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Why Lawyers Are Slowly Killing the Hourly Fees Habit

The death of the hourly fee has been predicted with varying degrees of confidence for some years – but will it ever happen?  Well, it is occurring slowly but surely among a growing number of law firms who are continuing to experiment with alternative fee arrangements and to think outside the hourly fee square.

The firm’s are dipping their toes into the non-hourly fee waters with increasing confidence, prompted no doubt by the fact that many inhouse counsel refuse to employ them unless they do.

As United Technologies litigation inhouse counsel Steven Greenspan said to the Washington Post,  at first, “law firms were fearful.”  “It was easiest to price a legal engagement by just recording your hours and cha-ching cha-ching, you come up with a number. It took firms a long time to figure out how to price their services that would protect a reasonable [profit] margin.”

But things are changing, he says, and fast.

“Because it’s a new frontier, there are law firms that don’t know what they’re doing and are going with crazy low pricing hoping they can get a new client that way,” said Kirmayer, a partner at District-based law firm Crowell & Moring. “And once they get a client to hire them, they try to figure out how to deliver for what they quoted … and the client is surprised by the level of service.”

Kirmayer is part of a small but growing contingent of lawyers who are urging law firms and corporate counsel to experiment with alternative fee arrangements for litigation. Alternative fees include anything that is not hourly billing — the way law firms have historically charged corporate clients. Alternative arrangements can include flat fees, success fees and contingency fees. They are typically less expensive than hourly fees.

Law firms have been using more alternative fees in the past several years, largely to meet the demands of their chief clients, in-house lawyers who are scaling back on outside legal spending. In 2009, 28 percent of law firm leaders believed that non-hourly billing would be a permanent change in the legal industry, according to legal consulting firm Altman Weil. By 2013, the figure had jumped to 80 percent. Since 2012, a handful of major firms, including Holland & Knight and McDermott Will & Emery, have even ditched the billable hour model altogether for entire teams of people.

But the move away from hourly rates for litigation specifically is newer and perhaps even more significant because trial work has always been viewed as the last vestige of the hourly billing model. This is because litigation tends to be more unpredictable than other types of legal work, so law firms have long argued that it is harder to charge a flat rate for it.

“It’s easy for people to understand a fixed fee for a real estate transaction,” said Steven Greenspan, head of litigation at the 330-attorney legal department of United Technologies, the Hartford, Conn.-based technology and aerospace giant. “You want to buy a building, you know how much it’s going to cost to bring that closing. Litigation has always had a lot of uncertainty. It was easy to accept the mystery of, ‘We don’t know what the future will bring.’”

Read more about the changing face of law firms here.

And read the rest of this article at the Washington Post here.

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