New Report: Law firms pivot away from billable hour to meet shifting client demands says LexisNexis
In-house legal counsel are strong-arming their law firm panels into offering alternative fee structures in a bid to reduce costs and increase clarity.
Today, LexisNexis Legal & Professional, a leading global provider of legal information and analytics, has released a new investigative report entitled “Calling time on the billable hour.” The report looks at why almost half of all external legal spend is now taking place through alternative fee arrangements such as flat or fixed fees, a major increase since pre-pandemic times.
For decades, the vast majority of law firms have billed by the hour, and while its demise has long been predicted but never proven, a strong shift in billing behaviour had finally happened as clients push for fee structures with greater clarity over pricing.
Using in-depth interviews with senior partners at top law firms and general counsel at leading businesses, the report digs into the pros and cons of the billable hour model, the challenges of pricing matters when using alternative fee structures and how these trends are likely to develop in the future.
As the report reveals, many of the general counsel from leading businesses interviewed say most of their external legal work is done through alternative fee structures, as it gives them price certainty and allows for a comparison of costs. To get a place on lucrative legal panels, which can be worth millions of pounds, a growing number of law firms are responding by offering alternative fee structures. The vast majority (85%) of law firms offering alternative fee arrangements admitted it came about as a result of client demand as opposed to their own doing.
Rather than suggesting law firms should change their entire billing structure to cater to demand, this report argues firms should consider alternative billing models for routine work with a clear endpoint and stick to the billable hour for consultative, urgent or ongoing work. A key barrier to implementing alternative fees is determining accurate or profitable pricing and estimating how much time and effort the work will require. Experts recommend utilising pre-existing internal billing data to determine alternative pricing.
Despite demand for alternative pricing structures being client-driven, the report also highlights that the law firms that choose to introduce new billing models can benefit from increased productivity – especially when combined with legal technology – which, in turn, strengthens client relationships and can generate more work.
“In-house legal teams are under growing pressure to do more with less,” said Dylan Brown, the report’s editor. “In today’s economic environment, greater certainty and transparency around legal spend is a must. Rather than using a high-touch approach to strengthen client relationships, lawyers would benefit most by demonstrating value added – and this is considerably easier with the right technology and tools in place.”
