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Autopsy of the billable hour finds few signs of life

Autopsy of the billable hour finds few signs of life

By Gabriel McIntosh

The economic collapse of 2007 and the resulting Great Recession led consumers to reevaluate their spending habits. Legal services consumers, already questioning the rationale for the billable hour, increasingly looked for alternative fee arrangements (AFAs) to drive down legal costs. Participants at the Aug. 8 Annual Meeting program “Has the News of the Death of the Billable Hour Been Greatly Exaggerated?” discussed the rise of AFAs and the resulting complications.

Evelyn Brantley, DuPont’s managing counsel for operations and partnering, introduced the perspective of the client. As in-house counsel, Brantley works with law firms contracted to provide legal services to DuPont. Brantley said that every discussion about payment begins with “the talk,” a “necessarily difficult” conversation where a law firm is negotiating with a potential client over payment. Brantley argued that AFAs make the conversation less difficult because they incentivize law firms to work efficiently and give clients an opportunity to control costs.

Brantley cautioned that many law firms “market heavily that they participate in AFAs,”  yet only offer “pseudo-AFAs” or quickly move away from the payment structure if they believe that they can make significantly more under a traditional billable hour model.

Jean Bertrand, a San Francisco lawyer with Schiff Hardin LLP, emphasized that AFAs come in many forms and that law firms should take care to use the most appropriate model that fits their needs. The basis of any AFA, Bertrand said, is “trust, fairness and transparency.” The first step for a law firm should be to “identify the client’s top priority” and then decide on a payment model that “enables [lawyers] to sell clients what they are trying to buy.”

Regardless of the model, Bertrand emphasized that every AFA should have an “escape clause” if the nature of the case changes and the agreed upon payment scheme becomes untenable.

Valorem Law Group LLC’s Patrick Lamb discussed the economic theory behind billable hours and AFAs and concluded that “Every fee arrangement is designed to drive behavior.” Lamb argued that the billable hour model encourages unscrupulous behavior on the part of law firms who depend on increasing the number of hours on a case, a situation Lamb called “shocking.”  Lamb further argued that “Clients don’t buy time, they buy outcomes,” which makes AFAs more rational to clients.

“Has the News of the Death of the Billable Hour Been Greatly Exaggerated?” was sponsored by the Section of Litigation. Additional materials from this program can be found on the section webpage.

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