Will Clients Kill the Billable Hour?

It's no secret that most law firm clients hate the billable hour.  Cisco general counsel Mark Chandler recently had this to say about billing by the hour -- "the most fundamental misalignment of interests is between clients who are driven to manage expenses, and law firms which are compensated by the hour."

As associate salaries skyrocket, legal news sources are reporting that clients are not just grumbling about the billable hour, they're actually demanding alternative payment mechanisms for legal services.  Lisa Lerer has an article on Slate entitled, The Scourge of the Billable Hour, which speculates that the legal industry may soon divide into "three fairly autonomous markets" because of client unhappiness over the billable hour.  Lerer argues that:

Companies will still pay hourly rates to hire white-shoe law firms for specialized, bet-your-company kinds of work. On the opposite end, however, clients will stop taking their rote legal work to law firms altogether. Companies already outsource relatively simple matters like document review to consulting services. And as technology improves, more programs will let companies handle their own contracts online.

Some smaller, regional law firms have already started to use client discomfort with the billable hour and high associate salaries to their advantage, publicizing their willingness to delay billable hour requirements for new associates.   I think Lerer is right -- the mega-firms probably will continue with the status quo.  But if mid-sized firms are smart, they should be able to position themselves to cash in on some of this billable hour discontent by offering clients alternative ways to pay for legal services.