The Billable Hour Just Won't Die, Report Finds

, Corporate Counsel

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While alternative fee arrangements are gaining popularity, data recently collected by the consultancy Blickstein Group Inc. shows that discounted hourly billing rates are still much more common than AFAs.

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What's being said

  • Ken Callander

    Steph Corey is correct, we are currently working with 14 $5B companies (and many smaller) that are moving to value-based pricing for all legal services from outside counsel. Two of the largest tech companies in the world no longer use hourly rates for legal services from their law firms. This is across all practice groups from corporate and M&A to litigation and investigations. Value-based pricing is not a different type of AFA but rather a whole new methodology of pricing legal services. It provides budget predictability while significantly reducing total outside counsel spend. In addition, our clients no longer need to review invoices which can provide an additional internal productivity increase of 15% - 20%. Companies that have moved to this process see an average outside counsel spend reduction of 20% - 30% and a number of insurance companies are now looking at this pricing method for use with their law firm panels. We speak with corporate GCs everyday and some are seeing hourly rates exceeding $2000 per hour. None of them believe this is sustainable and they are looking for alternatives. Many of them are turning to value-based pricing as the answer.

  • Dr. Harry J. Maue

    Mr. Corey thanks for your input but I forgot another reason why this will simply not sustain itself in the long term. Whenever these AFA are submitted to there the Insurance company for reimbursement they will invariably request the detailed time records that will provide them the necessary backup. They will in all probably retain my company to review all fees and expenses and I can assure you we will ask for the detailed backup including all receipted expenses. Without this documentation the law firms would be subjected to a subjective review by an expert instead of an objective review and all these professed savings will go out the window. We work with law firms and companies in order to assist them in adhering to the comprehensive written billing guidelines. Law firms will always have to keep contemporaneous time records thereby allowing them to measure profitability. I know these AFA scenarios have created yet another consulting opportunity which never seems to end and its called entrepreneurship and it‘s alive and well in America.

  • Steph Corey

    I disagree with Dr. Maue. We are seeing Value Based Pricing take off in Silicon Valley with many of the most cutting edge tech companies moving away from hourly billing, which is an untenable model. Most service-based industries are moving away from hourly billing including consulting, tech - hell, even my electrician charged me a flat rate! This is not to say that flat fees are always the way to go, but value based pricing is different. Look at what Ken Callander is doing with Value Strategies. Very interesting stuff and a welcome change for us Legal Ops Managers who want predictability.

  • Dr Harry J Maue

    I have written many commentaries regarding AFA‘s and generally I am not a proponent of them except for routine mundane legal matters that have a high level of predictability. As the founder of the legal cost control industry 31 years ago we have been exposed to a myriad of billing scenarios and none have proven to be very effective in controlling legal spend. If you have a comprehensive set of written billing guidelines that are monitored by an objective bill review company who employs a staff of experienced full time lawyers who review all billing entries and work with your law firms in order to get them into full compliance than all these other feel good measures are really not needed. As I have said most of these AFA‘s simply don‘t work just look at Pfizer and all the money they professed to have saved yet when it was thoroughly studied it was found that indemnity payments went through the roof. All we ever hear is we do not want to jeopardize our working relationship with our outside counsel will we do not either and in reality our services serve to strengthen those relationships by simply pointing out those firms that are working towards adhering to your written guidelines and those that are simply ignoring them. We even have law firms sending their bill to us before they submit them to their client for payment. My grandfather used to tell that a smart person will take complex problem and make it simple and simple person will take a simple problem and make it complex. Will this is really a simple problem we solved 31 years ago and continue to this day working hand in hand with many GC‘s and law firms thereby allowing everyone to do what their trained to do and receive fair compensation for their work. Look at our web site there are in-depth articles addressing this in much more detail than I can articulate in this limited space. stuartmaue.com

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