We have all heard a lot about how various fee arrangements, especially flat fees, are going to overtake the legal industry. In recent years, several sophisticated legal departments have largely committed to using alternative fees with their law firms. Yet flat fees are not close to unseating the ingrained law firm practice of hourly billing. If flat fees are clearly better—as we’ve been hearing from advocates for 15 years or more—then why is hourly billing so alive and well?
Sure, law firm economics are a part of it—under flat fees, firms bear the cost of any inefficiency. Another reason is that old habits die hard. Within the legal industry, and beyond, even the best ideas can take a shockingly long time to catch on. (For more on this point, we recommend Bill Henderson’s writings on the diffusion of innovations and Casey Flaherty’s colorful pieces on the slow adoption of superior technologies.) That said, perhaps an even bigger reason for the plodding rise of flat fees is that no one has answered the most important question of all: do flat fees actually work?
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