Strategic Use of Your Legal Dollars: Alternative Billing Arrangements

The past 5 years has seen a large shift from law firms’ most basic practice: hourly billing.  Big and small firms alike are increasingly offering alternative fee arrangements, such as flat-fee billing, due in part in the market’s response to ever-increasing billable-hour rates, and in part to savvy companies demanding more for their legal dollars. 

The Wall Street Journal recently reported that billable hour rates for top-billing partners at the country’s biggest firms increased 4.9% last year to an average of nearly $890 per hour.  The local DC market features hourly partner rates routinely in the $500-600 range, with some firms charging in excess of $400 per hour even for associates.  Figures like those send legal bills through the roof.

Add to that the continuing need to tighten budgets and squeeze every possible ounce of value from legal dollars spent, and you can see why so many companies are going away from the traditional use of outside counsel and the billable hour.

Many companies insist on alternative billing arrangements to lock in their costs.  Even large corporations are insisting that their lawyers – some of the biggest firms in the country – offer flat-fee billing and even contingency fee arrangements to reduce legal bills. 

In addition, companies are increasingly looking internally to fill their legal needs.  The Washington Post recently reported that businesses are relying less on outside counsel and more on internal resources, and that the percentage of companies using outside counsel for even specialty work like litigation, tax, mergers & acquisitions, and intellectual property have all decreased over the past 5 years.  Companies using in-house counsel instead of outside lawyers with high billable rates see significant cost-savings.  

Small and mid-sized companies can gain those same benefits even if they do not have expansive in-house legal departments or really any inside lawyers at all, by outsourcing their general counsel needs.  So-called “Outside General Counsel” programs combine the benefit of in-house counsel with alternative billing arrangements such as flat-fee billing to maximize savings for growing companies.  The company contracts with a law firm to service its legal needs for a set monthly fee, typically well below the cost of a full-time staff lawyer.  That way, those companies receive the full benefit of an in-house general counsel while still taking advantage of flat fee billing arrangements, resulting in the same cost-savings large corporations see when they rely on their in-house staff instead of outside billable lawyers.   And, by contracting with a firm, the company can tap into several lawyers’ areas of expertise, rather than relying on a single employee to cover all of their legal needs, again maximizing value in their legal budget.  

With more and more firms offering flat-fee arrangements, progressive companies are changing, and improving, the way they spend legal dollars at the same time they improve the quality of the legal services they receive.