Law firms and lawyers have traditionally billed clients on an hourly basis for services rendered at a pre-determined hourly rate. The billable hour model has long been the standard in law firm billing and for some, has long been an outdated and unecessary model.
Critics of the billable hour model cite to the sometimes exorbitant legal fees that result with some attorneys billing out at more than $800 an hour. At the prominent New York law firm of Cravath, Swaine & Moore, senior lawyers bill more than $800 an hour. Many of the top corporate law firms bill their senior partners out at similar rates. Even inexperienced associates are billed out at $300/hour or more.
The billable hour model is also an object of scorn by many attorneys who are required to meet an annual billable hour requirement as part of their participation in the law firm’s climb up to partnership. Keeping track of one’s time and having to meet a required minimum hours is often times stressful and can lead some attorneys to exaggerate the amount of time spent on any particular matter.
Criticism of the billible hour model both from clients and attorneys over time has resulted in firms offering alternatives to the billable hour. In recent times, the slow down in the economy has adversely impacted law fims and their clients, with clients often times demanding lower legal fees. This has also given rise to alternative billing models.
A number of law firms around the country have been using alternative billing arrangements for a decade or more. And major law firms also have started to join the movement, including Kirkland & Ellis, Morgan, Lewis & Bockius, Alston & Bird and Holland & Knight.
Alternative arrangements can include flat-fee rates, or hybrid rates based on a standard fee with an added bump in pay tied to performance ( known as success fees). Some examples of alternative billing models:
- Flat fees. Firms agree on a flat fee to provide a legal service such as drafting a contract or handling a litigation from beginning to end.
- Annual contract with a set fee. Insurance companies with high volume of litigation will often work out an annual contract with their firms. The insurance company makes a monthly payment to guarantee the firm an income stream. Plus, there are often incentive bonuses of 10 to 20 percent tied to successful outcomes.
Other types of alternative billing arrangements include:
- fixed fees
- flat fees
- blended fees
- contingency fees
- capped fees