Firms “Fix” Billing

Businesses hit hard by our recession have had their hands forced in re-evaluating the way they operate; how do they hire, how do they pay, how do they borrow, how do they bill? Of those re-tooling the ways in which they bill, perhaps none are more notable than law firms because of their slavishly traditional adherence to the “billable hour.”

The concept of the billable hour is simple: firms charge different rates for different attorneys (partners are billed at a higher rate than associates, etc.), and several attorneys of several levels may work on a project and the client is billed per hour, per attorney, per respective rate. Thought it’s held steady for over a century, the system stands in stark contrast to the efficiency of a flat schedule, in which one piece of work is performed in exchange for one agreed-upon price.

Now firms are playing catch-up. As corporate clients feel the recessionary pinch, their legal budgets are shrinking and they’re less inclined to pay their old lawyers their old hourly rates (often in the neighborhood of hundreds of dollars per hour). Legal Bisnow reports that of those venerable bastions doing the best job of adapting, Skaden Arps, Kirkland & Ellis, and Akin Gump are leading the pack. Those firms, plus CitiGroup and Arent Fox, recently sat down at Bisnow‘s “Breakfast and Schmooze” event in Washington, D.C. to discuss the future of their respective invoices.

The result? Arent Fox chairman Marc Fleischaker says alternative billing, like fixed fees, already accounts for one-third of that firm’s business. The rest agree, and note other long-term changes in their business models: improved client communication, especially with regard to billing details; fewer employees doing duplicative work; a shift to already-existing in-house counsel at some large corporate concerns; and more contingency fee work. Notably absent from the discussion: the prospect of reduced partner compensation.

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