Survey Shows the Bell Is Tolling for the Billable Hour

Amy Miller

Corporate Counsel

Companies are successfully pushing their outside counsel to abandon the billable hour, a new survey indicates.

In October, The American Lawyer and the Association of Corporate Counsel jointly surveyed 587 general counsel and chief legal officers, and found that 39 percent paid law firms more money this year under alternative fee arrangements than they did in 2008. Meanwhile, just over half (53 percent) said spending on alternative fee arrangements had stayed the same. Only 8 percent said it had fallen.

The results weren't surprising to Susan Hackett, general counsel for the ACC. The increase might have been more substantial, had many cash-strapped general counsel not turned to the quick fix of rate discounts, rather than alternative fee arrangements. But the results nevertheless prove that the legal profession is finally moving away from the billable hour -- for good.

"People are assuming the change is here to stay," Hackett says. "We've turned a corner, and I don't think we're going back."

Spending off the clock wasn't up drastically for most companies. The highest percentage of legal heads, 42 percent, said spending had increased 10 percent or less. Only 13 percent said it had increased more than 30 percent.

Legal chiefs used a variety of non-hourly arrangements, from contingency fees to retainers for a portfolio of services. But the most popular was the flat fee. Forty-eight percent of general counsel said they had paid a flat fee for an entire matter this year, and 36 percent had for some stages of a matter. Only 24 percent said they still paid all their law firms by the hour.

Flat fees were even more popular among the 149 legal chiefs at large companies that earned $1 billion or more in revenue. Sixty percent said they had used a flat fee for an entire matter, and 46 percent had for some stages of a matter. Only 12 percent of those in-house lawyers said they still paid firms solely by the hour this year.

And the survey results also show that in-house legal departments, not law firms, are taking the lead. Fifty-four percent of legal chiefs said they had initiated their arrangements, while only 3 percent said their law firms had. Eighteen percent said it was a combination of both. Twenty-six percent said the question did not apply.

Hackett says that finding was a surprise. When she goes out to talk to attorneys at law firms, she hears the opposite. Lawyers typically complain that in-house counsel are reluctant to try alternative arrangements, despite their best efforts. "Maybe this is the accurate reflection of the market," she says.

But no matter who initiates the arrangements, most in-house legal departments still aren't using them extensively, the survey found. Sixty-nine percent said that 10 percent or less of their total spending on outside counsel was done off the clock in 2009. Only 6 percent said that more than half of their spending on law firms was done under alternative fee arrangements.

Hackett says that percentage will continue to climb though. She hopes that by 2010, general counsel will be spending a quarter of their budget for outside counsel under alternative fee arrangements. And a quarter of all their legal matters will be handled under them, too. "That's a huge jump," Hackett says. "But people can't go back to spending like they did before."

COMPLETE SURVEY DETAILS:

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Law Firm Leaders Survey 2009