Articles Posted in The Billable Hour Business Model

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The Point

After an historic high number of law firm hours billed industry-wide in 2021, Q2 of 2022 has seen an historic year-over-year drop in those hours. This drop will likely cause major, near-term, upward price pressure on law firm rates.

Traditionally, general counsels, the practicing attorneys who run corporate law functions, mostly accept such rate increases (albeit with ineffectual grumbling).

Therefore, with inflation at the highest it’s been in decades, it’s going to be up to you as a business leader to step in and make sure that your company makes robust use of its purchasing power with those law firms. Continue reading

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The Point

It’s considered a best practice among lawyers in-house to “manage” work relationships with their law firms by writing rules for them to follow. “Outside counsel guidelines” they’re called.

And they don’t work all that well as a substitute for more conventional management relationships. It’s common (subscription required) for in-house attorneys to review their law firms’ time entries in detail, and then complain to those law firms about departures from the outside counsel guidelines. With those law firms then having to respond accordingly. A chronic waste of everyone’s time.

Setting a fixed price upfront for a matter would eliminate the “need” for the business client to tell its law firms exactly how they must do their work on that client’s behalf, and avoid the related “need” for in-house counsel to audit their compliance. Continue reading

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In about 60% of legal matters, the law firm doing the work fails to estimate the amount of money needed to complete the task, according to a recent BigHand technology survey described in The Artificial Lawyer June 28, 2022 issue.

This has two harmful implications:

1. Lax cost control: there is no number against which to manage accumulation of ongoing charges while lawyers run up the bill. “Cost control” is left to the attorneys. Continue reading

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The Point

The last few years witnessed headlines announcing a legal technology investment boom (here, here, and here).

But — for all the publicity on the investor side — actual technology adoption among law firms remains slow.

This Matters to Your Business

A survey of 560 law firm attorneys taken in May 2022 for Dashboard Legal asked them: “Are you satisfied with the technology at your firm?”

Only 37% answered “yes”. Continue reading

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The Point

Business analyses — and decisions to which they can lead — are no better than the data on which they are based.

Part I of this two-part series considers the tiny minority of legal matters priced to client companies on a basis other than attorney hours (a reported 16.8%), and then asks if more resolute negotiation by the corporate law function might wean outside counsel from hourly billing. LexisNexis / CounselLink, source of the 2021 report and that 16.8% number, is a superlative provider of data concerning legal services delivery.

But data about legal services delivery are usually of less precision and less transparency than, for instance, data on which audited financials are based. In particular, two flaws in the empirical findings behind the “16.8%” figure limit that report’s utility for understanding the true extent of AFA’s in U.S. legal practice. Continue reading

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The Point

“In 2020, 16.8% of [corporate legal] matters had some portion of their billing under an arrangement other than hourly billing”, according to the most recent LexisNexis / CounselLink trends report on U.S. law firms’ charges to U.S. corporations (2021 report based on 12 months of data between January 1, 2020 and December 31, 2020).

Which invites a working hypothesis, or at least a question:

Where a business finds the gumption to negotiate robustly with outside counsel on price, might corporate purchasing power prevail over lawyerly inertia? Continue reading

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Lawyers have long engaged in loose and hopeful speculation that law firms will stop basing their charges on the time it takes attorneys to do their work, and that corporate clients will soon be able to pay legal fees based on a pre-agreed value of attorneys’ services.

For instance, a full five years ago, the influential Georgetown Law Center / Peer Monitor’ 2017 Report on the State of the Legal Market announced, “The Death of Traditional Billable Hour Pricing” — and its replacement with “alternative fee arrangements” and “budget-based pricing”.

But the facts don’t bear this out. Witness a recent and prominent case in point reported in last Monday’s legal insider publication Above the Law: Continue reading

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The Point

Legal journalists like to say that in-house counsel are much better positioned than outside lawyers to adopt labor-saving and accuracy-enhancing workflow processes, and the technology to support them, since they don’t have to maximize hours billed.

Despite what one might expect, Thomson Reuters’ “State of the UK Legal Market 2022“, issued this month, demonstrates that in-house counsel are laggards in using the systems and software that can save lawyers’ time and catch their mistakes. Continue reading

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The Point

Many in the U.S. legal profession have long touted “pricing innovation”, promising corporate clients savings and cost certainty.

As of 2022 these promises remain largely empty.

Because in the U.S. corporate legal sector the billable hour continues to prevail. By a wide margin. So says the 2022 State of Corporate Law Departments Report issued by Thomson Reuters Institute, provider of information and technology to attorneys. Continue reading

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News Item

From the American Bar Association Journal, January 27, 2022:

“Goodwin Procter is providing ‘thoughtfully curated weeklong’ trips to associates and some other billers, so they can get relaxation time on the law firm’s tab … The trips are valued at $5,000 to $10,000, depending on lawyer seniority.

“Those eligible for the program include associates, professional track attorneys, science advisers and science law clerks who billed at least 1,950 hours last year, according to Reuters.”

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