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    The Real Rate Report: a Cautionary Tale
    Posted: 2011-07-27 12:20:00

    morningLast year’s Real Rate Report, a comprehensive review of US law firms’ invoicing practices, is staggering in its scope and sobering in its findings. Everyone in the legal profession should take notice if they have not already done so.

    CT TyMetrix’s review of over $4 billion USD in American law firms’ invoices from 2007 to 2009 encompassed over 3,500 firms and 90,000 individual billers. One of the report’s most-surprising findings (some findings are available on CT TyMetrix’s website) is that, between 2007 and 2009 (covering the recent global financial crisis), 75 per cent of law firms increased their hourly rates. However, with growing use of alternative fee arrangements (AFAs), the effect of changes to hourly rates is lessening. The proportion of US and UK law firms using AFAs went from 45 per cent in 2009 to 51 per cent in 2010 – an increase of over eleven per cent. Less surprising are some of the practices that firms were found to engage in. Here’s CT TyMetrix’s partial list of billing practices that consumers should be wary of:

    “1. Timekeepers who bill exactly eight hours to a matter per day;

    2. Timekeepers who bill very small increments of time over the course of a matter (less than 10 hours);

    3. Partners who regularly bill in whole-hour increments;

    4. Unit billing by using the same description of work repeatedly; for example, we saw one associate in the data who billed ‘Post Entries to Master Docket’ more than 250 times to one client.”

    The increasing prevalence of AFAs and the Real Rate Report’s cautionary list echo a trend Monica Goyal wrote about last week: clients are expecting firms to be efficient, and technology (including data-analysis programs used by CT TyMetrix) is allowing them to hold firms to that expectation, in terms of both information and competition. Tools such as the Real Rate Report give consumers the information they need to pick the most cost-effective firm. Technological advances allowing for online dispute resolution and the unbundling of legal services are making alternative dispute resolution seem more attractive (in terms of time and money) relative to litigation. If they don’t want to lose clients to alternative dispute resolution, firms will have to bill more competitively and market their services effectively.

    Photo credit: Flickr - Wolfgang Staudt

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