Saturday, June 20, 2009
The End of the Billable Hour???
Am Law 200 firms on down are beginning to look beyond the billable hour as the lip service that has been paid to alternative fee arrangements for years starts to become reality in this buyers' market.
To be sure, even by accounts of alternative fee advocates, the billable hour is not dead and probably never will be. But a shift, slow as they go in the legal industry, is afoot in terms of how firms work to provide value for clients. And in this movement, the billable hour is seen as the antithesis of efficiency and value.
Dechert senior counsel William B. Lytton, a former GC for Fortune 100 companies, said for the most part firms don't offer and law departments don't ask when it comes to anything other than the billable hour. The larger firms will lead the way on this transition to alternative fees and it will be the ones that can get there first that will be best positioned in the market, he predicted.
But even people who embrace the concept of alternative billing methods are overwhelmed and cautious by the required shift in law firm structures, Association of Corporate Counsel General Counsel Susan Hackett said. "We're in that horrible middle stage," Hackett said. "As to whether or not it's inevitable, yes it is. For those who are saying the talk is because of the economy and that once things go back to normal we'll go back to billing as we used to -- wrong."
Evan Chessler recently wrote an interesting article in Forbes Magazine entitled “Kill the Billable Hour.” Mr. Chessler acknowledges that clients hate the billable hour because they feel the hours wrack up to meet firm requirements, they have no control over how their money is spent and there is no correlation between cost and quality. He admits that lawyers hate billable hours a well. He proposes that at reasonable intervals that client and lawyer agree on a price for work to be accomplished so that the client is not “surprised by a whopper bill.”
Perhaps that is easy for Mr. Chessler, but in practice, lawyers know that it is often difficult to estimate fees because in litigation,much depends on how litigious and how reasonable your opposing counsel may be during the course of the litigation. So I think that arranging for flat fees at reasonable intervals may be problematic for both firms and clients. For example, if a case seems as if it should go away early, but doesn’t and the opposing counsel is very litigious, then estimates based just on a legal analysis of the case may not be reflective of actual fees incurred. On the other hand, if a case that was thought to be complex is settled early in, the lcinet may have paid too much in a flat fee based upon anticipated necessary work.
Ricard Lloyd writes about some creative ways that British firms have devised to get around the billable hour requirement. British Television Network ITV asked its outside counsel to come up with alternatives to hourly billing. General Counsel Andrew Garard joined the company in 2007 from the London office of Dewey & LeBoeuf and wanted ITV to become the first UK company to have its outside counsel abandon hourly billing. Garard vetted and put together a group of outside counsel comprised of 9 law firms who were committed to alternative billing.
One of the law firms, Slaughter and May, has never used billable hours nor doe sit have any billable hour requirements for its attorneys. At the end of a job they ask clients if they have done a good job and pay is base on that assessment.
The articles conclude that the trend will be away from the billable hour. Firms would be wise to anticipate this evolution in the practice of law and to come up with strategies to propose to clients before clients require alternatives that may not be as appealing.