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The In-House Insider

Legal Decoder Blog

The Billable Hour

The debate about whether the billable hour is an outdated unit of measurement has been discussed and still continues. More law departments are exploring options to implement alternative fee arrangements (AFA) with their outside counsel.  Microsoft wants 90 percent of its legal work performed under AFAs and 30 percent of respondents in Deloitte's Future Trends for Legal Services mentioned fixed or capped fees regarding purchasing legal services.

But the billable hour continues to be the standard because it is quantifiable and ingrained in the culture of the legal industry.  Despite all the complaints the billable hour is still the most predictable way to gauge the value and effectiveness of certain practices such as litigation.  There are risks that come with an AFA/fixed fee arrangement to both the law department and the law firm.  Firms may incur a loss if they don't budget properly and law departments may overpay when it could have been cheaper to pay by the hour.  AFAs have a place and will continue to become more commonplace particularly with more predictable matters.

Despite the disdain of the billable hour by many people it doesn't seem like it will be replaced anytime soon.  Yes, the billable hour can lead to unethical billing practices but that doesn't mean a new blanket solution is necessary.  Using a combination of technology and relevant metrics to analyze cost, value, and efficiency of services purchased or provided is a better solution before making a decision.