THE number of law firms using alternative billing are increasing as the economy worsens.
Evidence of the movement towards alternative fee arrangements was evident at a recent Association of Corporate Counsel meeting in Georgia, US. Susan Hackett, general counsel at the Washington, D.C.-based corporate counsel association, urged the counsel present to use the economic crisis combined with growing demand for alternative billing arrangements as an opportunity to make changes in their outside counsel choices, The Legal Intelligencer reports.
Similarly, at a meeting of Fortune 100 company’s general counsel, the topic of flat rates dominated discussions. Dechert senior counsel, William B. Lytton, who was previously general counsel for large international firms, said the group was surprised by the number of law firms receptive to the concept of flat fees, but added for the most part firms don't offer, and law departments don't ask, when it comes to anything other than the billable hour.
But as more and more firms in the US and Australia move away from the billable hour, one international law firm has proved that a shift in legal billing is afoot.
Duane Morris LLP, a US law firm with more than 700 attorneys in 24 offices internationally, has focused from four to five per cent of its billable time on contingency fees or other matters with alternative billing structures, reports the The Legal Intelligencer.
As part of the firm’s alternative billing practices, it will only take-on large commercial cases with a minimum fee of $1 million, which have a 75 per cent probability of success as determined by the firm's attorneys and contingent fee committee. Cases must also present an opportunity to retrieve three times the firm's recorded time.
Seasoned attorneys within the firm, generally in the trial practice group, review the cases and make a proposal to the committee, which then decides whether to take the case.
Firm chairman, John Soroko, said he is seeing increased calls from clients for this type of set up as they look for ways to move away from the billable hour.
That evaluation and projection process is one of the main hurdles in moving away from the billable hour. It is something many Am Law 200 firms, a ranking system used by US publication The American Lawyer, are beginning to consider as the number of firms that previously criticised the system start to seriously consider it.
While the billable hour is not dead and probably never will be, it’s hard to ignore a shift in the market as firms look to secure clients in an increasingly competitive market.
Nicky Mukerji, director of business intelligence at Legalbill, a company which audits corporate law departments and analyses companies' legal spending, estimates that only one to two per cent of matters are done on an alternative fee basis. However, in 10 years, he said, that rate might rise to 10 to 15 per cent. Mukerji said the pace of change has been gradual but has gained momentum because of the recession.
To say the billable hour is dead implies the entire practice of law has changed, but Mukerji said he doesn't think the industry is at that point. But he said alternative fee arrangements are a good way to start building relationships between firms and clients.
Flat fees for certain services or the overall matter seem to be the most typical alternative billing method, he said.
"A lot of flat fee calculations for firms of all sizes are nothing more than just an educated gamble," Mukerji said. "What should be done versus what is done is a big difference."