When I was growing up cigarette smoking was rampant throughout Australia and the world.
For many years all of the cigarette makers heavily marketed smoking as being synonymous with a fabulous lifestyle, with perhaps the most prominent campaign of those days being the ‘ Marlboro Man’, a rugged cowboy in an outdoor setting quietly enjoying a cigarette. This campaign was so successful it ran from 1954 to 1999, and so during this period there were a number of Marlboro Men. We were to later learn that at least four men who appeared in Marlboro related advertisements died of smoking related diseases.
The success of the Marlboro Man campaign led to heavy imitation by other manufacturers and the onslaught of advertising easily overcame any health concerns that were ever raised, with the result that there was relatively little discussion amongst my peers about the dangers associated with smoking.
One of my enduring memories of my days at university was that most of the students would meet in coffee shops on campus for a fag or two between lectures. I clearly recall one of my friends who was a very heavy smoker telling me that even if he wanted to give it up he was so addicted he couldn’t, and that if he ever did get cancer, the advances in medicine were so great he had no doubt that a cure would be announced in time for him to benefit from it.
Once it became apparent that no such cure was available that friend and a number of my other smoking friends finally went ‘cold turkey’ and eventually managed to rid themselves of the habit. Obviously, the longer they had been smoking, the longer and harder it was to quit.
What does all this have to do with a legal practice you ask? Well, for the last two weeks I have spent an inordinate amount of time going through dozens and dozens of files on Affinity to try and find out why operators have difficulty in adhering to our procedures and policies resulting in us accumulating incredible amounts of Work In Progress (W IP) and debtors. We have pretty straightforward policies in place that stipulate that we are to send out retainers with an estimated cost for doing the specified job, we are to ask for money upfront, and are supposed to bill on an interim basis. If all that is done why do we have such big W IP and debtor balances?
I think that the answer is not because people consciously want to be in conflict with management, but simply because they have developed habits over the years which they find very hard to break. If that is the answer, then I get it. Unfortunately though by condoning those behaviours and not attempting to change them, the financial health of the practice is affected, and whilst at this stage the effect is not fatal, it certainly makes a hole in our balance sheet which does not have to be there. In addition, the fact that we are slow to bill often leads to us writing off significant amounts of W IP as people feel clients will resist paying for work which has subsequently become ‘stale’. By contrast, if we bill immediately after doing a job for a client, the reason for that work, and the value of it, is clear to all parties and we should be properly remunerated for it. There is also a very real danger that these behaviours will spread to those parts of the practice which are currently in good health and we can never allow this to happen.
Included in my reasons for believing that a number of our operators are acting out of habit rather than considering our well publicised policies are the following observations:
- Our retainer agreements all contain a clause which makes it clear that we may do interim bills. I am yet to see a file where this is not the case and unless the consent of at least two directors is obtained, it will not occur in the future either,
- Despite the clear terms of the retainer agreement regarding interim billing, there are numerous examples where this does not occur. If it is in the agreement and the client has consented to us proceeding with the matter why would we not bill either monthly or when certain milestones occur? This is in compliance with our policies, would certainly help our cash flow, and helps the operator to preserve the value of the work done by billing it when it is fresh,
- We regularly exceed initial cost estimates contained in retainer agreements and take no action to let clients know this has occurred or what future costs are likely to be. Since the changes to the Legal Professional Practice Act came in regarding our obligations to clients in relation to the issue of costs I have sent numerous emails indicating that we have a legal obligation to provide proper estimates of costs to clients and I am sure that none of our operators tend to capriciously disregard the law, so they must be in breach of their obligations due to habit rather than intent,
- I have seen numerous files where we have provided what I would regard as ‘good’ indications of the scope of works to be done and the estimated price for that. Unfortunately, we then go and do a whole lot more work without billing for what was covered in the original brief or providing any type of ‘out of scope’ letter which we are required to,
- As mentioned in previous dispatches, our penchant for writing off W IP is legendary within the Law Australasia firms and is not an honour that we wish to continue to hold. By the end of this financial year if that write-off rate continues we will have written off more work than some of the LA member firms write in fees in a year. Obviously, this cannot be allowed to continue. Apart from anything else operators who seek large write-offs are writing down the value of their own contribution.
- Many files do not have file notes in the appropriate tab in Affinity and it is often difficult to know what a file is about. There have been numerous reminders about the need for this to occur. I should say that in cases where notes are being done, the quality of the notes is improving all the time and we now need to get all operators on board with this practice if we are to have any confidence in relying on electronic filing,
- I have seen far too many files where we have done interim bills (which is commendable) without taking into account the fact that previous interim bills remain outstanding (which is a disaster) and failing to follow up payment with clients. If people do not pay their bills, we should not continue working for them unless some type of agreement is in place,
- From time to time arrangements are made for clients to pay fees at the end. This is a common practice in Family Law because clients often will not have money until the matrimonial assets are carved up. When entering into ‘pay at end’ arrangements we need to be very careful to be mindful of what effect that will have on our cash flow considerations. Accordingly, as is the case with the Family Law section, any such arrangements need to be cleared with directors before they can be entered into. When such arrangements are made it is also important to provide the client with interim reports as to how costs are progressing so that they will not be taken by surprise at the end of the action.
Lest people think I am on some pointless, obsessive campaign in relation to the need to follow proper processes I should make it clear that in this day and age where we have well-informed clients we have had several instances where clients have refused to pay the full amount of the bill sent to them due to the fact we had exceeded our initial estimate and did not provide a fresh one. In at least one case the loss to us was quite significant (over $10,000 for work clearly done and which but for the omission to update the estimate was clearly and properly recoverable).
It is of some comfort to say that whilst my review of dozens of files has left me disheartened as to why there are so many failures to follow policy, I am on the other hand generally very impressed by the high quality of legal work that we put out. It is just unfortunate that we do not properly bill our clients for that work.
It seems to me that as we are blessed with good lawyers and support staff, and have good processes and systems, we need to work with those persons within the office who are ‘yet to break the habit’. This cannot be a one-sided process. Like any detoxification program, those that have trouble complying with our rules and policies need to accept that is the case and not go into some form of denial. Immediately they do accept that they have a problem, we can work with them to improve their habits and hopefully, even their self-esteem as they see that clients will pay for work done providing they are properly informed about the scope and likely cost of that work.
In addition to those who are clearly struggling with our policies there appears to be a general lack of knowledge about processes to be followed when initial cost estimates are exceeded. In the coming days everyone will be instructed in relation to ascertaining whether an estimate has been reached (it is very easy to do) and as a minimum, unless and until a new estimate goes out, NO FURTHER WORK IS TO BE DONE ON THE FILE. In many cases it will also be appropriate to send an interim bill at the same time as the revised estimate. If it becomes apparent to management that these steps are not followed the operator will be asked to explain reasons for the omission.
Until we are satisfied that behaviours have changed we propose that there will be more intensive management involvement on files and possibly even file audits which involve going through each and every active file of an operator to see whether it has been managed and billed in accordance with firm policies. Obviously this is an onerous undertaking for all involved and we would prefer to avoid it if possible.