Competition Forces Law Firms toward Alternative Billing

Article excerpt

By Margot Slade

N.Y. Times News Service

It has been the bedrock of the lawyer-client relationship for decades: the billable hour, that chunk of time-on-legal-tasks for which many lawyers have uninhibitedly charged and most clients have unthinkingly paid.

But now the ground is shifting in response to increased competition among law firms and to diminished revenue among law firms and clients alike. And that shift, particularly in corporate law, has begun to bury the hourly rate in a welter of cost-cutting alternative billing schemes. In some cases, firms are even being forced to bid for corporate business.

The tremors of this change, first felt a few years ago, are now rippling through law firms from coast to coast.

"Clients are talking about fixed fees, capped fees, fee estimates, contingent fees and discounts," said Blane R. Prescott, a partner with Hildebrandt, a management consulting company based in Somerville, N.J.

"They want to see a budget, something that will give them a better idea in advance of what a law firm's services will cost. They want to discuss that budget and how it was developed."

Given a glut of lawyers and a dearth of clients, Prescott said, "clients are getting what they want."

Others who monitor the legal profession agree. Although there is no comprehensive national survey to buttress their view or to document the extent of savings for clients, "anecdotal evidence and our own recent, small-scale survey confirm the trend that we perceived: law firms increasingly moving to alternative billing approaches at clients' request," said Richard C. Reed, chairman of the alternative billing task force for the American Bar Association's law practice management section.

Those alternatives are a central element of an accelerating revolution, driven mostly by clients, in the way the nation's law firms do business.

It is, industry analysts say, a cultural revolution that puts a premium on serving clients, not racking up hours, and on producing quality work, as clients define it: work that places an emphasis on timely performance, efficiency, risksharing between the firm and its clients, and the firm's willingness to discuss how cost estimates were arrived at.

Although the revolution is being powered by the muscle of corporations, those Goliaths of law firm clientele, some benefits are trickling down to David as well.

Particularly in estates, trusts and other areas of family law, where the preparation of documents is increasingly automated, individual clients can frequently obtain services for a fixed fee.

To clients, the sea change promises value for money. To law firms, it underscores efficiency as a requisite of long-term client relationships. And to individual lawyers within those firms, it brings a shift in performance standards.

In firms that embrace the new approach, partners are rewarded for their marketing and management abilities, "especially for their talent in pricing legal services and supervising legal projects," said Ward Bower, a principal at Altman Weil Pensa, a Philadelphia-based legal management consulting firm.

And associates, he said, are "judged on how effectively and efficiently they serve clients, as against how many hours they record."

One benefit of all this is that an associate who is trying to balance family and career, for example, can be judged on something other than hours billed, said Peter D. Zeughauser, vice president and general counsel of Irvine Co., a real estate development concern in Newport Beach, Calif.

The "down side," Bower said, is that as law firms turn leaner, they will need fewer lawyers. In the wake of vast numbers of layoffs that have already resulted from a weak economy, even more associates may be finding themselves out of jobs.

"Our object is to procure the right quality of legal services in the most cost-effective way," said David Grimes, vice president and director of administration in the legal department of the Bank of America. …