August 01, 2013

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Alternative fee agreements are not going to do away with the billable hour From time to time there are articles like this one published in the New York Times last March, attacking the billable hour as the basis for billing clients for services rendered. Such articles usually have two themes -- that the billable hour results in legal services costing too much, and that the billable hour system is in many ways corrosive to the legal profession. Alternative billing arrangements are usually held up as the solution that might magically benefit everyone. However, these are two different issues. The measures clients impose to control their legal spend are a separate issue from law firms' internal culture. Insurance defense firms usually are not mentioned in this debate, because we all have been operating under layered cost controls at least since the late 1980's. These layered cost control measures have long included pre-negotiated and below market billing rates; stringent litigation management guidelines that require pre-authorization for extra staffing, for filing of motions, for depositions, for legal research over a minimal amount, and for other selected activities; detailed litigation plans, which have been a requirement dating back to the 1990's (predating the legal project management fad by at least a decade); detailed budgets organized by standardized ABA uniform task and activity codes; detailed and contemporaneous time records, with each entry coded with the uniform task and activity codes; submission of electronic bills in standard formats, to facilitate automated review and analysis of the bills; routine reviews of bills by claims departments or third party auditing services,...

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