Death to the Billable Hour?

Lawyers and clients have talked for years about the problems with billable hours as a way to calculate the value of legal services.  Billing by the hour can reward inefficiency and slow work.  However, there has been a reluctance to do away with them.

I recently talked with two  businessmen about alternative fee arrangements and they had very different views on the notion of alternative fee arrangements.

One, a former outside lawyer and now a general counsel at a large company, expressed skepticism about alternative fee agreements.  He said that everyone talks about alternative fees deals but folks rarely actually agree to engage in them.  He relies on the default of hourly fee arrangements because it is familiar.

I talked to another and he had a different notion.  He was not concerned about hourly rates, he wanted to talk about how much the job costs to complete.    He said, “I don’t care how much it cost by the hour, I want  to now how much it costs to get it done.”  Lawyers often lose sight of the fact that legal matters are a business expense for clients and do not exist in the vacuum of the legal system.

Every case has variables, but lawyers ought to be able to predict, at least within a range, how much a case will cost to handle.  Litigation is a business expense and business people want to know  what the cost of litigation  will be.  In order to vary from the billable hour, the lawyer and client  must have a degree of trust and relief valves on both sides if the case does not turn out as predicted.  The benefit its to create a “win-win” for the lawyer and the client.

2014 Bonus reports from “Big law” firms validate the business model of alternative fee arrangements.  The largest reported law firm bonuses were reported by Boies Schiller.  Two associates received $375,000  bonuses.    As most folks know, Boies Schiller is primarily a litigation firm.   They rely on alternative fee arrangements in large part as opposed to billable hours.  In a recent interview about his firm David Boies discussed the way his firm creates leverage through fee arrangements rather than armies of associates.  He stated that their partner to associate ratio was 1-1.5 which is low for “big law” law firms.    He correctly noted that the alternative fee arrangement promotes efficiency.  The full article is here:

http://abovethelaw.com/2014/12/associate-bonus-watch-boies-schiller-pays-up-to-350k/

Alternatives to billable hours can provide a win-win for clients and lawyers.  The key is an open dialogue and information sharing that allows an open discussion about how alternative fee arrangements can be structured

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