Hourly Billing vs AFAs — Redux

An extraordinary piece is in the current month’s issue of Corporate Counsel magazine. It is an interview with Richard Baer, the General Counsel of Qwest Communications. Qwest was on the leading edge of companies looking at the possibility of implementing alternative fee arrangements with its lawyers but Mr. Baer has concluded that billable hours are generally better for Qwest than AFAs.

Mr. Baer notes that AFA attorneys have greater incentives to act in ways which are in the law firms best interests but not necessarily those of Qwest, by the manner in which its cases are staffed, the amount of time put into cases and the decisions on when to settle. In his words, “fixed fees just create a different misalignment.”

Although he acknowledges there is still a place for AFAs on certain kinds of matters, he prefers hourly billing because he rejects to old notion that hourly billing attorneys will just churn files for as many hours as is possible. He acknowledges that any lawyer who wants continued business will not act in such a way.

I agree completely with Mr. Baer’s thoughtful analysis, as I’ve previously stated here and elsewhere. His reference to creating a “different misalignment” is critical. Proponents of AFAs tout them as making sure that the client and lawyer’s interests are aligned. However, under the hourly billing model, the client’s interests must always predominate; not so with AFAs. In an AFA, the lawyer and client may be in direct conflict of interests on certain issues in a case, such as how aggressively to act in litigation or other transactions. A lawyer in an AFA might well choose to act to reduce conflict and time spent on a matter. Although that might be consistent with the client’s interests, there are a significant number of situations in which a client wants to push aggressively. For example, many product liability clients assert they do not have the luxury of settling every claim which comes through the door or they risk many, many more such claims in the future.

I continue to believe that if a client is merely willing to work closely with its lawyers, the results will be very good and cost-effective. Mr. Baer notes that by continuing with the hourly billing model, he was able to reduce his legal department’s costs by 10%.

The Q and A at the end of the article says it all:

Q. So, what’s the future of the billable hour?

A. I think it’s going to be around a heck of a lot longer than people think.


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