Comment: Death of the billable hour

This story first appeared in the October Orange Rag
I was recently on a panel to discuss the death of the billable hour and thought I’d share (with his permission!) a behind-the-scenes conversation with Hans Albers, general counsel and head of legal operations at Juniper Networks, who is also president of the Association of Corporate Counsel.

Albers told me: “The bottom line is that change is happening much slower than some people predicted.  Susskind’s predictions haven’t been true.  The billable hour is still here and predominantly what people are using to pay their lawyers.  My feeling is, yes, there are a few large US multinationals who say they have moved away from the billable hour but there is also a bit of hype and bullshit at play.
“The problem I see in all the discussions I have is that most in-house lawyers still feel comfortable with the billable hour because it’s the model they know and understand.  When I bring up fixed fees, they say ‘how do I know I’m not paying too much?’
“Maybe ‘I’m paying too much’ comes down to value-based pricing – value is a different conversation and not many people are happy to have that conversation right now.
“Lawyers and law firms that are using alternative fee arrangements (AFA) do it by breaking up legal tasks into chunks that they can price differently.  The price for due diligence will be priced differently to high-end negotiation and use different people.
“What is often neglected – and there are only a few law firms starting to do things more scientifically – is that you can use data to understand pricing.  If you’re a big law firm and do 10,000 employment tribunal cases, you have a lot of data on the average cost and time they take and with that you should be able to give an accurate estimate in terms of a fixed fee.
“The trouble is that where firms do offer an AFA they often also use shadow billing – so if they charge £50k and it comes out as £70k on the clock, they come to you afterwards and say ‘can we talk about this.’  What the hell, if I buy a car the dealer doesn’t phone me up afterwards and say ‘we’re making a loss.’  Lawyers like to run their business with no risk.
“What other business charges you for photocopying?
“It’s not changing because most big law firms are all stuck in the partnership model – the likes of Alex Hamilton at Radiant Law are able to break out of it because they set it up as a different business.  I’m still surprised that there aren’t more alternative law firms that are set up to sell legal services at a fixed fee, not on the billable hour. ‘You want a contract, here is how much’.  Not many people are doing that.  Most in-house lawyers are still very proud that they have agreed a 20% discount.
“The Big Four are acting the same way.  They might be slightly better at using technology or offering technology, but the bottom line is that they have the same partner model and they hire people from big law firms.”
With me on the panel at the Legal AI Forum were Jeffrey Brandt, CIO of Jackson Kelly and chair of the conference; Nora Teuwen, strategy consultant and former group general counsel at Swiss Federal Railways; and Alex Hamilton, founder of Radiant Law, which is still rare in using value based billing and has turned work away if the client insists on using the billable hour.