Microsoft plans to end Billable Hour

Microsoft, is taking steps to move away from the traditional billing arrangement. It recently announced  plans to reduce the amount of outside legal work it pays for on an hourly basis down to just 10 percent in the next two years. It plans to move 90 percent of its legal spend into alternative fee arrangements — up from around 55 to 60 percent today, according to David Howard, a deputy general counsel spearheading the change.

In an article by Gabe Friedman, David Howard, corporate vice president and deputy general counsel for Microsoft, said that within the next two years, “we hope to move 90% of our work to AFAs,” because, “We believe that alternative fees encourage a stronger alignment between Microsoft and its firms on the scope and goals of an engagement.” He said that Brad Smith, the company’s president and chief legal officer, asked him to rethink how Microsoft could gain the best value from its law firms, and he spent the past year studying the topic.

“I don’t know that we’re witnessing the death of billable hour,” he said, “but I do know from conversations that we’ve had with firms and other companies, that there’s much more work being done on the basis of something other than the billable hour.”

Alternative billing agreements give the client transparency and control, which they crave. They also allow law firms to stay profitable while billing less hours by increasing efficiency. To gain the efficiencies needed to compete with more and more corporate legal teams bringing work in-house, law firms need to employ project management practices, as well as Legal Operations Professionals to spearhead those efforts.

Brad Blickstein, principal at the Blickstein Group and publisher of the Annual Law Department Operations Survey, stated earlier this year in the 9th Annual Law Department Operations Survey that, “As law departments are expected to act more like other business units, they are expecting more from their LDO professionals. It is evident from our results that the role is becoming more mature: LDO professionals are gaining new responsibilities, their budgets are covering new areas and more companies have built effective legal project management programs.”

Many law firms are starting to cut internal costs, which benefits the law firm, but more needs to be done that will also benefit the client as well as the law firm. This goes back to the need for metrics which will give firms proof that being more efficient will not only accomplish more for the client, but will also raise profits for the law firm.

The firms that will be part of Microsoft’s revised program are Arent Fox; Covington & Burling; Davis Wright Tremaine; Fish & Richardson; Greenberg Traurig; K & L Gates; Latham & Watkins; Merchant & Gould; Orrick; Paul, Weiss, Rifkind, Wharton & Garrison; Perkins Coie; Sidley Austin; and Simpson Thacher & Bartlett.



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