Value Billing / Alternative Billing and Technology
The current (Fall 2003) issue of Law Firm, Inc. magazine has a very good article about why law firms need to think harder about value billing. In Stop the Clock & Make More Money, Jeffrey Carr and Mark Wolf, respectively the general counsel and assistant general counsel of FMC Technologies, Inc., argue clearly that the billable hour and the interests of inhouse counsel are not aligned.
They characterize the billable hour as a “recipe for customer backlash and attorney malaise” and make clear that general counsels don't want to buy what law firms sell, namely an inventory of hours. Rather, they want to achieve results and are willing “to pay for a law firm's efficiency.” The authors describe various billing models FMC uses that align their outside counsel's interests with FMC. In one approach, for example, FMC holds a portion of standard billable hour fees and, based on defined criteria such as timeliness, value, and efficient use of technology, pay between 0 and 200% of the holdback. The goal is “to pay our outside counsel a higher effective hourly rate – we just want to buy less inventory and… condition that higher rate upon success.” In their view, risk sharing arrangements can work in any matter, even highly complex and unique ones.
The market pressure illustrated by FMC's actions should, over time, cause firms to become more efficient and effective. As firms bear the risk of inventory (that is, their hours) going to waste, they will have incentives to use technology in time saving ways such as re-using work product, automatically generating documents, and communicating more clearly with their clients.
At the end of the article, the authors suggest that law firms put away brochures, ads, and branding and focus instead on what customer want as opposed to selling what law firms have. While technology is not a guarantee to providing more efficient and effective service, it is certainly a key ingredient. Firms that successfully service the FMCs of the world will likely be the ones that not only buy technology, but really figure out how to use it. [Strategic Legal Technology]