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Survey: Rethinking Value
06 February 2009
While many in-house lawyers have complained about the iniquities of the billable hour for many years, the current economic climate represents their best chance to force their suppliers to fundamentally rethink the way that legal services are valued and paid for.
Already, one major company in the UK, television group ITV, has managed to persuade its new panel to dispense with hourly rates altogether and replace them with fixed fees.
“Firms will face new rigour on fixed fees,” says Tony Williams, former managing partner of Clifford Chance and Andersen Legal and now a management consultant at Jomati. “ITV is a useful pointer to the future – it's not about screwing law firms, it's about getting budget certainty. In the present climate, if general counsels break their budgets without good reason, they will lose their jobs. They cannot afford nasty surprises, but many law firms still do not understand that. If buyers keep their nerves on this, then they can make some serious progress.”
The danger, however, is that many general counsel will content themselves with negotiating discounted hourly rates rather than taking the opportunity to more fundamentally re-think how value can be achieved. If so, they will find themselves in line for serious price hikes again if and when the market recovers.
“A lot of law firms are receptive to new ways of charging, but it is the in-house teams that often scurry back to the tried-and-trusted way of doing things,” says Mark Prebble of Lawyers in Business. “It is easier to say: 'I’ve got a 20% discount. Developing a new remuneration system with a law firm needs quite a lot of dialogue, but people often don’t have the time, because they are dealing with a tsunami of work. They are fire-fighting a lot of the time.”
Director of in-house management consultancy Lawbook Consulting, Paul Gilbert agrees: “Getting rid of the billable hour will drive savings through greater efficiency and transparency and to be credible with the board, you need to know what your costs will be one month to the next,” he says. I don't have a problem with the billable hour if you have a great relationship with your lawyer, but otherwise you should go for fixed or capped fees.”
Already, one major company in the UK, television group ITV, has managed to persuade its new panel to dispense with hourly rates altogether and replace them with fixed fees.
“Firms will face new rigour on fixed fees,” says Tony Williams, former managing partner of Clifford Chance and Andersen Legal and now a management consultant at Jomati. “ITV is a useful pointer to the future – it's not about screwing law firms, it's about getting budget certainty. In the present climate, if general counsels break their budgets without good reason, they will lose their jobs. They cannot afford nasty surprises, but many law firms still do not understand that. If buyers keep their nerves on this, then they can make some serious progress.”
The danger, however, is that many general counsel will content themselves with negotiating discounted hourly rates rather than taking the opportunity to more fundamentally re-think how value can be achieved. If so, they will find themselves in line for serious price hikes again if and when the market recovers.
“A lot of law firms are receptive to new ways of charging, but it is the in-house teams that often scurry back to the tried-and-trusted way of doing things,” says Mark Prebble of Lawyers in Business. “It is easier to say: 'I’ve got a 20% discount. Developing a new remuneration system with a law firm needs quite a lot of dialogue, but people often don’t have the time, because they are dealing with a tsunami of work. They are fire-fighting a lot of the time.”
Director of in-house management consultancy Lawbook Consulting, Paul Gilbert agrees: “Getting rid of the billable hour will drive savings through greater efficiency and transparency and to be credible with the board, you need to know what your costs will be one month to the next,” he says. I don't have a problem with the billable hour if you have a great relationship with your lawyer, but otherwise you should go for fixed or capped fees.”
