There is a “massive value gap” in commercial legal services, which are “way too expensive”, the chief executive of a leading new-wave law firm has argued.
Alex Hamilton, CEO and founder of Radiant Law, said law firms which had to live with fixed prices instead of hourly rates had to “get rid of things which aren’t really adding value to the client”.
Speaking to LexisNexis for its report, Is the clock ticking on the billable hour?, he said: “General counsel [GCs] in surveys will say that law firms are doing a pretty good job in being responsive and those kinds of things, but fundamentally there is a massive value gap and legal services are way too expensive.
“If you’ve worked in the sausage factory like I have as a partner in a big law firm, you know that there is a huge amount of silly activities that are not really adding value but are being charged to the client at huge rates.”
Having abandoned timesheets and hourly billing, Mr Hamilton said: “We’ve had to work out how to do deals on business contracts in a way that we’re not constantly losing.
“If you’ve got to live with a fixed price and really live with a fixed price, you’ve got to get better at how to do it. You’ve got to get rid of the things that aren’t really adding value for the client and focus on things that are adding value.
“We’re the fastest on the planet at what we do. We’re turning 85% of high-volume contracts round in half a day. Nobody else is close to that as far as we know.”
Georgia Dawson, senior partner at global law firm Freshfields Bruckhaus Deringer, told researchers: “The billable hour has been a foundational aspect of the way professional services firms have structured themselves for such a long period of time that any pivot away from that is naturally going to take time.
“That said, over the last 10 years there’s definitely been more of a pivot towards alternative fee arrangements and other structures, where clients are looking for more certainty of cost.”
However, Ms Dawson added: “If you use an alternative fee arrangement and there is a costs award in favour of one or other party, the English courts’ costs assessment process still evaluates the fairness of that fee by reference to a billable hours metric.
“So there will be some areas where change will naturally be slower because the incentives aren’t there to drive change.”
Isabel Parker, legal management consulting partner at Deloitte Legal and executive director of the Digital Legal Exchange, an independent forum for GCs which aims to accelerate digital transformation, said better use of data would be “really, really critical” for disrupting the billable hour model.
“Law firms bill their time in six-minute increments, so they’re sitting on a lot of time recording data, so if that data can be mined and used for insight about what’s really involved in delivering a matter, law firms would have much more confidence in the way they price.”
Besides measuring hours billed, Ms Parker suggested law firms focus on team or matter profitability or track different metrics that encourage teamwork, such as measuring contributions to knowledge sharing.
“Most mature organisations outside law focus on the client and measure customer satisfaction. Law firms should do this. Ultimately law is a service business.”
Kerry Phillip, legal director at Vodafone Business, added that her company did most of its work on fixed rates, giving budget certainty and allowing a comparison of costs.
“The firms on our panel expect to provide fixed fees or alternative arrangements.”
The report argued that firms should consider alternative billing models for routine work with a clear endpoint and stick to the billable hour for consultative, urgent or ongoing work.
It said a key barrier to implementing alternative fees was determining accurate or profitable pricing and estimating how much time and effort the work would require. Experts, it went on, recommended using pre-existing internal billing data to determine alternative pricing.