Alternative Fees On Rise, But Billable Hour Still King

By Nick Brown

Law360, New York (October 14, 2009) -- More companies are turning to alternative billing options amid recession, but the traditional billable hour is far from dead, according to Fulbright & Jaworski LLP's 2009 Litigation Trends Survey.

The survey, released Thursday, asked in-house counsel at hundreds of companies in the U.S. and the U.K. to discuss litigation trends and concerns. This year's data showed that 45 percent of respondents used some form of alternative billing, such as blended-rate, fixed-rate or performance-based fee structures.

The report indicated, however, that more than half of all respondents — 52 percent in the U.S. and 61 percent in the U.K. — still stick exclusively to billable hour rates.

“I think the billable rate with a trusted attorney is still the best way to go, but it's hard to do these days with the size of companies,” Bob Owen, head of the litigation group at Fulbright's New York office, told Law360 on Wednesday.

The survey, Fulbright's sixth annual, represents the world's largest corporate counsel poll. The 2009 edition, conducted in May, June and July by Houston, Texas-based business research firm Greenwood Associates, polled 408 lawyers serving as general counsel or head of litigation for public and private companies.

The general theme of this year's responses reflected the times: A higher percentage of companies expect an increase in litigation and disputes, caused in no small part by the economic crisis, the survey said.

Alternative fee structures, it reported, could serve as a means to hedge the anticipated spike.

Nearly three-fourths of U.K. respondents, and 63 percent of U.S. respondents, named lower costs as the primary reason for choosing alternative fee structures, according to the survey.

But that isn't the only motivating factor, Owen said.

“A number of respondents also pointed to certain incentives for alternative billing,” he said. “Some fee structures can give incentives to firms to put in more time, some can serve to align outside counsel interest with the company's interest.”

Alternative fee structure is most common in the engineering, construction and technology industries, and less common in the financial services, health care, manufacturing and insurance fields, according to the report.

The survey doesn't give a reason for the distinction between industries, but Owen said fields with heavier concentrations of labor and employment might tend to rely more heavily on alternative billing.

In general, public companies take advantage of alternative billing options more than private ones, with 18 percent of public companies reporting that between one-fourth and one-half of all litigation is handled via alternative fees.

Public companies tend to be larger, Owen said, and may be more likely to explore other fee options.

“The use of alternative fees goes up as a company's size increases,” he noted. “About 31 percent of smaller companies said they've used alternative billing, as opposed to ... about 56 percent of the largest companies.”

The survey said that 35 percent of companies reported some increase in alternative fee use as a direct result of the economic crisis.

But the economy isn't the only thing sparking companies — and, increasingly, law firms themselves — to explore alternative fee structures, according to Owen.

In 2004, before the economic recession, 80 percent of respondents said they used billable hours for at least 90 percent of their litigation, Owen said.

“That started to change not only because of the economy, but because of the escalation of associate salaries and billing rates,” he said.

As more firms begin to cut associate salaries, “there's certainly a chance” the trend could reverse, Owen said.

“It's an ebb-and-flow,” he said. “There are always pros and cons to alternatives, and pros and cons to hourly rates.”