Hive Legal expects ‘journey’ on value pricing

The founders of legal start-up Hive Legal say top tier corporate clients will take time to adjust to comparing law firms on value rather than an hourly rate

The founders of legal start-up Hive Legal say top tier corporate clients will take some time to adjust to comparing law firms based on value of legal services and outcomes, rather than an hourly rate.

Following the recent launch of the new firm, which employs a value pricing-based approach to billing, founding partner Mitzi Gilligan said clients will take time to adjust to the alternative pricing model.

“It’s early days; the transition to true value pricing in the Australian market is going to be a journey,” Gilligan told Australasian Lawyer.

“In particular, the type of work we are targeting, which is more higher-end corporate and commercial work, is not the type of high volume legal work that some of the other firms might traditionally consider doing a fixed fee on,” Gilligan said.

“The thing that’s encouraging is that clients are prepared to have the conversation.”

Headed up by managing director Jodie Baker, Hive Legal was founded by ex-Minter Ellison partners Gilligan and Jacinda de Witts, as well as ex-DLA Piper partner Simon Davidson. Their combined senior-level expertise spans most aspects of the corporate, commercial and regulatory spectrum.

One of the firm's key differentiators is its intention to charge based on value, rather than hourly rates.

“We have a strong preference for value-based billing," Gilligan explained. "We want to reach an agreement with our clients on the value to the client of the work we are going to do for them, and then design a solution to deliver the outcomes they are looking for with a cost base to achieve that."

The firm is considering a range of methods for achieving this, including fixed fees, retainers, risk share-style arrangements or contingency fees.

The firm also plans to leverage relationships with other legal service providers, should it not have the resources in-house to meet client needs.

However, Gilligan said it will take time for clients to adapt to value-pricing based legal models.

“It is going to take time to move clients’ thinking away from wanting to compare law firms by hourly rates, because that is the easy and natural comparator,” Gilligan said.

Gilligan suggests that while traditional law firms do a  "fantastic" job for their clients, they have genuine difficulty offering true value pricing models.

"Some do offer fixed fee billing, but the difference is it is not really value pricing. It is hourly rate by another name,” Gilligan said.

This is because often, time recording underlies most law firm approaches to billing their clients.

“It is difficult when you have made massive investments in infrastructure and designed your workforce and your reward and recognition system hinging on time recording.” Gilligan gives the example of law firms measuring performance largely based on how many hours they have billed.

Pricing based on value may also avoid scenarios where one law firm client may end up paying more for a particular service, because they are in effect cross-subsidising time spent for other clients on similar work. “If you focus on value pricing both clients should pay the same,” Gilligan says.

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