Did the billable hour eat the salmon mousse?

In an article today by Chris Mondics of the Philadelphia Inquirer, he refers to the survey performed by Altman Weil of managing partners at more than 300 U.S. law firms with 50 or more lawyers. They conducted interviews this spring, and law firms told them that clients are driving the need for cost-cutting, there is a concerted move away from hourly billing to non-traditional charges, such as flat rates and contingency fees, and that cost-cutting has become mandatory.

So what? We already know that it’s a tough market. Legal spending has been relatively pathetic, even as pay for firms’ top lawyers remains very high, and for many firms the path to profitability has been through cost-cutting, not adding business.

The real surprise here is the reflection of a dramatic attitudinal shift among law firm leadership regarding client price pressure. Over 90% of respondents said they expected ongoing client pushback regarding billing, a number that is more than twice that of the survey conducted 5 years ago.

Eric Seeger, an Altman Weil analyst said:

“In the face of discounted rates, more work being taken in-house, and the unwillingness of clients to pay high fees for perceived low-value work, something has to give.  It is going to be harder to sustain year-over-year profitability gains, the way we had been seeing for so many years.

The survey also showed that firms with 1,000 or more lawyers, have been much more aggressive in establishing new business practices, such as alternative-pricing structures, and at least two big firms in Philadelphia – Morgan, Lewis & Bockius L.L.P. and Reed Smith – are moving ahead with these pricing strategies. Another change is the addition of non-lawyer “pricing-managers.” now being utilized by hundreds of law firms around the country to help firms move away from charging clients by the hour.

Is the billable hour finally facing it’s demise?

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