CLIENTS DISTRUST them. Associates abhor them. Some
lawyers, allegedly, abuse them and find their bar licenses stripped
as a result. But billable hours remain the foremost currency by
which law firms calculate what to charge their clients.
But some law firms are trying powerful software programs that
could give lawyers alternatives to checking off timesheets.
The programs construct complex mathematical models to determine
when it’s cost-effective to use alternative billing arrangements
such as a flat fee, said Kilpatrick Stockton Chief Financial Officer
Gary Dacey. Kilpatrick Stockton bought the Dashboard software
package sold by Redwood Analytics of Mt. Laurel, N.J.
When a company sends a request for proposal (RFP)to law firms,
the company usually feels comfortable with the quality of all the
lawyers on its RFP list, Dacey said. Law firms need to find some
way, other than being the cheapest, to stand out in the crowd of
bids. Being able to propose a number of options, including flat fees
or contingency fees, can help a firm’s bid stand out in a
"It’s a given that you have to have A-1 quality legal support,
but there are a number of firms with those qualities," said Dacey,
who joined Kilpatrick Stockton in 2002 as the firm’s first CFO.
General counsel say they aren’t always looking for the cheapest
law firm. Retainer fees or flat fees provide a firm number that
executives can plug into estimated yearly budgets, said Cox
Enterprises Inc. assistant general counsel Robin H. Sangston.
"It’s not necessarily that you think you’re going to save a lot
of money" with flat-fee billing, said Sangston, who coordinates
contracts with outside law firms for the company. "It’s the peace of
mind of knowing there is a set amount of money you’re going to be
Firms used to respond to RFPs from Sangston and other in-house
counsel by offering a discount, Dacey said. The problem was that the
size of those discounts was arbitrary.
"We’d give discounts of 10 percent or 15 percent and not know the
effect on our costs," Dacey said. "We had no idea how much it was
costing us to provide our services."
Redwood’s Dashboard is one of a
number of business-intelligence software packages aimed at law
firms and other professional-service firms. McGuireWoods uses
Thomson Corp.’s Thomson Elite software. Other software
packages—including Conshohocken, Pa.-based Satori Group Inc.’s
proCube Legal-Ease and Atlanta-based Aderant’s Expert—help lawyers
determine a law firm’s cost to perform a job, weed out projects that
aren’t producing enough revenue, and ascertain which clients are the
most profitable and which practice groups produce the most
"You could not make these sorts of decisions without [the
software] because you would be shooting in the dark," said Molly M.
Remes, a vice president at McGuireWoods Consulting, the lobbying arm
of the Richmond, Va.-based law firm.
Since most of the move to nonhourly billing is spurred by
clients, some firms are waving their arms in the air to let
companies know they’re ready to dump hourly time sheets.
McGuireWoods has used alternative fee arrangements for a few
years, but the firm this month paid for a print-media advertising
campaign in Atlanta and Baltimore to tout its flexibility on
billing. The firm’s leaders believe the effort will help
McGuireWoods reduce from about 65 percent firmwide the amount of
work it now does through hourly billing.
"We’re seeing more and more RFPs where in-house counsel are
asking you to be creative with fees," said Fred T. Isaf, managing
partner of McGuireWoods’ Atlanta office. "They want fees that are
predictable. It’s hard to make business decisions when you don’t
know how much the cost will be."
For McGuireWoods and other firms, an alternative billing
arrangement is usually a flat fee, contingency fee or a blend of the
two. Equity-based compensation, in which legal advisors received
shares of their clients’ stock, was popular during the technology
boom of the late 1990s but has become passé, Isaf said.
Both Kilpatrick Stockton and McGuireWoods are moving to nonhourly
billing for all lines of legal work—corporate, labor and employment,
intellectual property, and litigation.
Recent incidents of bill fraud at big firms around the U.S. shone
a light on the problems inherent with the billable hour, Isaf
"With a negotiated fee, instead of hourly billing, you don’t have
those kinds of concerns" about bill fraud, he said.
Matthew Farmer, a partner in the Chicago office of Holland &
Knight, left the firm last year after he told firm leaders that his
hours on a case were inflated by the partner in charge. The firm’s
failure to investigate or take action led Farmer to leave Holland
& Knight and later to file a complaint with Illinois State Bar
officials, according to an Aug. 30 Wall Street Journal
In January, William P. DiSalvatore resigned as partner from
Wilmer Cutler Pickering Hale & Dorr in New York after admitting
to creating fictitious billing records, among other violations,
according to The New York Law Journal, a Daily Report
Patrick Carmody resigned in April 2003 from Willkie Farr &
Gallagher in New York, where he was a tax partner, after he was
caught billing $30,000 in personal calls to clients. In August he
was suspended by the New York State Bar for one year because of the
incident, according to The New York Law Journal.
Negotiating a flat fee may eliminate most clients’ concerns about
falsifying hour-based billing statements, but do flat fees remain
profitable for the law firm? One attorney vigorously denied that
nonhourly billing means giving up profits.
"This is not a discount program," said McGuireWoods corporate
partner John C. Beane in Atlanta. "You’ve got business risk on the
lawyers’ side, but you’ve got upside for the lawyers too."
Staff Reporter Andy Peters can be reached at