According to the results of a new survey, law firms and their corporate clients are not changing to alternative billing arrangements as quickly as some might have thought would happen. Firms using contingency fees, flat rates and alternative fees are on the rise and continue to grow rapidly. The reason for these fees is the struggling economy and pressure from clients for law firms to reduce their legal costs.
The report, conducted by ALM Legal Intelligence, said that many law firms are just dipping their toes into the water when it comes to alternative fees instead of diving in head first. The report was released on Tuesday in cooperation with LexisNexis, the legal technology company. LexisNexis is scheduled to launch its new data-driven service for in-house lawyers.
There were 141 in-house law departments and 194 law firms surveyed by the ALM report. The entities were questioned about their use of and satisfaction with alternative billing options. The survey determined that the majority of law firms are still relying on traditional billing for most of their work and law firms are not as happy with alternative fees then their corporate law clients. The report said that the legal industry could see a shift in billing since the alternative options are not going to disappear anytime soon. The report said the following:
If law firms and legal departments continue migrating away from the billable hour model, both sides will need to embrace profound structural changes, such as training legal staff to manage matters within a budget while keeping an eye on profits.
The report said that lawyers and corporate clients have various reasons for falling in love with alternative fees. Some of those reasons include cost savings for legal departments, efficiency and the ability to show how much departments will be spending. The reasons for law firms include attracting and keeping clients and the ability to narrow the gap between the amount of money billed for a service and how much money the firm collects from the bill.
“The Billable Hour Still Drives the Boat,” the report said. It shows that most law firms are more comfortable with the status quo while 6 percent of law firms said that they use AFAs for more than half of their total legal work in 2011. The report also said that 12 percent of law departments use AFAs for work assigned to outside counsel.
The report also noted that reverse auctions and bidding are on the rise in the legal industry. Of the law departments that responded, one-fifth of them said that they use those services for repetitive and high-volume work while just one-third of law firms said that they use those services.