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Once again, despite the slumping economy, law firms’ hourly billing rates have not decreased in the past year and in many instances have continued to inch up. According to information gathered as part of The National Law Journal‘s 2002 surveyof the nation’s 250 largest law firms, the faltering economy has not resulted in a downturn in rates. This year, 137 out of the 496 firms that received NLJ 250 survey forms provided hourly billing rate information: a range of rates for partners and associates. Of those 137 firms — which include both firms on the NLJ 250 and smaller ones — 101 participated last year. Out of those 101 firms, 78 reported an increase in the low rates for partners, while 13 reported a decrease and 10 kept them the same. For the high partner rate, 76 reported an increase, seven a decrease and 18 no change. With associate rates, firms seemed to hold the line a bit more. While 57 reported increases in the low rate, 12 decreased them and 32 kept them the same. As for the high associate rate, 67 went up, 20 went down and 14 stayed the same. The highest hourly rate reported was $850, which is that of Bertram Fields, an entertainment law partner at Los Angeles’ Greenberg Glusker. Twenty-eight firms listed a high rate for partners of $600 or more, double the number reported last year [see Firm-by-Firm Sampling of Billing Rates Nationwide]. Last year’s resiliency in rates could be attributed, at least in part, to the fact that they were set in January, before the real recession hit. This year there are other explanations for why rates continue to rise. According to Joseph Altonji, a consultant in the Chicago office of Hildebrandt International, a management-consulting firm, there are “still areas, where if you have significant projects, you need the right people,” adding, “not many companies will change counsel over a five-dollar increase in rate. The cost of hiring new counsel is pretty high. “The rate increases have been modulated a bit,” Altonji noted. He said that there are “not increases at the same pace as before the downturn in the economy … Firms have been more selective. “There are practice areas where price is a determinative factor, others where it has no influence whatsoever,” he said, adding that “we’re seeing significant rates in bankruptcy right now. The top rates in big cities are in the $700s. High-value litigation remains very in demand.” Altonji said, “Securities litigation now is very a hot area” and “some firms are willing to spend more on things like asbestos.” He said that intellectual property litigation remains high value, but “there is pricing pressure on the prosecution side” for patents. “A lot of those are done fixed fee. “Making broad blanket statements is tough,” Altonji said. “In certain practice areas, there is more negotiating going on than previously.” These include corporate transactional areas such as banking, real estate and basic commercial services, he said. In employment cases, “the increasing presence of insurance is holding rates down.” In considering the rise in rates, there are two things to keep in mind, said Altonji: “One is the increase in the stated rate. The other is the actual realized effective rate. The discount levels are also increasing. What the actual increases are that the client pays are uncertain. These are still going up, but not as fast as they used to.” THE ABA REPORT This year, the billable hour has been in the spotlight more than usual. In August, the American Bar Association released the ABA Commission on Billable Hours Report. The report, available at www.abanet.org/buslaw/billab le/toolkit/bhcomplete.pdf, casts a critical eye on the large number of billable hours required annually of associates and urges firms to consider alternative billing methods. Robert E. Hirshon, a partner at Portland, Maine’s Drummond Woodsum & MacMahon, is the ABA’s immediate past president, and a driving force behind the report. He wrote in his preface to the report that the “unending drive for billable hours has had a negative effect not only on family and personal relationships, but on the public service role that lawyers traditionally have played in society. The elimination of discretionary time has taken a toll on pro bono work and our profession’s ability to be involved in our communities.” In an interview, Hirshon said he decided to focus on the billable-hour standard “because of my concern that billable hours was becoming the tail that was wagging the dog. Billable hours is really almost a code word for something significantly more expansive than just an hour billed. It’s a code word for what’s happening to our profession as we seek to create greater and greater profits. I think we have to ask ourselves at what price. “Historically, the billable hour is a relatively recent phenomenon,” Hirshon said, even though it is now treated as a given. He said that the billable hour came of age in the 1960s, through a confluence of events. First, the Federal Trade Commission threatened to sue over fee schedules used by law firms, claiming that the practice of firms charging the same fees was anti-competitive. “Also people were told that they could make more money” with billable hours, he said, noting that the consulting industry played a big role in the movement toward billable hours. “It was very easy and measurable,” he added, and with the advent of computers, it became even easier. “You didn’t have to get into arguments over value. “Clients wanted to be told what they get for their money,” Hirshon said, noting that a lump sum for a project would be questioned more readily than a detailed account of hours worked. But Hirshon insists that alternative billing methods can work. He said that his own practice is now based mostly on fixed fees, and he suggested that firms and clients consider a fixed fee agreement with a success factor. He also noted that companies such as Sears, Ford and General Motors are using alternative methods with outside firms. BILLING BY CLASS The NLJsurvey results indicate that many law firms increase billing rates according to associate class [see Hourly Billing Rates for Junior to Senior Associates]. The ABA report was also critical of this practice: “When law firms increase the hourly-billing rate across the board for each class year, it protects the partners from making decisions about relative abilities of the associates. This mechanism is also a built-in income booster if all other factors stay the same. That is, with the same amount of work, higher billing rates will bring in more income. Law firms undoubtedly like the idea of a periodic increase in their billing rates. It would be much harder every year to justify that the value of their work for clients has increased.” Hirshon added, “Lockstep increases based on seniority may or not comport with reality, an increase in value of the work product.” In the case of a midlevel associate charging 25 percent more than a first year, he said, “does that mean you’re 25 percent better if it’s something you didn’t see the first year? Where is the rationality?” The ABA report acknowledged that the billable hour will remain entrenched for the foreseeable future, and listed several reasons why alternative billing is difficult to implement [see Alternatives to the Billable Hour]. The NLJsurvey results bear out this conclusion. The highest reported percentage of revenue obtained from alternative billing methods was 28 percent, at Philadelphia’s Cozen O’Connor. At several firms, the amount was less than 5 percent. According to Hildebrandt’s Altonji, alternative billing is “just not happening that quickly … Clients don’t seem to be clamoring for it.” The hourly billing rate “is a measure you can quantify in a hard and fast way. If people are honestly recording hours we know how many hours they’ve worked. It’s difficult to measure value beyond that.” Although Hirshon disagrees, he doesn’t expect immediate results from the ABA report: “It’s a work in progress. There’s been a lot of discussion about it. That’s what’s going on right now.” He said that anecdotally, he’s heard of changes at some firms, and he hopes the report will get more lawyers to do things differently or at least talk about it.

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