The publication of the Stop the Clock? report led some to believe that change was in the air for billing practices. But, as Leigh Jackson finds, one year on the momentum for change seems to have dried up

Sometimes a debate within an industry can move at blinding speed. In such circumstances, what is usually required are the right factors that push a particular matter up the agenda, leading to a critical mass that sees progress on supposedly intractable issues.

The legal industry last year looked as if it might just be reaching such a moment with the long-running debate on hourly fees, which general counsel have criticised for years for rewarding inefficiency.

Last year, law firm charge-out rates – not to mention partner profits – were shooting skyward amid bull market conditions. So when the Commerce and Industry (C&I) Group announced a project to research the reality of billings and come up with some practical suggestions to improve the lot of frustrated general counsel, it looked as if change might finally be in the air.

Yet one year on from the publication of the C&I Group's resulting report, Stop the Clock?, not only does it seem hard to detect any sea-change, for some general counsel the feeling is that the situation is getting worse.

While a handful of general counsel – such as ITV's Andrew Garard – have publicly moved to phase out the hourly charge-out rate, expectations of improved practices have actually diminished, according to some general counsel. There is also little sense of a wider push towards securing better value from clients.

This apparent lack of momentum seems doubly strange given the pronounced global slowdown that, in theory, should have put clients firmly back in the driving seat.

Consider the picture that emerged from last year's report. Stop the Clock? drew on interviews with 171 senior in-house lawyers and highlighted widespread frustration over rising fees – largely concerning the surge in hourly charge-out rates – and told of the keenness of general counsel to embrace alternative billing methods.

The report found that 82% of respondents thought hourly billing was inefficient, with a further 10% claiming it had 'no strengths at all'. Yet despite the dissatisfaction with the billable hour, it still accounted for two-thirds of legal fees in the UK.

Susan Adams, head of legal for risk management and operations at Standard Chartered, claimed that, in the current context, the rise in fees was unlikely to stop. "It is safe to say the legal fees will not be going down. In terms of the hourly rate there has not been much development," she says.

Adams' outlook is shared by many in the in-house legal community. Old Mutual Asset Management general counsel Meekal Hashmi (pictured left), says trying to bring down the cost of hourly rates is akin to fighting a losing battle.

He comments: "It is impossible to lower hourly rates. A partner in charge of an hourly rate instruction is never going to charge £400 per hour when they usually charge £600."

Hashmi says that one obvious way of gaining more value from firms would be to negotiate alternative billing measurements.

He continues: "It is typically a dead-end conversation to try to do this, but you can try to lower fees by following different methods such as fixed fees and add-ons. Some benefits can be gained from a firm in this way."

Stop the Clock? found that 47% of respondents favoured a combination of billing methods. One general counsel who has been discussing such methods with firms is Boston Consulting Group's Jeremy Barton.

Barton stresses that it is up to both parties to agree on a range of fee structures to help lower costs and gain better value from the relationship.

"Law firms and clients are not thinking creatively enough about how to devise alternative fee structures," Barton says. "More legal work could be done that involves the use of a retainer and, for example, fixed fees can be set for an individual piece not lasting longer than 10 hours."

Such an approach is also favoured by Vanco EMEA general counsel Craig Duncan. He says: "Like any commodity, it is important to build up relations and – first of all – agree rates. It is important to get proper fee estimates before the work is done.

"We give precise instructions and then agree a price via a purchase order. It is about pushing the onus back on the firm by being precise at your end."

While there are individual instances of in-house lawyers ensuring value by pursuing a range of billing options, the fact that hourly billing continues to be used so widely contributes to its rise in cost.

While many are quick to the point the finger at advisers for the use of hourly rates, some in-house lawyers concede that the model survives partly because it is heavily relied upon by clients. This is because in many cases the legal teams are not set up to put into effect, and then monitor, more complex billing arrangements.

One law firm that has hit the headlines for its willingness to experiment with value-based bills is Eversheds, which has forged an innovative partnership deal with Tyco International that embraces fixed fees and performance-related bonuses.

Eversheds corporate partner Stephen Hopkins (pictured right) says clients sometimes underestimate their advisers' willingness to use value-based billing, claiming that general counsel also needed to be more forceful on the issue.

"There are many alternatives that clients are starting to think about but they are not pushing hard on this," he says. "I am not really sure general counsel are ready to move away from billable hours.

"When we are trying to get on a panel, clients will often ask us to offer a range of alternative methods. But when it comes down to it – to the actual procurement of the service – companies have systems that are not sophisticated enough to compare the different billing methods. In the end, many end up asking for the billable hour rate because it is easily comparable."

There is also little sense that general counsel are any more willing to use what is probably the biggest tool at their disposal to force through change: sending more of their mid-market work to smaller, cheaper law firms.

Pavel Klimov, Unisys general counsel for the UK and EMEA, supports this stance: "As legal fees continue to rise, we find we have to shop around more and look further afield. Where in the past we might have made an almost automatic decision to go to a certain firm for a particular matter, now we review instructions on a case-by-case basis to decide on the 'best buy' available."

In a similar vein, there is no evidence that the 'brand' or 'insurance factor' of instructing a top-tier law firm, a factor that obviously gives such law firms more power to price their services, is holding any less sway.

Vanco's Duncan says: "Big firms have big corporate clients and in that way they can keep driving up their costs. The top firms are seen as providing safe, solid advice, so – in effect – you pay for the name."

If there is little evidence of the market forcing a change in billing practices, it is perhaps surprising that the C&I Group itself has not moved to capitalise on the momentum that it helped to create.

Since the publication of the report, the group has held a number of conferences, but few practical steps have yet been taken to address its concerns. The group also pledged to create a 'toolkit' to help general counsel in fee negotiations with their firms. The document is still in its draft stage.

Explaining the thrust of the document, C&I Group operations director Bill Graydon says: "The toolkit is designed to stay on the shelf of the general counsel – it will contain the best way for negotiating fees and will be used as a reference document.

"As well as outlining traditional methods of negotiating with firms, we are hoping to introduce one or two novel ways of gaining value."