Legal News

Thinking of Hiking Up Billable Rates? Here?s Why You Shouldn?t

By Ashby Jones

In all likelihood, 2010 will be a better one for law firms than was the mostly bruising year we just finished. But even if the U.S. and global economies come storming back, law firms everywhere will still, in our opinion, be very well-served by two moves: 1) keeping their costs as low as possible and 2) pushing alternative-fee billing to clients (and we don’t just mean discount pricing, people).

Need proof, you say? We bring you this story, in Monday’s Philadelphia Inquirer, on Art Block, the general counsel of Comcast.

Take, for instance, the following paragraphs, which might seem chilling to any BigLaw managing partners out there longing all too much for the days of annual 7 percent hourly-rate hikes:

Comcast, like many other corporate giants, froze its legal spending in 2009 after years of annual law-firm increases of 5 percent or more. Block says the freeze was partly in response to the recession, but also was triggered by the belief that hourly rates, particularly for first-year associates, had gotten out of hand.

Now the company increasingly wants its outside lawyers to do more to jettison the traditional hourly billing rate. It is pressing for flat fees or other alternative-billing arrangements that emphasize efficiency and expose firms to financial risk if matters drag on too long or conclude unsuccessfully.

Comcast, based in Philadelphia, has approved a 2.5 percent increase in hourly rates for 2010. But the message to law firms is unmistakable: The balance of power has shifted, and outside lawyers will have to scramble to keep the company’s business.

Of course, Comcast is only one company. But it’s a big one, with an annual “legal spend” between $75 and $100 million. When a company of Comcast’s size and stature speaks (especially with its pocketbook), law firms listen. “It’s extremely important; they are the buyers of legal services,” said William F. Brennan, a consultant at Altman Weil. “Firms would be very unwise not to pay close attention to what they say.”

Comcast’s recent purchase of NBC Universal likely means that Comcast’s legal budget this year will grow significantly. That said, Block told the Inquirer that the overall trend is toward clamping down on costs.

“We want to feel that the firms have a commitment to be businesslike and won’t rely on asking us for annual increases without regard to facts and circumstances,” he said. “We can be creative. We want them to be creative.”

Full post as published by Law Blog - WSJ.com on January 04, 2010 (boomark / email).