by Traverse Legal, reviewed by Enrico Schaefer - November 4, 2008 - Alternative Billing
From this post over at the wiredgc.com, we were referred to this Washington Post article noting that corporate legal departments, perhaps spurned by tighter budgets and the financial crisis, are continuing to expand their efforts to try flat fee and value-based billing models.
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 rates in exchange for performance bonuses. "When we started looking at this project, we were thinking, 'How do we make people realize now is the time' [to stop charging by the hour?]," said Susan Hackett, the association's general counsel. "Then the economic crisis happened. There's going to be a heck of a lot of directives for folks at the firms to lower their costs."
Law firms are divided over the calls to abandon hourly billing.
Joseph E. Lynch, a partner at King & Spalding's Healthcare Practice Group in the District, said he would work under fixed fees only in rare circumstances. It's often difficult to assess how much work a project will actually need, he said.
"Counsel doesn't want a fee arrangement that's insufficient to cover the work that's necessary," Lynch said.
Jay Shepard, chief executive of Shepard Law Group in Boston, said his 2007 revenue doubled after switching from his firm's $250- to $500-an-hour rates to fixed and negotiated fees the previous year.
While the Sheppard Law Group notes an increase in revenue as a result of flat fee, what is more interesting is that the client likely is getting better service and results using that method. Most firms are forced to define deliverables at a very precise level before their corporate client agrees to a flat or value billing approach. By defining the project up front, lawyers spend drastically less time screwing around on the edges of the roadway. In essence, corporate counsel has to approve the deliverables and strategic path before a project begins. By defining expectations on the front-end, lawyers are essentially “clamped down” from meandering across a case. This helps the lawyer as well, since they no longer have to guess what the value proposition is for the client and whether or not they need to spend time on a particular set of tasks. Priorities are set and documented on the front-end. If new issues or tasks need to be explored, those are budgeted and billed separately.
Well some attorneys ask “why would a client wish to use a law firm that was generating more revenue on a flat fee basis than they were billing hourly?” As noted above, the client ends up getting more for less, while the lawyer ends up getting more as well.
As a founding partner of Traverse Legal, PLC, he has more than thirty years of experience as an attorney for both established companies and emerging start-ups. His extensive experience includes navigating technology law matters and complex litigation throughout the United States.
This page has been written, edited, and reviewed by a team of legal writers following our comprehensive editorial guidelines. This page was approved by attorney Enrico Schaefer, who has more than 20 years of legal experience as a practicing Business, IP, and Technology Law litigation attorney.
