Let’s consider for the moment why alternatives to the billable hour have not become a standard practice industry-wide. Simply put, alternative billing hasn’t grabbed hold because:
- Law firms don’t want it (the billable hour is risk adverse, and it’s like “cost-plus” government work – i.e., the more you work the more you make regardless of results),
- Corporate counsel (a least a number of whom) come from law firms where they were use to billing by the hour, and they don’t fully understand alternative billing either, and
- Alternatives haven’t been viable or explained very well (why not you ask? See first bullet above).
Well, Bruce MacEwen of Adam Smith, Esq. has an interesting idea he proffered in a recent post. He suggests that what he calls the “McKinsey Billing Model” holds promise for a possible solution to the dissatisfaction (among some) with the law firm billable hour. According to Bruce, McKinsey, the hugely successful, global consulting firm, does not even have hourly rates. Rather, they have a monthly charge based on the size and makeup of the “team” they throw at a problem. Then, according to Bruce “one of three things happens”:
- Project is completed on schedule and budget, or
- Comes in early, and fee is reduced accordingly, or
- Company is advised during the project that it will take longer and cost more than anticipated, and the company decides whether the value is there to continue (or in our world whether to settle the case, cancel the deal, whatever).
Granted, there are differences with law firms, simply because one side doesn’t control all aspects of a matter. There is opposing counsel, the court system, government agencies, etc. to contend with. Thus the overall time frame, and the work effort in any given month will vary, so a law firm billing model by necessity will be different.
However, there are things to take from the model Bruce talks about. Most importantly, assuming the firm is experienced in the types of matters the client wants dealt with, the firm should be able to generally determine what resources will be needed, and how much time the process should take. It can approach the client with a scenario that takes the three things that could happen in the McKinsey model into account.
Bottom line: If the firm is experienced in the matters involved, they too can put a price or at least a range on what something will cost as part of their legal marketing strategy. The days of “let me get started and I’ll let you know what it will cost when I am finished” are fading, and it is only a question of time before law firms and clients come to deal seriously with the billable hour.