The Recession Accelerates the Shift to Value-Based Billing
It is said that the recession we are currently enduring has forced changes in the legal profession that would normally take ten years to implement under normal economic conditions.
Value-based billing has moved to the forefront for both clients and lawyers as the hourly billing model takes a nose dive.
Leading this change are savvy corporate clients, but value-based billing is appealing to clients across the board who question the inefficiency-rewarding practice of hourly billing. Take a look at this article from the ABA Journal detailing this trend.
Report Finds Power Shift and Declining Support for Law Firm ‘Up or Out’ Model
Posted Mar 24, 2010 in The ABA Journal
The recession has driven a power shift that now favors in-house counsel over the law firms they hire, a new report has found.
About 75 percent of general counsel and law firm partners said the balance of power now lies with law firm clients, according to the report. A majority of both groups believe the power shift will be permanent.
“The client has in effect moved to the center of the legal services solar system, whilst the premium law firms have been relegated to an orbiting position,” says the report, entitled, “Law firm of the 21st century—The clients’ revolution.” Eversheds commissioned the study, which surveyed 130 general counsel and 80 law firm partners.
Seventy-eight percent of those served say the recession will have a lasting impact on the profession, according to their press release.
“The legal landscape has changed permanently and more quickly than anyone imagined,” the report says. In the new, post-recession legal market, general counsel have more status and influence in their corporations, fee levels will decline or stay the same, and legal work will become more efficient as tasks are outsourced and technology is used.
In this changed world, law firm structures may be vulnerable. Forty-six percent of managing partners said a reduction and change in premium legal work available would change law firms’ shape and size. The larger firms reported long-term cuts in headcount and leverage, and possible changes to the “up and out” pyramid structure of law firms. Only 30 percent of the partners said they were wedded to the traditional partnership model.
In this new legal world, hourly fees are giving way to value billing that is based on the value of work to the client rather than lawyer hours expended, the report found. Two years ago, only 22 percent of in-house clients and 48 percent of partners surveyed saw value billing as a trend for the future. Now, 86 percent of clients and 88 percent of partners say they often or sometimes use value billing. Among the partners surveyed from the United Kingdom, 79 percent said the hourly rate was almost dead.
The press release included a statement by Richard Given, legal director for emerging markets at Cisco. “Firms cannot go on believing that the hourly rate is still an acceptable way of billing; the market is at a tipping point, and it is those who can address the change that will be the ‘next generation,’ ” he said.
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