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Time may have run out on billable hours

Law firms adjust to troubled economy

Over the past couple of years, as the economy soured, numerous headlines nationwide began proclaiming the death of the billable-hour model used by law firms. With money tight, clients are looking for options such as alternative or flat fees, according to reports.

That trend is being seen here in Mississippi. However, local law firms say billable hours are alive and well, and in some cases are still the more attractive option to clients.

“We have been offering flat or alternative fees for several years now, but we’ve definitely seen an acceleration over the last 18 months or so,” said Lance Bonner, executive director at Butler, Snow, O’Mara, Stevens and Cannada. “A number of our larger clients as well as some of our local companies are looking for more value and certainty offered by alternative or flat fees.”

Bonner estimated that the percentage of Butler Snow’s clients choosing alternative fees is “moving to and beyond 25 percent.”

Even law firms that currently use the billable hour model almost exclusively are looking at billing options. Dorsey Carson Jr., a partner in Burr & Forman’s Jackson office, said approximately 99 percent of the firm’s work is billed by the hour.

But, Carson added that the firm has an alternative fee committee, and the firm continues to explore the alternative-billing models. He said it is about risk-shifting — clients wanting law firms to have “more skin in the game.”

Some firms use the alternative-billing model almost exclusively, including the Willoughby Law Group in Ridgeland. Martin Willoughby adopted alternative fees when he opened the firm in 2003.

“I owned my own business before opening the firm, so I’ve been on the other side of the invoice,” Willoughby said. “Nobody likes what I call ‘surprise invoices.’”

Dual model working for many

Willoughby said his firm uses both the flat fee model as well as a retainer option that bills the client monthly, and that optional billing has been instrumental in his law firm’s success.

“Flat fees are the only way to go as far as I’m concerned,” said Jim Young, a partner in the Watkins & Young law firm, which only uses alternative fees.

The firm’s philosophy is that unlike hourly billing, alternative billing offers clients a value-based fee structure that gives certainty and shares risk. The inherent conflict in hourly billing is that it encourages lawyers to bill as many hours as possible.

Still a lot of billable hours

Bill Painter, office-managing shareholder in Jackson for Baker, Donelson, Bearman, Caldwell & Berkowitz, agrees. He estimated 85 percent to 90 percent of Baker Donelson’s work is still billed by the hour, but more and more clients are asking for alternative billing. Painter says he sees that as a good thing, both for the client and the firm.

“It’s all about legal project management,” Painter said. “We must good stewards of the client’s money as well as the firm’s resources. We can always do more — file another motion or take more depositions. But, at some point you’re looking at diminishing returns. Alternative billing keeps us tracking and focusing on the budget, allowing us to be more efficient while still working toward a high-quality outcome.”

Not all cases are good alternative fee candidates. Forecasting how long a case might take and the resources it might require can be difficult if not impossible to calculate in many instances, particularly in litigation work. In those cases, the billable-hour model is still the more attractive option to clients and firms alike.

Cost-conscious clients have created new opportunities for local firms. Several law firms interviewed for this story reported they are receiving calls from new clients who are turning away from “big-city, high-ticket” law firms.

Bonner reports Butler Snow is already seeing an increase in new, prospective clients as work is “pushed down” from larger, higher-cost law firms.

Tom Kirkland, shareholder with the firm Copeland, Cook, Taylor & Bush, has seen this trend coming for years.

“Back in 1980s, I did oil and gas work for a client in Dallas,” he said. “I was constantly flying over there. One day, I said, ‘I flew over a lot of good law firms to get here. Why didn’t you just hire them?’ And they said it was because I did quality work at a much more affordable cost.”

It’s not always needed

Matt Steffey, professor at the Mississippi College School of Law, is not surprised.

“In some specialized cases, clients might need an attorney charging, say, $1,000 an hour, but the overwhelming majority of cases do not,” Steffey said. “With money tight, I think we’re going to see more and more work coming to Mississippi when clients realize that local firms are doing high-quality work at a fraction of the cost.”

Willoughby said he was in Atlanta recently, and read two stories where law firms announced they were downsizing, moving to smaller space with lower rent in an effort to cut overhead. In short, they are looking to be more competitive price-wise with smaller firms.

“Law firms such as Brunini Grantham Grower & Hewes and Butler Snow do extremely high-quality work and are far less expensive,” Willoughby said. “It has definitely opened a door of opportunity for many of our law firms.”

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