Billable Hours May Be Disappearing

Posted on February 3, 2009 at 6:02 PM

“This is the time to get rid of the billable hour,” said Evan R. Chesler, a presiding partner at Cravath, Swaine & Moore, in a January 29 New York Times article which speculates that the current economic contraction may push firms to consider changing their billing style. Corporations are no longer as willing to dish out $800 per hour even to top law firms as they see their own cash inflows and account receivables dropping.

As the article states, clients have always complained that they thought paying by hour gave lawyers less incentive to wrap up a case quickly. Not to mention that on the other side of the road, firms that do wrap up cases quickly and successfully may find themselves hurting when they charge too low of an hourly rate (Heller Ehrman’s downfall is a case in point).

Solo practitioners and smaller firms might give us a lesson though. Many don’t work by charging billable hours, and instead either charge by taking a contingency or success fee or merely charging a flat fee.

“The effective hourly rate [of a fixed fee rate] was something like 150 percent of our [MoFo’s] hourly rates,” Mr. Carl A. Leonard, former chairman of MoFo who is now a Hildebrandt International senior consultant. We doubt the billable hour, cornerstone of the profession that it is, will ever go the way of the dodo, but the fact that firms are becoming more flexible as they react to the changes in their fortunes is encouraging for their future prospects.

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