Report: Alternative Fees Continue Snail-Paced Assault on Billable Hour

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Written By admin at Tuesday, July 10th, 2012


Despite all the hoopla about hourly billing going the way of the Edsel, law firms and their corporate clients have been much slower to adopt alternative billing arrangements than many had predicted, according to a new survey.

Loyal LBers will recall that use of flat rates, contingency fees and other alternative fees is on the rise and continues to grow—an uptick triggered in part by the economic downturn and client pressure to reduce legal costs.

But many in the legal world are just dipping their toes into the alternative fee pool, instead of opting for a full-tilt cannonball immersion, says a new report by ALM Legal Intelligence. It was released Tuesday in conjunction with the legal technology company LexisNexis, which this week is also launching a new data-driven consulting service for in-house lawyers.

The ALM report surveyed 141 in-house law departments and 194 law firms on their use of—and satisfaction with—alternative billing arrangements.

It found that most law firms continue to rely on traditional billing for the majority of their work, and law firms are on whole less delighted with alternative fees than the corporate law departments they serve. Still, alternative billing arrangements are not going anyway anytime soon, and that could force wider shifts in the legal industry, the report warned:

If law firms and legal departments continue migrating away from the billable hour model, both sides will need to embrace profound structural changes, such as training legal staff to manage matters within a budget while keeping an eye on profits.

Lawyers and corporate clients have  different reasons for embracing alternative fees, the report said:  legal departments like the cost savings, efficiency and ability to map out how much they will be spending, while law firms use alternative fee arrangements to attract and/or keep clients or narrow the gap between the billed cost of a matter and the amount they actually end up collecting.

Other highlights from the report:

• ”The Billable Hour Still Drives the Boat,” it says, and many law firms remain much more comfortable with the status quo. Just 6% of law firms surveyed said they used AFAs for more than half their legal work in 2011, and only 12% of law departments reported using them for work assigned to outside counsel.

• Bidding and reverse auctions, once a rarity in the legal world, are on the rise. One-fifth of law departments reported using them for high-volume and repetitive work, while just over one-third of law firms said they had participated in those processes.

• In-house law departments and outside counsel are at least in agreement on their favorite types of alternative fee arrangements. The top three: flat fee (89% of law departments like them, and 93% of law firms); blended rate, where  all lawyers on a matter charge one agreed-upon hourly rate (47% of law departments, 89% of firms); and capped fee (57% of law departments, 83% of firms).

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