Real Alternatives to the Billable Hour

The vast legal industry longs to serve corporate America, but the two have continued to live in different worlds. Today's economy has affected almost every company's budget, and unfortunately, many businesses have had to make painful personnel and budget cuts. At the same time, reports surface every day that lawyers are making more money than ever, busting through the $1000 per hour mark and making record profits per partner. The spending discipline edicts that come from the CFO offices do not seem to reach the general counsel's office or, just as bad, outside lawyers continue to work on the traditional billable hour basis, which imposes no spending discipline, because "that's how things have always been done."

Hence, it is time to rethink the way that law firms are compensated for their services. Although the billable hour has long been considered the gold standard for law firm fees, the truth is that this is not always a fair or straightforward way to receive compensation. The 'hour' that a client is billed for can often be mysterious and the client might not have any clue what work was actually being performed at that time. As such, they have no way to determine if they believe that hour was used wisely (or even used at all).

Some law firms are approaching things from a different perspective. Instead of charging per every quarter or tenth of an hour, they charge per the value of the work provided. It is about the value of the service, not about the time on the clock. These firms work with clients upfront to agree upon the scope of work and what values particular results will provide to the client. Fees and bills are set accordingly. In many cases, a third-party is utilized to perform research and other tasks that do not require the time or effort of a senior trial lawyer, as this frees up that attorney to focus on what really matters. That also means clients don't spend their time reviewing bills to ferret out inefficiencies or even offer runs, visits to Kinko’s or time spent in traffic.

Here are a few more examples of how law firms can provide cost-saving measures to clients:

The "Value Adjustment Line"

Have invoices include a "value adjustment line" where clients can propose a different amount for any bill they believe is out of proportion with the value of the work performed. On each bill, include the agreed upon fee. Also provide the client a space to make any adjustment that they feel is needed.

Why do this? To demonstrate unwavering commitment to client service, and to show that whatever fee arrangement the client has chosen, the law firm has an economic incentive to consistently put forth their best effort.

Shared Risk Equals Shared Goals

The law firm can take on shared risk when forming its alternative fee arrangements in order to align the interests of the firm with the goals of the client.

Outsourcing the Leg Work

Law firms should seek to maximize efficiency in order to lower the costs for clients. Using strategic partnerships with document management and outsourcing firms, law firms can focus completely on the client's needs, and the client can be confident they are getting what they pay for and nothing less.