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The ‘new normal’ v. the billable hour

A “new normal” continues to take root at law firms, according to a survey showing increases in the use of alternative fee arrangements.

Almost three in 10 in-house lawyers said they used more alternative billing arrangements in 2010, and 53 percent said they used strictly flat-fee billing on a case or project, up from 48 percent in 2009.

It’s a revealing peek into the state of the economy, and while it doesn’t mean the death of the billable hour it does underscore the ongoing debate about it — we’ve written about it here, here, here and here in recent months.

The Association of Corporate Counsel and The American Lawyer magazine do say, however, that the results of their survey show a reluctance to revert back to “the way we used to do it” when it comes to paying for legal counsel and services.

“I was most heartened by confirmation that value-based billing options are becoming institutionalized, and will likely increase steadily year over year,” said Susan Hackett, ACC’s senior vice president and general counsel, in a statement. “We were interested to see if in-house counsel would continue to experiment with — or continue to deploy — new fee structures once the markets began to rebound and budgets were not under the same level of stress in 2010.”

The answer, Hackett added, is that “in-house counsel are not retreating, but instead continuing the march to drive costs and value away from measuring the value of hours alone.”

ACC and The American Lawyer surveyed 453 corporate chief legal officers and general counsel in September and October.

“Many of the changes implemented by law firms during the recession are continuing, including smaller associate classes, de-equitizations, scaled-back profits and more flexible fee arrangements for struggling corporate clients,” said Robin Sparkman, editor in chief for The American Lawyer, which will publish the results of the survey in its December edition.

Leaders of the top law firms included on its AmLaw 200 list noted a slide away from billable hours: 90 percent said their firm had used a flat fee for entire matters in 2010, compared with 82 percent in 2009. And 90 percent said that their firm used incentive or success fees, up from 75 percent in 2009.

Alternative staffing arrangements by general counsel, meanwhile, have changed greatly at large companies, according to the survey (smaller companies reported numbers in line with last year’s survey.) This year, only 50 percent of large companies reported using some type of alternative staffing, including secondments, shared staffing, outsourcing and contract lawyers. That’s down from 64 percent in 2009.

A little more than a third of the group surveyed had used alternative staffing –- a similar number to last year. Perhaps they discovered what H. Ward Classen, who writes a column for our In-House Counsel newsletter, analyzed in October — that the jury’s still out on how much legal outsourcing actually saves corporate America.