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BigLaw Turns to Alternative Billing; Is Greed a Reason?

Posted Jan 30, 2009 7:12 AM CDT
By Debra Cassens Weiss

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The billable hour has long troubled in-house lawyers who say the billing method discourages efficiency and associates who complain of being judged based on the amount of time they spend on matters.

Now, as alternative billing arrangements are starting to be used, sometimes, at some big law firms, one commentator suggests that the reason is not only the bad economy but also greed, the New York Times reports.

Legal novelist Scott Turow, a partner at Sonnenschein Nath & Rosenthal who is a critic of hourly billing, told the Times in an e-mail that lawyers have reached the point where they can’t bill additional hours in a year.

“Firms are approaching the limit of how hard they can ask lawyers to work,” he said. “Without alternative billing schemes, lawyers will not be able to maintain the rapid escalation in incomes that big firms have seen.”

The Times talked to partners at a half-dozen big law firms and in-house lawyers who said they are seeing different pay methods being used more often. At Cravath, Swaine & Moore, where senior lawyers bill more than $800 an hour, more clients are paying flat fees and success fees for good outcomes. In one case handled by Morrison & Foerster, the firm earned a success fee for negotiating a good settlement that amounted to about 150 percent of its usual hourly rate.

But not everyone thinks the switch is motivated by greed. Frederick Krebs, president of the Association of Corporate Counsel, agrees with the conventional wisdom: that lower demand for legal work is giving general counsel more leverage to demand different fee arrangements. “We may well be at a tipping point here,” he tells the newspaper.

But he sees some obstacles to change, according to the story. Law firms will have to overhaul compensation structures that reward high billable hours. And law firm managers with little experience in alternative billing could end up setting a low price that costs the firm any profits.

“The difficulty is, we don’t really know what it costs us to do something,” he told the Times.

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