Create A Formula That Will Replace The Word Yes The Hourly Rate Is Dead – Long Live the Hourly Rate

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The Hourly Rate Is Dead – Long Live the Hourly Rate

I always wondered what the phrase, “The king is dead” meant. If the King is dead, why do the following words say, “live forever?” According to Wikipedia, this phrase is a traditional announcement made after the accession of a new king. I am reminded of this phrase every time I read about the death of the hourly rate and possibly the “access” alternative payment arrangement (AFA). Well, to paraphrase Mark Twain, “the hourly death reports have been greatly exaggerated.”

Yes, I am well aware of the statistics showing the growing use of AFAs. However, a closer look shows that the hourly rate, while not as healthy as before, is not in danger of being put on life support. First, some people incorrectly label reduced discount and bundled prices as AFAs. It is not something else; rate is still based on hourly work. Actual AFAs may include (1) fixed fees, (2) a mix of flat, hourly or incidental, (3) performance fees, or (4) a payment formula somehow tied to price. Second, statistics show that those who use AFAs do so irregularly.

Now, I’m not a fan of hourly pricing. I agree with its critics that it does not provide an incentive for lawyers to work efficiently or to seek quick resolution of legal issues. Furthermore, I applaud the idea that AFAs balance lawyer and client risk, bear some relation to value and provide certainty of value. However, three “Ts” stand in the way of any seismic change to AFAs: Tradition, Time and Trust.

A tradition

The measure of the hour passed the kings. Our work is slow to change. We do the law the way we do it because it’s the way it’s always been done. End of discussion. That attitude is hard to break and why change is needed.

Time

Law firms must mine and analyze a variety of data on historical cost issues in order to recommend an AFA that makes economic sense. That takes time. In many cases, firms are unable or unwilling to invest time. It’s easy to stick to a decent hourly rate.

Trust

Without trust, both attorney and client often fear that any AFA involves taking an unreasonable risk. The lawyer fears that the usual income limits built into the hourly rate will not materialize once the case is concluded. The client fears that the matter may not be resolved in such a way that the law firm receives compensation in comparison to what could be obtained under the hourly rate. If there is trust between the parties, that fear can be overcome and not become a barrier to AFA. In today’s “what have you done for me lately” legal market, however, I question whether there is any kind of significant difficulty in the trust required between lawyers and clients.

AFAs – a risk worth taking

When I train lawyers on AFAs, I always recommend a calculated analysis of the feasibility and profitability of an AFA. In today’s times, law firms would be wise to consider the relevance of AFAs in the new competitive legal landscape. Unfortunately, in many cases, one or all three “Ts” stand in the way.

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