Bye, Bye to Billable Hour?

Pfizer, Cisco Systems and American Express are all expanding alternative billing arrangements as economic pressures force cost savings on legal bills, according to an article in today's Wall Street Journal titled, 'Billable Hour' Under Attack.

"I have told firms you cannot make your historical profit margins" on Pfizer work, said the pharmaceutical giant's general counsel, Amy Schulman.

The article cites a BTI Consulting Group study, stating that alternative billing arrangements totaled $13.1 billion this year, up 52% from $8.6 billion in the comparable 2008 period.

Law firms co-operating with flat fee billing arrangements include Orrick Herrington, Saul Ewing, and Sidley Austin.

While the move to alternate billing is not new or news, that fact that it appears prominently on the front page of the Wall Street Journal means that trends are accelerating and more Fortune 500 GCs will certainly follow their peers.

The leverage model within law firms, with less experienced associates billing relatively high rates and hours (from the client's perspective), is being called into question.

Law firms, like other business entities, are being forced to re-evaluate their value, pricing model, and client relationships. Proactive firms - those who initiate the alternative billing discussion - are likely to find a willing ear. More importantly, they may discover improved "client lifetime value" built on a mutual respect and shared commitments.