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In-house legal increasingly shifting to alternative fee arrangements

13.4 percent of large law firms’ revenue expected to come from alternative arrangements in 2012

The writing has been on the wall for years, so it will come as no shock that corporate legal departments have increasingly been moving toward alternative fee arrangements with their outside counsel. In fact, according to a recent report by the Association of Corporate Counsel, in-house legal teams are getting tougher with their outside counsel in a number of matters, including demanding alternative fee arrangements, cutting outside counsel spend, increasing hiring and taking on more work in-house.

Last Sunday, the Wall Street Journal explored the trend further, reporting that the spread of flat fees and alternative fee arrangements continues to be on the rise. Citing a Citi Private Bank survey of managing partners at 40 large U.S. law firms, the Journal reported that 13.4 percent of the firms’ revenue will come from alternative arrangements in 2012—a figure that’s nearly double what it was in 2008.

Adding to this, the Journal noted that last year, a Fulbright & Jaworski survey of general counsel revealed that 61 percent of the 405 companies surveyed currently use some form of alternative fee arrangement, which represents a significant jump from 48 percent in 2009.

While the reasons for this are manifold and nuanced depending on individual circumstance, in-house legal departments’ traditional argument for such arrangements hasn’t changed: When firms charge by the hour, it creates incentives for them to drag matters out. And now that the recession is ended, clients that lobbied for alternative billing practices are happy with how things have panned out.

“For us, it's no longer a necessity just because of the recession,” Don Liu, general counsel for Xerox Corp., told the Journal. “It's now part of the normal process.”

Last fall, InsideCounsel columnist Jason Epstein penned a piece on how corporate legal departments can use alternative fee arrangements to create better partnerships with their outside counsel.

For greater analysis, read the Wall Street Journal.

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