Last time, we saw the Wall Street Journal highlighting how Alternative Fee Arrangements may be starting to encroach upon the Billable Hour regime.
Interestingly, yesterday the WSJ looked at the other side of the coin, profiling some law firms that have lawyers charging out at over $1,000 per hour:
(This is a sort of a reverse “Mendoza Line” for the legal profession. Perhaps it could be termed the “Civiletti Club” or just a “Four-Spot”).
So are AFAs really a challenge to the Billable Hour, or just another way of getting paid for business as usual?
I think the answer is “both,” but I lean a little toward the latter.
To explain why, let’s buckle up and look briefly at how cars have been sold over the last 15 years. Yes, living close to the Motor City colors my view of a lot of things.
At some point in the last decade, many auto makers realized that cars were too expensive for most people to buy (a) for straight cash or (b) over time. So some bright financial types came up with the idea of mainstream leasing. Yes, you would essentially buy the depreciation for a defined term pegged upon some expected residual value of the car. (Heck, there were even a bunch of smart lawyers who figured out how to securitize pools of these leases.)
So many people who used to buy, now leased. Some of the leases being offered in the 2003-2008 period were so attractive that you really had to take them, as long as you could predict your mileage with confidence.
We all know that as the economy started tanking in 2008, the ensuing credit crunch meant that almost all leasing went away. Then car buyers were faced with buying again, and many couldn’t afford the domestic offerings, so they went again to imports. Yes, they essentially offshored their purchasing of transportation.
So what does this have to do with AFAs? Let’s look at it like this: many of the firms moving to AFAs are at the high-end of the legal services food chain. The BMWs, as it were. Now today, with the economy strengthening a bit, I can lease a mid-range BMW for about $599 per month. Or I can lease a Chevy (that has all the utility if not the panache) for $299 per month. Is the BMW worth it? Sure, but for most purposes the Chevy is OK, too. (And let’s not get into the ZipCar angle to this analysis, but that’s really part of what the LPOs are doing.)
AFAs are and will remain a tool for GCs to use to control legal costs. But many GCs will also continue to selectively move “down-market.” They will find the all-in costs to be lower, regardless of AFAs, hourly billing or however you price the service.
Law firms with higher costs, over time, will charge more. That’s why it’s really important for GCs today to shop around and kick the tires.
(P.S. I am not implying that BigLaw will go the way of the Big Three. Yet.)