Will the Fleishman-Hillard case change the way of PR world?

The final two perpetrators of the Fleishman-Hillard bogus billing case had a sentencing hearing in a Los Angeles court last week. Prosecutors recommended that Douglas Dowie and John Stodder Jr. receive five and three years respectively in federal prison. The other executive charged in the case, Steven Sugerman, earlier received a lenient sentence of probation and community service thanks to his cooperation with prosecutors.

The trio were convicted of billing non-existent hours for public relations work to the Los Angeles Department of Water & Power, among other clients. The DWP overpaid by about $30,000 per month, with a total overage of $325,000. All together, Fleishman-Hillard has paid $5.7 million to settle the matter with DWP and other city offices.

While legal experts debate whether over-billing should qualify as a crime or a civil breach of contract, communications professionals can focus on a more pragmatic question: Has the scandal changed PR practices?

"Cases like this make sure agencies will review all levels of work to make sure the bills are proper," said Denis Wolcott, a spokesman for the Metropolitan Water District and president of the Public Relations Society of America's L.A. chapter. "I would call these isolated cases, not rampant, and not prevalent in the industry."

But Jack O'Dwyer, publisher of New York-based newsletter O'Dwyer PR Report, believes the structure of the PR business encourages billing distortions. "PR should not be sold by the hour any more than a book manuscript should be sold by the pound," he said.

O'Dwyer cites the hypothetical case of a PR firm with two clients--one that wants to publicize its new president, the other that wants a big event. By sheer luck, Time magazine calls to interview the president and the PR shop handles it in less than an hour. On the other hand, the event involves long hours, but because of bad weather no one shows up.

The client in Time magazine feels it got a lot of value, while the event sponsor feels cheated. So some PR firms, according to O'Dwyer, will "trade off hours" by charging the pleased client more hours and the sour client less than their respective projects required.

Instead, O'Dwyer thinks PR firms should charge a flat fee. "You don't have to know how much time it takes them--that's their problem. If you pay by the hour, then they'll take forever," he said.

According to Wolcott, PR firms can structure a client's bills on a retainer, flat fee or hourly basis. "If you're a company looking to use a PR firm, you have to have a clear upfront discussion about what you need. That way the fight kind of billing can be set up from the beginning."

But Wolcutt agreed with O'Dwyer about the focus on tangible benefits, saying that "clients are demanding more accountability, not only for billing but for results."

In the case of DWP, an internal audit found questionable billings in 2002 but the contract was renewed. As for results, the investigation turned up evidence that the PR agency worked to improve then-Mayor James Hahn's image with constituents rather than the use of environmentally friendly electricity.