Posted by: johnocunningham | January 30, 2012

Billable Hours Yielding To Value-Based Fees

The billable hour is far from dead, but it is losing ground as the preferred method for valuation of legal services, as noted in a recent story in the Washington Post entitled, “Is Time Running Out on the Billable Hour.”

As noted in the story, a recent survey of leaders at large law firms done by The American Lawyer revealed that clients are not only seeking alternative billing agreements, they are also seeking discounts from 81 percent of respondents, and seeking deep discounts from 55 percent.

Of the law firms that used alternative or value-based fees in 2011, 92 percent had used flat fees, 88 percent had used blended rates, 83 percent used incentive or success fees, and 82 percent used collars or caps to limit total spending on a matter.

This report comes in the wake of a 2010 report by LexisNexis, which also reported an uptick in alternative billings. That report indicated that hourly billing composed just over half of the total legal fees anticipated by General Counsel, while another 18 percent of fees were blended or discounted, roughly 15 percent were flat fees by project, 8 percent were performance-based and 5 percent were associated with retainers for whatever services were needed during a given period.

For law firms, it is now essential to embrace the notion of value-based billing, and those firms that figure out how to budget for projects and optimally manage the team processes involved in those projects will be declared the ultimate winners in the marketplace – by their clients !

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