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January 9, 2009 2:12 PM

LETTER FROM LONDON: Kill the Billable Hour? A British Response

Posted by Richard Lloyd

As much as the legal sector experiences a change in momentum, such a change seems to be occurring now.

Earlier this week, The Am Law Daily picked up on a piece penned by Cravath, Swaine & Moore's Evan Chesler in the latest issue of Forbes magazine, entitled "Time to Kill the Billable Hour." Cravath's presiding partner, in presenting an impassioned case for abandoning the practice of charging of clients by the hour, lent his voice to a growing debate. 

In the United Kingdom, lawyers and clients have never had the same all-consuming obsession with hourly billing as their American peers. Still, over the last 20 years hourly rates have become the dominant currency here as well, and the tide slowly is turning--some British companies and firms are much farther along in making the change.

Last summer, our London-based sibling publication Legal Week broke the story that commercial TV network ITV asked its outside law firms to abandon the billable hour and instead adopt alternative billing arrangements. General counsel Andrew Garard, who joined the company in the fall of 2007 from the London office of Dewey & LeBoeuf, said he wanted ITV to become the first major U.K. company to abandon this form of billing, and he initiated a review of the company's outside legal providers.

By last November, Garard had finalized a list of approved outside counsel, a panel of nine firms, including Dewey, DLA Piper, Lovells, and Slaughter and May, who had committed to alternative billing methods. "None of the firms will bill us with reference to a measure of time on any matters," Garard told Legal Week.

So, what form does a bill to ITV take? For Slaughter and May, the company's call for a change meant business as usual. Slaughter and May has never billed clients by the hour, nor do partners and associates have any targets for hours worked. "At the end of a deal we sit down with a client and ask, 'How good a job do you think we've done?'" explains senior corporate partner Nigel Boardman, the relationship partner for ITV.

Lovells commercial partner and ITV point man Peter Watts also throws some light on moving away from the chargeable hour: "You start with the proposition that the value of advice to clients reflects a combination of factors such as the complexity. Then it's relatively straight forward [to agree a price] if you have the right relationship with a client."

Watts adds that this is undoubtedly part of a growing trend. "My own is that over the next five years we'll see firms and in-house counsel looking at arrangements other than hourly rates although I don't think clients will completely abandon hours."

In abandoning the almighty billable hour, Chesler may want to look a little more closely at some examples across the pond.

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Check out: "More Law Firms Charging Fixed Fees" at http://tinyurl.com/axp57p

Law firms are offering flat rate or fixed-fee agreements to win new legal work. 62% of general counsel at large companies said they have used fixed fees, according to new research. Find out how two law firms used the tactic to land major clients.

Larry Bodine, Esq.
Apollo Business Development
http://twitter.com/LarryBodine

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