Exploring Alternative Fee Arrangements

Despite broader economic trends suggesting a decrease in inflation, legal hourly billing rates are soaring. Outside counsel firms are announcing salary increases, associate bonuses, and expectations of record profits. Legal department innovation groups need to take a leadership role to address these rising rates in a way that is effective and garners appreciation in their departments and the C-suite, according to a Legal Technology Hub blog post.

The proposed solution lies in what the author terms “efficiency innovation” or incremental innovation. Legal departments are urged to explore existing alternative fee arrangements, a concept accepted in other industries but underused in the legal field. 

The emphasis is on accessing and repackaging existing elements to tackle the problem of escalating legal costs. Leveraging existing data becomes crucial. Legal departments should have a quantity of data about legal spend that can be used to target low-hanging fruit and can tap into research and literature on alternatives to the billable hour. 

As a corporate mandate for legal spend reduction conflicts with outside firms’ rate hikes, the key lies in shifting focus from discounts on hourly rates to a comprehensive strategy involving staffing changes, project rightsizing, panel convergence efforts, incentivization, and alignment.

To kickstart the innovation process, legal departments are advised to conduct interviews with lawyers who have the largest legal spend over the past few years, understand leadership goals, and employ structured and iterative design-thinking events. 

The objective is to assemble a portfolio of initiatives with the highest likelihood of meaningful wins. Maintaining the status quo on fees is unsustainable, while success in legal cost innovation will be positioned as a heroic achievement for legal department innovators.