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In Part One, we talked about how BigLaw was congratulating itself for slowing the growth of its annual billing-rate increases. The jumping-off point was the National Law Journal's 2009 Billing Survey, in which 190 of the top 250 firms participated. The main story, written by Karen Sloan, requires a subscription.
One of the messages in the Billing Survey is that the lousy economy has increased the role that alternative billing plays. (Readers know that I hate that term. See "An alternative to 'alternative billing.'") Sloan writes:
Increasingly, clients are asking firms to enter into alternative fee arrangements that take into account the overall costs of their legal matters.
She again quotes our good friend, the ACC's Susan Hackett:
Some [clients] might say, "I really don't care what your rates are — that's not my problem. This is what I'm willing to pay for the work ... you figure it out from there."
The survey asked the firms about their use of alternative-fee arrangements (it didn't use the hyphen — ack!). Fifty-seven percent (up from 50% last year) reported that these arrangements accounted for ten percent or more of their firms' revenue. I suppose this is progress, but I remain unmoved. Here's why:
First of all, what's with this magic threshold of ten percent? Ten percent is a trial balloon, not a commitment to change. What is more, an astounding 43% don't even reach that level. The article cites a recent American Lawyer survey of 587 general counsel, finding that 39% of them have increased their use of alternative-fee arrangements this year. That means that 61% of the GCs reported that their use of these arrangements stayed the same or decreased. A nice one-page PDF summary of the GC survey is here, and a Law.com summary article is here.
Second, and this is an even bigger reason, is that "alternative-fee arrangements" is a weaselly phrase that obscures more than it informs. The National Law Journal's 2009 Billing Survey, after allowing the firms to congratulate themselves about their restrained rate increases and their perestroika-esque (admittedly not a common word, but whatever) attitudes to "alternatives," probes a little deeper behind the numbers. In asking about alternative arrangements, the NLJ sought some qualification. For example, the survey reports that an incredible 95% of the revenue at Paul Hastings came from alternative billing — in the form of discounted or blended rates.
What the what? Newsflash, people: Discounted and blended rates are still hourly billing. They are not "alternatives" to the billable hour. They are just forms of discounts. (For more on discounted rates, see "Legal advice: 30% off! (Why discounts don't always save you money).") Turns out that the other 5% of revenue at Paul Hastings comes from real "alternatives," including fixed, contingency, and retrospective fees. (Retrospective fees have their own problems, which we'll deal with in a future post.)
Not to pick on Paul Hastings. Others had similar results. Ogletree Deakins: 91% discounted or blended. Husch Blackwell: 98% discounted or blended. Dykema Gossett: 84% discounted or blended. And on and on. And many of the "real" alternatives include hybrid fees — that is, a hybrid of fixed and hourly fees.
Look: I credit the sentiment that many lawyers are saying that the time for "alternative fees" is now. But when the American Lawyer GC survey reports that the law firms initiated these alternative arrangements only 3% of the time, I wonder just how deep these sentiments run. And when the "alternatives" turn out not to be alternatives, I wonder if a lot of this is just lip service.
Clients: hourly fees — whether discounted, blended, or hybridized — are hidden prices. It's time to demand open prices.
