The future of alternative billing is ultimately in the hands of in-house counsel. Richard Susskind urges them to strike a new path

It is an oversimplification to suggest, as many lawyers now do, that the economic downturn has brought an irreversible and fundamental change to the delivery of legal services.

I largely agree with those who claim that the genie cannot be put back into the bottle. But so far, the genie is only halfway out. What we have seen – and many clients find this promising – is that when pushed law firms can work under more competitive and imaginative fee arrangements and can even source more routine work in different ways.

This includes, for example, using legal process outsourcing or engaging contract lawyers. But being more competitive on price and working more efficiently is hardly the stuff of a revolution.

We can safely say in-house lawyers are keen on this new direction of travel and are generally discouraging law firms from reverting to their old ways. Even then there may well be an exception to this rule of no return – it is likely when major clients need external legal advice on bet-the-ranch deals or disputes that they will continue to turn to one of a handful of top firms (on the 'no-one ever got fired for hiring IBM' principle), and this kind of work will not be price sensitive (on the 'a million here or there makes no odds in the scheme of things' principle).

In other words, for big-ticket work, the leading firms may indeed be allowed to regress to unconstrained hourly billing at eye-watering rates.

But there might be an exception to this exception, one that could change the legal market in perpetuity. Consider the possibility of one firm among this handful of top performers breaking rank and radically changing the way it works, perhaps through offshoring, computerisation or sub-contracting. If such a firm were then able to offer the comfort of its brand along with the talents of its finest experts at a much lower overall cost, then it would be hard to imagine, despite the price insensitivity, that major clients would be comfortable going elsewhere. In turn, other leading firms would surely have to respond and change would cascade across the market.

However, when talking with law firms about economic recovery and future trends in the market I am always struck by their fondness for the status quo. Most firms seem to prefer a return to the charging models and working practices of around 2006 – which is no great shock, as substantial profits were enjoyed at that time. That said, very few think differently. And these few are most likely to be tomorrow's market leaders.

These firms say that even if a reinvigorated economy allows a reversion to past practices, they will still push ahead with radical change. They say this because they see huge opportunity in working differently – a better and less costly service for clients and a competitive advantage for the firms. They hope for a return to the mindset of 2006 not so that they can embrace yesterday's successful formula but because they know this to be the comfort zone of most of their rivals. It is comfortable not just by dint of its familiarity but because it is reassuring to stay with the pack.

The deeper truth here, as I have been saying for some years, is that most law firms (other than an elite group of market leaders) are more concerned about avoiding competitive disadvantage than gaining competitive advantage.

What about in-house lawyers? Remarkably, some betray a puzzling lack of self-confidence when discussing the future. They ask me if I think law firms will go back to their old ways when business becomes brisker. And I always reply that it is very much up to them as customers to answer that question. If in-house lawyers do not want the re-assertion of past habits, they must direct the market accordingly and emphatically.

In-house lawyers must also bear in mind that they will increasingly find themselves subject to greater scrutiny than in the past. As it becomes common knowledge, for example, that legal work can be sourced in different ways, chief executives, chief finance officers and non-executive board members will quite naturally ask their general counsel whether they are embracing and maximising the opportunities of these new ways of working.

To help shift their mindset and prepare for this new environment, I suggest in the revised edition of my book, The End of Lawyers?, that in-house lawyers apply a new test when considering how best to source their legal work. I call this the 'shareholder test': when a costed proposal for the conduct of a deal or dispute is being considered, would a commercially astute shareholder familiar with the growing number of alternative ways of sourcing legal work consider what is contemplated as representing value for money?

If law firms return to pre-recession billing and working practices and in-house lawyers countenance this, they will invariably fail the shareholder test.

Richard Susskind is the author of The End of Lawyers?, a revised edition of which has recently been published by Oxford University Press.