Rethinking the Billable Hour – I of II – Flat Fees, Anyone?

This is the second in a two-part series on the billable hour  It should give you an idea of some of  the viewpoints which are being bandied about, as well as what other forms of billing are being utilized.  

Today we’ll cover a few alternative fee arrangements, and why they’re being considered.

Recently, The New York Times Business Section described how, despite a long-held affinity for the billable hour, newer forms of billing have–out of necessity–been creeping into the accounts receivables offices of Big Law.  It’s not that the wheel had to be re-invented; these “other” forms of fee arrangements have been around since the first deal was brokered. But the billable hour, first used by law firms in the 1960’s, is firmly entrenched.  Lawyers are still circling the wagons around the billable hour concept.  “Lawyers are having trouble defending the most basic yardstick of the legal profession…the billable hour,” reads the first line in the NYT piece.  

What is it that’s made push come to shove on the issue?  

“Clients have complained for years that the practice of billing for each hour worked can encourage law firms to prolong a client’s problem….”  Urderstandably, the current economic climate has made these same clients much more demanding. 

Evan R. Chesler, presiding partner at Cravath, Swaine & Moore in New York (where most senior partners bill around $800 per hour) has taken on the cause of trying to push the billable hour aside.  “This is the time to get rid of the billable hour,” he says.  “Clients are concerned…more so than perhaps a year or two ago.”   Mr. Chesler (pictured here) says that more clients are paying flat fees. 

There are few surveys on the subject, but partners at half-a-dozen other “big bellwether firms…say they are more often seeing different pay arrangements.”

The Times piece reflected on the possibility that the attorneys might be “talking a good game” while secretly awaiting the return of all things to their proper place (including the widespread reinstatement of the billable hour). After all, that is what has, up until now, set an exceptionally successful lawyer apart from the rest.  “[T]he best …the busiest and most costly” lawyers have always billed the most hours. 

“[L]awyers will talk about charging clients for 3,000 or more hours in a year—a figure that means that lawyers spend about 12 hours a day of every weekday drafting motions or contracts and reviewing other lawyer’s [work]…”. 

Another reason that alternative fee structures are being looked at is that firms, having almost reached the limit of how hard they can ask lawyers to work, need another way to keep the momentum going, explains Scott F. Turow, the acclaimed author (and partner at Sonnenschein Nath & Rosenthal in Chicago).  “Without alternative billing schemes, lawyers will not be able to maintain the rapid escalation in incomes…”  

Smaller firms and solo practitioners have long been amenable to flat fees, especially for mortgage closings.  Plaintiff lawyers have often billed on a contingency basis.  Some business litigation lawyers charge a monthly retainer and then credit that against the recovery.

According to ABA Now, “….counsel hates the billable hour. It hurts relationships.” Fixed fees, flat fees and success fees are other structures being considered across the board.  “So-called value billing, which can mean a flat rate for work for the year, frees lawyers and firms from recording billable hours.”  This doesn’t mean that lawyers engaged in such billing would lose track of what they were spending their time on.   Keeping tabs on actual work conducted would provide a record of overall efficiency—only not for purposes of charging the client.   

To read more go here: http://www.nytimes.com/2009/01/30/business/30hours.html?pagewanted=2&_r=1 and here: http://www.abanow.org/2011/02/is-the-billable-hour-past/

-EM

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