Why the Billable Hour Persists

by | Jan 20, 2015

Why the Billable Hour Persists

The UK-based Legal Futures published a story today with an eye catching headline that we’ve observed making some rounds in industry newsletters and social media: Exclusive: in-house lawyers complain about firms failing to offer pricing options.

The story is based on survey of 50 large law firms and 40 in-house legal teams which found:

The vast majority, 93%, of law firms said ‘menu’ pricing, with fees set at pre-determined prices for different types of work, was most suited to repeatable work with similar tasks.

Alternative fee arrangements (AFAs) usually earn a warm reception in survey research like in the study above and these are findings corroborated in other studies based in the US.  However, the legal spend data tells a more modest story. For example an analysis by the CounselLink® team of some $17 billion in legal invoices shows just 11% of matters and 7% of total billings were executed under AFAs.

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With so much chatter about AFAs – and the recent decision by Jackson Lewis to eliminate billable hours for associates notwithstanding – why hasn’t the industry seen greater change?

According to an article – How Billable Hours Changed the Legal Profession – written by Paul M. Barrett of Businessweek:

Since the 1990s, some corporate clients have periodically demanded alternative fee arrangements. In response, creative law firm partners have offered to do certain assignments for flat fees or on sliding scales. The 2008-09 recession forced many law firms to curb the inflation of billable rates and even offer discounts. But the billable hour persists for two main reasons: It gives clients some basis for auditing how they’re being billed, and it rewards richly those attorneys who find ways to keep the meter running.

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What do you think?  Will the primary business model change for most law firms in the near future?  What will drive that change?

Photo credit:  Flickr; Chrishna; CC BY 2.0

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