The legal marketplace is changing. Attorneys of past decades who litigated with a heavy-footed infantry approach of multiple in-court appearances, travel for client conferences, depositions, distant meetings and other hour crunchers are now less accepted by clients as necessary to litigation success.
Lawyers, aside from personal injury attorneys on contingent fees, have traditionally billed by the hour. What could be more equitable? The stated fee multiplied by hours required (as determined by the law firm) seems the most reasonable valuation approach for professional services.
Corporate clients are now attempting to cap litigation costs, monitor activity more closely and obtain predictability. The hourly fee arrangement has become a payment model less and less satisfactory to sophisticated clients.
To better control legal costs, some corporations are employing alternative fee arrangements in the form of fixed fees; “success” fees; performance bonuses or a combination of such hourly fee alternates. Blended rates are sometimes used to encourage qualified, but less expensive, attorneys to perform legal work. Closer monitoring of legal activities, such as with the ABA uniform task-based billing system, has become increasingly popular. Alternative fee arrangements and closer oversight represent a more aggressive client effort to manage corporate legal expenses. The object is to cut costs while retaining quality representation.
Some law firms are themselves marketing to corporate clients by offering fee incentives that reduce or eliminate time-spent billing metrics. Firms may realize benefits from alternative fee arrangements as the future practice of law depends less on time-consuming travel and in-person appearances and more on the use of ever-improving communications technology.
Delivery of services can now be more efficient than ever. Corporate clients are increasingly demanding that efficiency and measuring attorney performance through prescribed billing standards. A 2006 Law Journal article ["The Billable Hour: Are Its Days Numbered?"] discussed inherent inequities in hourly billing of clients, noting that lawyers have a financial incentive to forgive their own time inefficiencies. The article speculated on the future use of alternative fee arrangements as being of greater benefit to client and attorney. Seven years later, we appear to be at a transitional moment.
The desire of law firms to increase partnership profits and the desire of corporate and other business clients to contain spiraling legal costs indicate that it is time for both parties to make greater imaginative use of alternative fee billing systems. If the parties open the economic dialogue in earnest, hopefully the right combination will increase profitability by allowing firms to secure more business from well-paying clients while allowing sophisticated businesses to obtain optimal representation with desired financial savings.