The Death of the Billable Hour: Is Microsoft Ushering in a New Era for Law Firms?

by Exterro, Inc.
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9th Annual Law Department Operations Survey

We’ve been hearing it now for a while – that clients are demanding law firms offer more for a lower cost, and one of the tips for reaching this goal is alternative fee agreements, but most people felt this would be a gradual trend. Until Microsoft ramped up the timeline two days ago.

In an article by Gabe Friedman, David Howard, corporate vice president and deputy general counsel for Microsoft, said that within the next two years, “we hope to move 90% of our work to AFAs,” because, “We believe that alternative fees encourage a stronger alignment between Microsoft and its firms on the scope and goals of an engagement.”

Alternative billing agreements give the client transparency and control, which they crave. They also allow law firms to stay profitable while billing less hours by increasing efficiency. To gain the efficiencies needed to compete with more and more corporate legal teams bringing work in-house, law firms need to employ project management practices, as well as Legal Operations Professionals to spearhead those efforts.

Brad Blickstein, principal at the Blickstein Group and publisher of the Annual Law Department Operations Survey, stated earlier this year in the 9th Annual Law Department Operations Survey that, “As law departments are expected to act more like other business units, they are expecting more from their LDO professionals. It is evident from our results that the role is becoming more mature: LDO professionals are gaining new responsibilities, their budgets are covering new areas and more companies have built effective legal project management programs.”

Many law firms are starting to cut internal costs, which benefits the law firm, but more needs to be done that will also benefit the client as well as the law firm. This goes back to the need for metrics which will give firms proof that being more efficient will not only accomplish more for the client, but will also raise profits for the law firm.

Being out in front of a trend is always risky, but falling too far behind it is even more costly.

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