A new criticism of the much-maligned hourly rate is that it stifles innovation. A piece in The Wall Street Journal stated: "Economists and consultants say that flat fees are more efficient than billable hours because they encourage workers to internalize the costs and capture the benefits of time spent on a project. ... Innovation doesn't occur in a year or a quarter — and certainly not in an hour. So why continue to reward most workers using a too-brief measure of time?"
That's a novel rationale for moving toward the fixed or flat-fee billing concept and away from hourly billing. As a coach and consultant, I use only flat/fixed fee billing, because it enables me to focus on the condition of my clients and how I can improve it, not on how much time it takes me to do it.
Often when I coach attorneys who are dissatisfied in their practice, it soon becomes apparent that their real dissatisfaction is with measuring their days in six or 10-minute increments and losing focus on the essence of their skills.
Lawyers work hard, spending many hours in their efforts to meet clients' needs and objectives. It's much better to say that this time is measured in value (investment) rather than cost (expense).
The latest trends in alternative billing realize this and turn it to the advantage of both lawyer and client. Corporate clients increasingly use alternative billing to reward lawyers for having "skin in the game": a personal financial stake in the outcome of a matter that is reflected in compensation that goes up when the results justify it.
The idea is one of sharing risk, something that lawyers are warned against in law school. In fact, the Rules of Professional Conduct specifically frown on the idea of clients and outside lawyers sharing a business arrangement.
However, in this type of alternative billing philosophy, lawyers don't become partners in the clients' business; they become partners in the resolution of each specific matter. The sharing of the risk is based on the outcome. And that is based on appropriate early-case assessment, budgeting and communication from start to finish.
When approached successfully from the start, the system offers lawyer and client a mutual success goal. The risk for the lawyer is in not meeting the goal; the reward is in meeting or even exceeding it.
When budgeting for such an engagement, different parameters can define different success outcomes. Client and lawyer work as a team to achieve them and both parties benefit.
For example, if a summary judgment motion is a success (even though the full case was budgeted), the client gets out of the lawsuit and the firm gets a success bonus. It's a win-win situation.
There also should be provisions for different degrees of success. If firm and client initially agree that a case in litigation is worth X dollars and the firm exceeds expectations by settling the case for 20 percent below that amount, a corresponding percentage bonus is in order.
Thus, there are success gradients beyond all or nothing. And they all depend on the result — not on the clock.