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Legal Fees: Billable Hours is Not the Only Option
At Butler Williams & Skilling, we recognize that our entrepreneurial clients are looking for a law firm that is willing to share some of the risks of commercial litigation. Indeed, our willingness to handle a commercial litigation matter on a contigent fee, fixed fee, or blended contingent/hourly fee basis often affords the best opportunity to our clients to have their dispute litigated by a top-notch law firm. According to the Washington Post, the current economic crisis is causing businesses, in-house counsel, and individuals to demand the same alternatives to the old billable hour structure for legal fees, including for commercial litigation matters.
Corporate legal department officials say fees to outside law firms have risen faster than energy costs, salaries and other expenditures. Hourly billing has been the subject of criticism by clients and debates by legal experts, who say they give lawyers incentive to work inefficiently. Most law firms have been slow to embrace alternative billing.
The current crisis may force those firms to change.
New efforts to jettison hourly billing are being driven by in-house corporate lawyers, who say they have grown frustrated seeing fees to outside firms soar even as they slash their own costs. They said they want more certainty in their legal budgets and worry that outside firms are spending unnecessary amounts of time on their matters.
In a recent survey conducted by the Arlington-based Corporate Executive Board, a for-profit organization that does research on best practices, 800 in-house lawyers said they spent 50 percent more last year on large outside law firms than in 2002. They said the hourly rates they paid jumped 70 percent between 1996 and 2005. Those increases obviously cannot continue in the current market.
The Association of Corporate Counsel, which represents 23,000 in-house corporate lawyers, last month launched the "Value Challenge," an initiative aimed at spurring corporate lawyers and outside law firms to develop alternative pricing plans, including fixed rates, volume discounts and lower hourly rates blended with performance bonuses or a contingency fee component.
Most people who purchase a service want to know, "how much is this going to cost?" In the past, the answer from those selling a legal service has been "x dollars an hour for how ever many hours we work on your case, regardless of whether the result is favorable to you." This paradigm is no longer acceptable to many clients. They would prefer their lawyer to either quote a fixed rate or take some of the risk, when appropriate, by taking as their fee a percentage of the recovery.
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