My friend and former colleague Shy Alter of ii3 wrote an interesting blog post suggesting that, with some adjustments, the billable hour may have a long life ahead. 

In Billable hour – exagerated rumors about its death, Shy looks at his own knowledge management and consulting firm to assess different billing models, ones that limit risk and provide more predictability. And he reports on one of his law firm clients that has come up with a sophisticated cost estimating model.

Reading his post makes me wonder what the real problem is when clients say they want alternate fees. I suspect the talk about alternative fee arrangements is driven by a series of inter-related concerns:

  • Legal services are just too expensive, irrespective of how charged for and costs have to drop
  • Predictability is important and current BigLaw approach is too unpredictable
  • Law firms have no incentive to work efficiently and work is currently highly inefficient
  • Firms don’t ask about risk tolerance so invest too much in rendering services (“leave no stone unturned”)
  • Cost really does not matter but appearances do. GCs must create the the appearance of taking action on fees. (Remember “voo-doo economics”?)
  • Hourly rates are just too high (the moral outrage factor)
  • In an age shrinking compensation, clients no longer want to support partner profits approaching $2 million

The legal market is not well and I am not necessarily saying preserve the billable hour, rather, let’s as a profession discuss what the real problems are.