Here’s a brief synopsis of what it contains:

• Supply and demand is catching up with lawyers.  There are too many lawyers*, new law schools being created (with ABA scrutiny being “less than rigorous”) since they are money-makers for universities, and, most importantly, there aren’t enough jobs.  According to the upcoming book Failing Law Schools by Brian Tamanaha law schools are producing 45,000 new graduates annually, while it is projected that there will only be 25,000 legal jobs available per year through 2018; and
• Technology is changing everything from online non-lawyer documents to virtual law firms.

So, what are smart lawyers to do?  According to Calloway:

1. Pay attention to what is going on in the industry.  There is a new normal, and lawyers need to be tuned-in to trends (and reality I might add);
2. Focus on legal project management and legal process management to be more efficient, and generate legal products/documents from “A to Z” to be at the ready— so lawyer time is spent on what is unique to a matter, rather than the repeatable routine; and
3. Recognize and utilize the digital world in your workflow.  Although the paperless office never did (or will) happen, adopt more computer files on your network and Internet to be accessible to everyone who needs them, and so they are available remotely.

Bottom line: the legal world is changing in many ways, including downward pressure on fees.  Unless lawyers are more efficient (via project and process management), develop better systems to work smarter and in less time, and accept alternative fee structures (e.g., fixed fees) that work for clients and for lawyers, the new normal ain’t going to work so good.

And that’s where marketing comes in.  If lawyers accept the new normal and adapt to it, including with systems, document assembly and greater efficiencies, and let clients/referral sources/prospects know about it, they will be more successful in landing all the work they can handle.

*Sharon Nelson, president-elect, Virginia State Bar interjects that 22% of law students think it’s “a bad idea to be in law school” in light of the climate for jobs.

Last week Robert Half Legal’s 10th Future Law Office survey was released; and 25% of in-house counsel expect to reduce work with outside law firms. As Charles Volkert of Robert Half put it, there is “the increasing need for law offices to provide more value-added and cost effective legal services.”

Who is in a better position – taking into considering agility and less bureaucracy – than regional firms to do just that? That’s were the second survey by the Corporate Executive Board Co. and CT TyMetrix comes into play. Although only in summary form at this stage, and not due out until September, it does provide some valuable insight nonetheless.

This latter project involves evaluating rate structures, and rate variations in what some firms charge clients, as well as other billing “red flags.” According to surveyors, the final report will “give corporate counsel insight on ways they can save money, including using regional firms.”

Most regional firms already know that, as I’m sure do many in-house counsel. So, why wait. Let them know that your small to mid-sized regional firm can help them start saving money now.

This got my attention, because although there has been much written about the subject including on this blog, it hasn’t seemed that alternative fees were catching on all that quickly. Percentages of law firm fees, other than the billable hour, have ranged from as low as 2% to as much as 20% over the next ten years.

Accordingly, the panel on “The Death of the Billable Hour?” at the Jackson Lewis conference struck me as particularly interesting based on the report that “many companies and law firms now report that as much as 40 percent of their work is billed on alternate billing arrangement that include flat fees, phased billing and contingencies.” That comment was attributed to Michael Roster, chair of the Association of Corporate Counsel’s Value Challenge. If anyone should be getting accurate percentages, it seems to me that would be the ACC.

So, if that percentage is attributable NOW to value billing, what can we really expect in ten years? And, if it is only going to increase, there are two points I’d like to make:

1. Don’t get left behind. Make sure your business development efforts include offering value billing asap; and
2. Start looking into project management trainings also asap, so that your firm is managing its matters efficiently enough to ensure that alternative fees will actually work in your firm. For more on that, take a look at my post of last week on what my colleague Jim Hassett over at LegalBizDev is doing and written on project management.

Basically, he states that the billable hour “makes no sense.” Making more money by dragging out a matter (or in his analogy, making more money by getting “bogged down a land war in Asia”) is “frankly nuts.” Pretty strong words from a firm that doesn’t really have to worry about clients questioning their bills, I wouldn’t expect.

Even though tons of folks (too many people to mention here) in blogosphere, including yours truly, have long advocated doing away with the billable hour, Chesler’s comments, one could argue, clearly takes the debate to a higher level. Not many would expect such a position from a BigLaw firm of Cravath’s stature. Now maybe the concept of alternative fees, although not new, will take on a bit more momentum.

Although there have been many different suggestions for alternative fee arrangements (see Continue Reading below for a few of my posts on the topic), I found a couple of ideas from a named partner in a 10-lawyer Philadelphia area firm worth considering.  Gary Lentz of Bochetto & Lentz wrote an article published in The Legal Intelligencer and on Small Firm Business suggesting a couple of approaches that could attract new clients and enhance fee opportunities  in this down economy.

The following two variations on the same theme are worth consideration by firms of all sizes:

• Multi-phased Fee Agreements
  • Phase I – an initial flat fee to evaluate the case, develop strategy, negotiate and “prompt resolution” (with a potential for a bonus) and drafting complaint, if necessary;
  • Phase II – a mix hourly, fixed fee and/or contingency, if necessary to file and pursue the matter in court.
• Blended Contingency Fee Agreements – an initial flat fee to cover the evaluation of the case and drafting the complaint, followed with a contingency fee based on outcome of the matter.

Take a look. They may just work for your firm, particularly with clients who are encountering their own uncertainties in the current economy.

Has Your Firm Tamed That Damn Billable Hour Yet?

Now is the Time for Creative Billing to Gain More Clients

Is the Billable Hour Now Dead?

More Bad News for the Billable Hour

Should You Consider Value-Based Fee Arrangements?

Is Billable Hour Here to Stay?

Have You Considered Alternatives To Hourly Billing Yet?

Alternative Billing for Small Firms

Alternative Fees vs. Billable Hour

According to a post by Mark Beese on his Leadership for Lawyers blog entitled “We’re Not Going to Take It,” the ACC reps laid out the realities in-house counsel are facing, specifically:

• Pressure to contain and predict legal costs,
• Frustration with double-digit rate increases,
• Off-the-scale associate salaries (and corresponding hourly rates); and
• Perceived unwillingness by law firms:
  • to discuss alternative fee arrangements, and
  • create lower cost methods for commodity work.

So, what’s my point? Talk to the in-house counsel you know about your fee structures, and willingness to discuss alternatives to the traditional hourly rate. There’s a lot of work out there for medium-sized and smaller law firms because of their lower fee structure and flexibility. 

If large firms aren’t yet fearful as to how serious corporate counsel are about finding solutions to these pressure points, they will be soon enough. And just think how you can help them along by picking up more of their corporate work in the meantime.

A story by Leigh Jones that appeared in the New York Lawyer Monday claiming the death of the billable hour (free registration required), may have just given 170-lawyer Ford & Harrison the marketing coup of the year. It has eliminated the associate billable hour requirement for first years in their firm. That will:

• Please new associates (and aid recruiting),
• Probably make clients happy (for reasons that aren’t spelled out. Certainly the work will have to be picked up by more expensive associates), and
• Annoy competitors (for obvious reasons).

However, the jury is still out as to whether other firms will follow, or even if Ford & Harrison will continue the program after trying it for awhile. Although the firm has not discarded the billable hour system, by removing the requirement for first years, they may have allowed the camel’s nose to get under the tent. We’ll see.

Nonetheless, it is a gutsy move.

Being a believer in, and having commented before (here, here and here) on the advantages of alternative billing, I do not believe hourly billing is here to stay. Having said that, I know that large firm lawyers and large corporations (many of whose in-house lawyers come from large law firms) are more resistant to leaving the world of hourly billing. And I am not saying that hourly billing will go away completely – for example, in the case of bet the company litigation nor major, complex matters. However, they represent a small fraction of the legal matters out there.
For most clients, particularly small to medium size businesses and individuals, who are much closer to the road when it comes to legal costs, alternative fee arrangements will become more the norm. Hourly billing provides less opportunity to know and plan those costs, and that is why I believe there will be less of it. And, again, small law firms can gain an advantage over larger firms by taking the lead in alternative billing.

“You can’t tell me how much my legal issue will cost me, but you will charge me by the hour (billing periodically) until the task is completed at some unknown point in the future, hopefully with a favorable result.”

That’s about it, right? There is a whole lot of trust wrapped up in that statement I would say. I really believe trust is warranted in the majority of cases. However, how much better would the client feel if they KNEW what their legal matter would cost them, or at least a range. Having been on both sides, I can tell you how I felt when I was the client subject to hourly billing, and I didn’t like it.
How do you think you would feel? Maybe it is time to consider alternative billing for your clients.