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The Daily Record's law news blog

Microsoft to scale back on paying hourly for legal services

While startups and other small companies look for creative ways to tackle the large bills for legal services, at least one major corporation is going down that same path.

Microsoft, which spends hundreds of millions of dollars a year in litigation alone, is trying to move 90 percent of the firm’s legal work to alternative fee arrangements in the next two years, The New York Times reported.

In an effort that started last month, Microsoft’s legal department has been looking at its relationships with its law firms, which showed that the company would benefit from a fees model “that encouraged deeper engagement between our lawyers and key trusted advisers,” said David Howard, Microsoft’s deputy general counsel.

But the company claims the move toward alternative fees, such as fixed fees, is not a cost-cutting measure.

“We want to create a situation that encourages our lawyers to be able to pick up the phone — without going through bureaucracy or worry about how to pay for it — and talk to the law firm about whatever is needed,” Howard told The Times.

But that still doesn’t mean the future of the billable hour is safe. After the 2008 financial crisis,  corporations have been looking for more predictability in their legal budgets.

The Microsofts of the world are still open to paying top dollar for the best lawyers. However, companies, that don’t have millions of dollars to spend on legal fees, such as startups, must walk a fine line between getting the best service without breaking the bank.

In the case of fixed fee arrangements for startups, a law firm partner may be tempted to push work down to an associate or try to cut corners. Also, startups may only be able to afford to address specific issues for short periods of time.

Potomac-based Shulman Rogers Gandal Pordy & Ecker P.A. is trying to address those issues by offering fixed pricing packages to startups and early-stage companies for a range of services, including company formation, raising money and employment.

The hope is that by making early investments in startups at a lower, more predictable price, that company may one day grow to become the next Microsoft or Google and will pay top dollar for more sophisticated (and expensive) services.

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