Earlier this week, I saw an article by Dan Roe with Legal.com about how contingency fees were on the rise in business and commercial litigation since the beginning of the pandemic.
But lest some think this means BigLaw may be getting ready to stride into a lucrative new area that frees them from the tyranny of the billable hour and downward rate pressure, think again.
Most of BigLaw, whose business models are primarily based on the billable hour, is not wired to deal with a different business model. The contingency fee model (and for that matter, alternative fee models) are based on the unique notion that less is more. The less time spent on a case and the sooner a trial date is set means lower costs and more profit to the law firm. (Assuming, of course, that the work being done is adequate to achieve the best overall financial result on the matter). The billable hour model is just the opposite: more is more. The more time spent on a matter and the longer it takes, the more money the firm makes.
Everything about BigLaw economics, including firm culture, is based on the billable hour model
Well, you say, it should be an easy switch, right? Wrong. Everything about BigLaw economics, including firm culture, is based on the billable hour model. The more is more model.
Take associates, for example. It makes sense (within reason) that as many tasks as possible on contingency fee matters be shifted down to the lowest cost workers sufficient to adequately perform the task. And that those lower cost workers be encouraged to get the work done cheaper and faster. For example, an associate who would ordinarily spend hours and hours researching and writing lengthy scholarly memos would be encouraged to just get the answer.
Associates advance in law firms by billing more hours, not less
But associates advance in law firms by billing more hours, not less. More is more. So asking them to work on a contingency fee project and manage their billable hours carefully is asking them to risk their careers. Few want to do it.
But what about partners? The advantage of partners is that they presumably have more experience and can do specific tasks faster. True enough. But in many BigLaw firms, partners too have billable hour quotas to guard.
So to make it work and encourage partners (and for that matter, associates) to work on files, the firm has two choices. It can either ignore billable hours of a partner(heresy!) or associate or ask the partners and associates to go on and record the actual hours he or she works on a contingency fee matter.
The former goes against the prevailing mindset. And there’s an even bigger problem with the latter. Time in a contingency fee case rarely is shown to the client, or if it is, it’s irrelevant since the client is not paying for the time anyway. So usually there is no one watching how much time is being spent on tasks. No client to complain about the number of hours being spent on a task. In some sense, with contingency matters, the client is the firm, at least for timekeeping purposes.
This means the firm must have someone ride a close herd on the time being spent and vigorously watch what’s being done
This means the firm must have someone ride a close herd on the time being spent and vigorously watch what’s being done. But few partners want to do this since that means they too are spending more billable time.
The result? The time spent balloons quickly out of control, giving a distorted picture of the actual profit on the matter at the end of the day. Firm management concludes that the economic value of contingency fee matters just isn’t worth it.
And then there is the firm itself. Contingency fees and alternative fee matters succeed where all tasks are done by the right person. This could mean outsourcing some of the work. It could mean more disaggregation of tasks. It could mean taking work from higher billable rate lawyers and delegating it to lower costs people. Even—perish the thought— “non lawyers”. It means process management from beginning to end. Something many firms aren’t good at and haven’t invested in.
And all this is compounded where there is not enough work to go around to all the partners already
And all this is compounded where there is not enough work to go around to all the partners already. Where there are too many nonproductive partners that leadership has yet to bite the bullet on. A situation that exists in way too many firms already as Dylan Jackson of Law.Com recently observed in a post. Altman Weil‘s recent Law Firms in Transition Survey, found that of the 182 firm leaders surveyed, 31% said their equity partners are not sufficiently busy. For non-equity partners, that figure rises to 51%. Half of all firms and 60% of large firms say their non-equity partners don’t have enough to do. Similar findings were reported revealed in a recent Thomson Reuters study.
All these cultural and economic barriers are why most firms mentioned in the Roe article are true plaintiffs firms like Morgan and Morgan. Or they are small boutique firms who can better deal with the economics and cultural changes required by contingency fee cases.
Give those participating in the contingency fee case a direct financial stake in the outcome—for better or worse
What to change in biglaw to take advantage of the new business interest in contingency fee matters? Make lawyers -both associates and partners- accountable for the profitability of the matter. Reward them for being efficient and managing the file successfully at the most efficient price. Reward associates through advancement for being efficient and innovative to lower costs, not just billing hours. Give those participating in the contingency fee case a direct financial stake in the outcome—for better or worse.
All this requires a fundamental culture change. It requires management to look beyond the billable hour to more important lawyer value measurements. At too many firms, this is a stretch, at least right now.