Sunday, February 1, 2009

Market for legal services: changing incentives?

The NY Times reports that more corporate legal work by outside law firms may be starting to be on a fixed fee or performance basis, rather than by the number of hours worked: Billable Hours Giving Ground at Law Firms.

"Clients have complained for years that the practice of billing for each hour worked can encourage law firms to prolong a client’s problem rather than solve it. But the rough economic climate is making clients more demanding, leading many law firms to rethink their business model."...

"Many smaller firms and solo practitioners have long offered to perform services, like mortgage closings, for flat fees. Plaintiff lawyers also often work on a contingency basis, receiving a percentage of any awards."...

"In litigation, firms that charge by the hour can suffer if they are too successful and end a lawsuit — and the stream of payments from continuing work — too quickly. One law firm that recently collapsed, Heller Ehrman, was hurt in part because a number of cases had settled."

If there is indeed a change in how corporate law is bought and sold, it will be interesting to see if this affects the number of cases that are settled without going to trial.


michael webster said...


1. The rationale for the billable hour is that in general we would like to prevent counsel from engaging in champertous or risk sharing arrangements with their clients in order to preserve the impartiality of the bar.

2. The number of cases going to trial, around 5% at this point, more impacted by the cost consequence rules - loser pays motion and trial costs.

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