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Why the Billable Hour Persists

Why the Billable Hour Persists

The UK-based Legal Futures published a story today with an eye catching headline that we’ve observed making some rounds in industry newsletters and social media: Exclusive: in-house lawyers complain about firms failing to offer pricing options.

The story is based on survey of 50 large law firms and 40 in-house legal teams which found:

The vast majority, 93%, of law firms said ‘menu’ pricing, with fees set at pre-determined prices for different types of work, was most suited to repeatable work with similar tasks.

Alternative fee arrangements (AFAs) usually earn a warm reception in survey research like in the study above and these are findings corroborated in other studies based in the US.  However, the legal spend data tells a more modest story. For example an analysis by the CounselLink® team of some $17 billion in legal invoices shows just 11% of matters and 7% of total billings were executed under AFAs.

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With so much chatter about AFAs – and the recent decision by Jackson Lewis to eliminate billable hours for associates notwithstanding – why hasn’t the industry seen greater change?

According to an article – How Billable Hours Changed the Legal Profession – written by Paul M. Barrett of Businessweek:

Since the 1990s, some corporate clients have periodically demanded alternative fee arrangements. In response, creative law firm partners have offered to do certain assignments for flat fees or on sliding scales. The 2008-09 recession forced many law firms to curb the inflation of billable rates and even offer discounts. But the billable hour persists for two main reasons: It gives clients some basis for auditing how they’re being billed, and it rewards richly those attorneys who find ways to keep the meter running.

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What do you think?  Will the primary business model change for most law firms in the near future?  What will drive that change?

Photo credit:  Flickr; Chrishna; CC BY 2.0

If you enjoyed this post, you might also like:
How Corporate Legal Can Implement AFAs without FUD 

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About Frank Strong

Frank Strong
Frank Strong is the communications director for the LexisNexis software division located on NC State’s Centennial Campus in Raleigh. In this capacity, he leads communications efforts in support of software products for law practice and law department management and also litigation tools – across large law, small law and corporate counsel segments. With more than 15 years of experience in the high-tech sector, Strong previously served as director of public relations for Vocus, which developed marketing, PR and media monitoring software. He has held multiple roles both in-house with corporations, ranging from startups to global organizations, and has also endured the rigors of billable hours, having completed gigs at PR firms including the top 10 global firm Hill & Knowlton. A veteran of two year-long deployments, Strong has concurrently served in uniform in reserve components of the military for more than 20 years, initially as an enlisted Marine and later as an infantry officer in the Army National Guard. Strong holds a BA in Film and TV production from Worcester State University, an M.A. in Public Communication from American University, and an M.B.A. from Marymount University. He is a PADI-certified Master Scuba Diver and holds a USPA "B" skydiving license.
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@jachampagne This! >>> "most clients would want AFAs if they were confident the result would be getting the work done more efficiently and at a lower cost."  Thanks for the comment, Jacquie.