A curious irony in the current discussion of the billable hour is that the popularity and widespread use of the hourly fee arrangement arose from increased client demand. Clients saw clarity, certainty and objectivity in the hourly rate. They also saw a description of the specific services they were paying for, as opposed to the one-line statement: “For services rendered: $50,000.”
The billable hour, over time, has served both clients and law firms alike, and in a great many diverse matters will continue to do so. Billing by the hour is transparent, and firms interested in maintaining or establishing a long-term relationship will not overcharge their clients. Nevertheless, a growing number of corporate counsel and lawyers in private practice argue that the billable hour may reward inefficiency, fail to provide adequate incentive for outside counsel to work cost-effectively and represent a poor method for rationally predicting future costs. Current economic pressures and challenges — and the need for reduced costs for legal services — have increased the demand for alternative fee arrangements that begin to address these perceived shortcomings. Whether one calls these arrangements fixed-fee billing, task-based billing, risk-sharing billing or value-based billing, the time for significant change is upon us. According to the highly regarded BTI Consulting Group, nearly 80% of corporate counsel already rely on some form of alternative billing arrangement. Only 2% of corporate counsel plan to decrease reliance on such arrangements.
