Aric Press of American Lawyer penned a terrific article, What the Rise of Pricing Officers Says About Big Law’s Future.  The article, reflecting the results of a recent survey, offers some great insights into the move to non-hourly billing at the largest law firms.  One result was disappointing, though not surprising:

Value is harder. We don’t have a definition. We barely have a concept. And we surely don’t have the essential building block: trust. As part of the survey, we asked pricing officers whether clients insisted on “tracking shadow hours” performed by firms so they could be certain they weren’t getting the short end of the deal. Only 13 percent responded, “Not usually.” And none answered, “Never.”

The problem with shadow hours is that they are used to judge “value” by comparison to what the client would have paid if billing had been based on an hourly basis.  One of the primary purposes of alternative fees, however, is to eliminate time as a measure of value provided. If clients insist on continuing this measure, they will miss the true value of alternative fees provide.
I write more about shadow billing in my soon-to-be-published book, Alternative Fees for Litigation Lawyers and their Clients.
  • Patrick, thanks.

    You are right to point that shadow hours kinda defeat the very purpose of AFAs. The whole point is that with flat fees (e.g.) law firms share the risk of their own (timely) service delivery. If the Firm delivers in the record time, it should rightfully ripe the rewards. The clients focusing on shadow hours are risk-averse, and law firms could develop special fee arrangements to cater for these kind of clients.

    On a side note, time keeping is still vital for law firms, which must know if they have managed to win a margin by delivering in the optimal time. Without the proper time-keeping and analysis all law firms are without a compass.

    Looking forward to your AFA book!



    • Ivan–I disagree with the notion that time keeping is important to knowing if you obtained a margin. Hours have nothing to do with margin. Just survey non-lawyer businesses and you will find that few if any look to personnel time as a relevant metric. Cost is relevant to margin and cost is entirely different than time spent on a task.

  • John Chisholm

    Ivan I agree totally with Patrick. In any professional firm time spent has nothing to do with margins nor cost. Maybe a quick read of these 2 posts will help explain why that is the case and no doubt Patrick will cover this in his forthcoming book anyway.