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April 1, 2015

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Economy presses billing tradition

With money tight, corporate clients want more — and more predictability — for their legal fees

Beyond the Sun

The billable hour, long the lawyer’s friend, is facing a tough challenge from the bad economy.

Most American corporate law firms base their business plans on the billable hour. Although some Las Vegas firms allow flat rates for services, most work is compensated based on how many hours the legal team says it took to complete it.

The American Bar Association has urged law firms to move away from the practice for years because ethicists say it promotes bill padding and inefficiency.

But the call for alternative billing structures is now coming from an even more persuasive party: clients.

As the recession deepens, businesses are questioning legal expenses, according to an ABA study last fall. More companies are requesting alternative billing as a way to lower costs or better predict legal expenses.

Because lawyers in Las Vegas generally are less expensive than peers on the coasts, the downturn could actually help some corporate law firms here, managing partners of local firms said.

Lewis & Roca, which offers a variety of alternative billing options, has attracted out-of-state clients seeking more bang for their buck.

“They’re looking for both lower hourly and flat fees,” said Lewis & Roca partner Michael McCue. “For example, my rate is $455 an hour and I’ve been practicing 19 years. A fourth-year associate at a large international firm at an office in Silicon Valley is charging the same amount.”

They don’t just want the bill to be lower, they want to know in advance what the numbers are going to be.

“We find that clients are opting more for flat fees because it makes legal fees more predictable,” McCue said.

His firm, which already offered fixed rates, is offering other alternative fee arrangements including blended rates, contingency fees, fees based on performance and discounted fees based on volume.

The state’s largest law firm, Lionel Sawyer & Collins, would consider alternative pricing if clients requested it, managing partner Paul Hejmanowski said in past interviews.

Even small firms are moving toward alternative billing.

Local small-business law firm Lubbers & Borg recently announced it would provide a menu of fixed rate services.

“In this economy, a small business is going to cut its legal budget,” partner Brooke Borg said. “We want to prevent them from cutting off contact with their lawyer altogether.”

But not all firms are making the change.

Corporate law firm Jolley Urga Wirth Woodbury & Standish offers flat fees to some of its larger corporate clients for types of work that are predictable and frequently requested such as forming corporations, wills and trusts — but that’s as far as the firm is willing to go with alternative billing, according to partner Bill Urga.

“It’s been suggested over a period of time to get rid of the billable hour — that’s very difficult,” Urga said. “I don’t know how you could estimate the cost of actually doing legal work like getting a patent approved or getting a license. You don’t know how many hearings are involved — anything could happen. So you never know how much work something is going to take.”

While firms can sometimes make more on alternative billing than they would from an hourly rate, it’s not guaranteed the firm will break even on every case.

“That’s the risk to the firm when using the flat rate,” McCue said. “We may lose or gain money but it promotes efficiency, whereas billable hours do not.”

A version of this story appeared in this week’s In Business Las Vegas, a sister publication of the Las Vegas Sun.

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