Legal fees – Alternatives to hourly billing

More than 25 years ago, legal fees were based not only on the time spent, but also the nature of the service, the result achieved and the amount at stake. Charging an appropriate legal fee was a matter of professional judgment.

That changed in the mid-1960s when clients began demanding detailed billing statements and lawyers used time records as a management tool to seek greater efficiencies. Today, most lawyers are paid by the hour – almost as an hourly laborer. When lawyers are paid by the number of hours worked, self-interest can and often does affect a lawyer’s judgment as to how much work to do for the client.

And, when investment in technology is required to maintain competency, the cost of operation increases. Yet, the increased technology creates greater efficiency, meaning that the time required (hours worked) to produce the same work product is reduced. This means that the revenue for the lawyer is reduced, unless he/she can get new and additional work assignments, or charge a higher fee per hour.

The ultimate result is that lawyers cannot take advantage of the efficiencies they achieve with a greater cost investment – UNLESS they go to an alternative method of billing.

Recently I had the pleasure of interviewing several General Counsel and Outside Counsel involved in promoting greater use of alternative fees. There are many different forms this movement is taking, but one common element amongst all those talking about and using the new (or not so new) modality of billing is the essential element of frequent and open communication between the lawyer and the client. But then, good communication is required no matter what billing process is used … Perhaps the lawyer just must put more effort into the process.

For more on this subject, hear the comments of General Counsel and Outside Counsel on Law Practice Management Review: The Audio Magazine for Busy Attorneys.

Categorized in: Cash Flow - Finances