The ongoing debate regarding fee arrangements that eschew the hourly rate has led to an increase in such arrangements (known to many as AFAs). Nonetheless, the hourly rate predominates client billings despite the pressure for and interest in alternatives.
The adoption of AFAs can lead to the recognition of another, perhaps unpleasant truth: not only does the hourly rate serve as the basis for most fees paid by corporate clients; it also undergirds many aspects of law firm operation and existence and it underlies many processes within corporate law departments. From lawyer-evaluation mechanisms to partner-compensation decisions, the amount of time billed to clients and the time-based fees thereby realized motivate or impact many decisions made by private practitioners on a day-to-day basis. Many law departments review invoices based on the hourly rate with technology and other mechanisms. Even a cottage industry – legal invoice auditing – has developed because of the hourly rate.
To loosen the stranglehold that the hourly rate has exercised on fees for over fifty years, lawyers will need to unlink it from many aspects of their professional existences. Unless they do, efforts to broaden the use of AFAs – and their success – will be imperiled.