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May 28, 2010


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Gururaj Potnis

Should lawyers be scared of abandoning the hourly Billing Rate?
Law firms today are facing increased pressures from corporate counsels to reduce their external legal spend. They have been caught in a pincer grip of a slackened economy on one hand and reduction in work from clients on the other, resulting in a demand to lower both the quantum of billing and the billing rates. They need to adapt to this changing market scenario and the unimaginative ones will see their earnings do down. But, this market also offers growth opportunities for those firms who are ready to change, and are ready to look at the value they offer to the clients in a different way.
Reduced billing rates need not mean reduced profits per partner. You can increase the leverage smartly; reduce cost of delivery, increase efficiency of resources deployed, increase the billing amount the lawyer retains and at the same time reduce the amount you would bill your customers.
Traditionally, the alternative billing methods pioneered by DuPont include:
• Flat fees for repetitive, predictable services
• Discounted fees in exchange for performance bonuses (based on cost savings)
• Blended rates for any resources used - from Senior Partner to paralegal - that should push the firm to use lower level employees when possible
• Volume discounts that discount hourly rates as the volume increases
• Capped fees, which may be a gamble, but can provide predictability
Striking upon the right billing model is a challenge for most law firms, and it has been seen that alternative billing models will be more in vogue going forward. Manthan seeks to add a new dimension to enable alternative billing models to work for firms, by dramatically reduce the cost of delivery if they leverage a team of lawyers in India to deliver a substantive portion of select processes. Law firms will find it easy to retain their profits per partners in a comfortable zone only if they can seek an increased leverage, offered by offshore outsourcing. Offshore outsourcing works best if you offer flat fees, capped fees or blended rates.
Let’s take a case in point:
1. Cost of drafting a typical contract in US: $3000
2. Cost of drafting the same contract in India + Cost of review by attorney in US: $750
The labor arbitrage between US and India is 8:1 (Billing rates of $300 an hour for an associate in the US versus $40 an hour in India) and hence deploying offshore support to do most of the repetitive, predictable and well defined legal tasks shall deliver dramatic increases in profits per partner for a law firm.
By Gururaj Potnis
CLO – Manthan Legal Services

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