Sharing risk produces this stuff.
An article in the NYT today leads with this:
Lawyers are having trouble defending the most basic yardstick of the legal business — the billable hour.
Clients have complained for years that the practice of billing for each hour worked can encourage law firms to prolong a client’s problem rather than solve it. But the rough economic climate is making clients more demanding, leading many law firms to rethink their business model.
Oddly, to Blawgletter's way of thinking, the item says nothing about an obvious alternative — the contingent fee.
Let's see. Unlike the hourly fee — which must die — a contingent fee arrangement:
- aligns the interests of client and lawyer — in maximizing and expediting recovery,
- encourages efficiency — in hours and expenses, and
- minimizes the client's cash outlays — making more money available to fund profit-seeking business operations.
The NYT piece does hint at why so few firms offer the contingent fee option:
[T]he biggest stumbling block to alternative fee structures may be the managing partners at law firms, who will have to overhaul compensation structures to reward partners and associates for something other than taking a long time to do something.
Ouch.
We would add that firms lacking experience with contingent fee work seldom do it well. Reasons include:
- Habits that formed in an hourly regime tend to carry over to a one-off contingent fee case. That generates overinvestment (too many useless memos, unnecessary motions, and marginally helpful discovery), tension with the client (once the firm realizes its mistake and pulls back from working the case), and subpar economic outcomes for firm and client.
- The crucial skill of evaluating a case results from years of learning what works and what doesn't, not sudden elightenment.
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Taking on the peril of losing a case and shouldering the uncertainty of cash flow clash with firms' risk-averse cultures.
The director of litigation at a large oil and gas company told Blawgletter recently that his experiments with contingent fee arrangements had largely produced unsatisfactory results. His take on why? The firms "didn't know what they were getting into."
Just so.
