Legal in-sourcing: the day of the billable hour is over
The problem is hourly billing. The solution is legal in-sourcing. But it takes two to tango. The dance partners must consist of a non-traditional lawyer and a courageous corporate chief legal officer.
In “Billable Hour Under Attack, In Recession, Companies Push Law Firms for Flat-Fee Contracts,” by Nathan Koppel and Ashby Jones, the authors report that companies are ditching hourly fees because they provide incentive to rack up bigger fees. I remember when Nathan was on top of things at Texas Lawyer, and he is once again right on point for The Wall Street Journal.
According to a survey by management consultant Altman Weil, Inc., there was a “dramatic vote of no confidence from chief legal officers” to the suggestion that the major firms might be serious about changing their traditional hourly billing paradigm. Daniel J. DiLucchio, Jr., a principal of Altman Weil who has been providing management and consulting services to corporate law departments and law firms for 25 years, predicts that “in-house lawyers will assume greater workloads . . . and chief legal officers will need to become more strategic about triaging work, allocating resources, and, in some cases, tolerating higher levels of risk.”
Triaging legal work! I love that term. That is what legal in-sourcing is all about. In litigation – even “bet the company litigation” -- the key is to get a great trial lawyer to lead the team. Then take as much of the routine work in-house as possible. The lead trial lawyer would not do such work anyway. So why pay his firm millions to do what can be done in-house for thousands? Why must getting “cover” for the CLO be considered risky?
The CLO must have the courage to break from the traditional hourly billing norm. Remember the saying: “No one ever got fired for hiring IBM.” That is part of the problem. A CLO might find “cover” by hiring a well-known national firm and the costs be damned. The firm will likely insist that it do everything, from producing documents, to answering interrogatories, to file maintenance, at its usual and outrageously-high hourly rates. Nonsense. The firm wants to charge hourly rates for such work because it is profitable. More money for the lawyers, less for the client. Most of that can be better done in-house. Outside counsel can direct the show, but the stage hands don’t have to be with their firm.
Big-time litigation has become big business. It does not have to be. General Counsel: Take the routine work on big cases in-house. Engage a seasoned and experienced outside trial lawyer to lead the in-house work force. Pay him creatively, not hourly. If it’s a plaintiff’s case, consider a contingent fee. If it’s a defense case, come up with a retainer or performance bonus that will fix costs to a number that the company can live with. The General Counsel will be a hero to the CEO, who will please the Board, which will make the shareholders happy.
Hourly billing should be a relic of history. This is the internet economy. Let’s act like it!