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Move from time billing short-lived: New report

Move from time billing short-lived: New report

Alternative billing arrangements are gradually replacing the billable hour, according to a new report showing a spike in new methods used by law firms to charge clients.

ALTERNATIVE billing arrangements are gradually replacing the billable hour, according to a new report showing a spike in new methods used by law firms to charge clients.

But the research also raises the question as to whether firms are simply offering fixed, capped or discounted fees to their clients, in the hope that things will move back to the popular time-based billing when the economy improves.

A newly released law department benchmarking report, which covers the fees paid to external counsel by in-house legal departments in the United States, reports than 72.8 per cent of fees paid in 2009 were not based on the billable hour.

The results of the Law Department Metrics Benchmarking Survey 2010 includes statistics collected from 114 companies in the first half of this year. Of those, 64 per cent had an annual revenue of more than US$1 billion. Forty-nine per cent had more than 5000 employees.

According to the survey, 33 per cent of law departments surveyed reported an increase in the frequency that external counsel offered alternatively billing arrangements over the past six months, Law.com reports.

The results suggest that law firms are increasingly willing to move away from the traditional billing hour, compared to the same survey last year. The previous edition of the report shows that 66.1 per cent of in-house legal departments were offered and used alternative billing arrangements.

But the research suggests that firms could be turning to fixed-fee billing as the main alternative to time-based billing.

“There could be simply more [firms] using discounted rates,” said Rees Morton, president of Rees Morrison Associates, a US-based legal department consulting service told law.com.

Fixed, flat and capped fees could be replacing time billing as a temporary measure, some experts suggest.

Morrison said any evidence of outside firms’ willingness to simple shave something off their standard hourly rates wasn’t indicative of a shift away from billables. “To me, that doesn’t change how law firms work.”

COMMENT below. Are fixed prices and capped rates replacing time-based billing as a temporary measure? Are firms moving away from time-based billing for good?



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