Money Crisis Renews Debate Over Legal Billing

The economic crisis is triggering changes in Washington-area law firms in everything from the way they charge for their services to layoffs and expansions.

Among the biggest changes is in the area of fees. More law firms are considering alternatives to hourly billing as their clients struggle to cut costs.

Hourly billing became common in the 1970s, but critics have long said it gives lawyers an incentive to work inefficiently. Some senior partners in the most prestigious firms charge up to $1,000 an hour.

Now, in-house corporate lawyers are leading a drive to get rid of hourly billing. They are frustrated at seeing fees to outside firms soar while they cut their own costs.

A recent survey by the Arlington, Va.-based Corporate Executive Board found that in-house lawyers spent 50 percent more last year on large outside law firms than in 2002. They said the hourly rates they paid jumped 70 percent between 1996 and 2005.

Robert Ruyak, chairman and managing partner of Howrey LLP, said corporate clients including Procter & Gamble, Qualcomm and GE Healthcare began prodding the Washington-based firm last year to help them save on legal bills.

As a result, Howrey is now assigning more work to lower-paid staff attorneys and negotiating fixed fees for certain clients rather than billing by the hour.

"Clearly, we have to economize for our clients," Ruyak said. "This is more important because of the uncertainty."

The economic crisis is hitting Washington-area law firms in other ways. They are seeing a drop in work in mergers and acquisitions, litigation and commercial real estate. At least one global firm with a D.C. office is closing, and another announced layoffs last week.

Heller Ehrman, a San Francisco-based law firm with an office in northwest Washington, said recently that it is closing. Last week, the Clifford Chance firm announced it was laying off 17 lawyers from its New York office and three from Washington after losing litigation work because of the tumult in the financial services industry.

More than 36,000 lawyers work in the Washington region, making it second only to New York City, according to the Greater Washington Initiative, an economic development organization.

Copyright AP - Associated Press
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