reviewing extensive or unusual S106 or other planning or statutory agreements.
8. Advice on occupational tenancies where no leases are in place or leases that have expired.
9. Advice on any subtenancies that may exist.
10. Where leases are involved, negotiation of a new lease.
11. Where leases are involved obtaining landlord's consent to the sale.
12. Advice on potential breaches of lease covenants by seller.
13. Negotiation of any construction documents with any third party or the seller.
14. No amendments to the construction documents are to be made and our role is only to report on what is provided.
15. Any advice or commentary by us on environmental issues as these will require further specialist input from surveyors or consultants in relevant areas.
16. Advice on commerciality of planned scheme for property in light of environmental issues.
17. Any meetings with the seller’s solicitors.
18. Advice on commerciality of overage provisions.
19. Complex or unreasonably lengthy instructions from the lender.
20. Reports requested by lender on site-specific searches, consultants’ reports.
21. Any advice as to the commercial terms of the finance (e.g., interest rates).
22. Advice on additional mortgage documents including debenture, independent legal advice to guarantors.
23. Advice on failure to complete by either party, service of notice to complete.
24. Long-term safe storage of original documents.
You can also use exclusions to rule out whole phases of work. For example:
1. We will not be providing advice on occupational tenants as the property is sold with vacant possession.
2. We will not be providing advice on any long leasehold interest as we understand the property is freehold.
3. We will not be providing any advice on construction matters (including any due diligence provided by the seller).
4. We will not be carrying out any environmental due diligence beyond obtaining the normal desktop searches carried out as part of the title investigation.
5. There are no conditional elements to the contract for us to review or negotiate.
6. There are no overage provisions in the documents for us to negotiate or review.
7. We will not be providing advice on any third-party funding for the purchase.
(Note: Richard led the Law Firm of Tomorrow webinar on 'Pricing legal services using available technology' in November 2021. You can listen to the webinar recording.)
See also:
