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RBC vice-president and associate general counsel Emily Jelich says that if one law firm really embraces alternative billing, others will follow. (Darren Calabrese for The Globe and Mail/Darren Calabrese for The Globe and Mail)
RBC vice-president and associate general counsel Emily Jelich says that if one law firm really embraces alternative billing, others will follow. (Darren Calabrese for The Globe and Mail/Darren Calabrese for The Globe and Mail)

Lawyers finding new ways to get paid Add to ...

Workers in Montreal jumped the gun on Wednesday's official merger of law firm Ogilvy Renault with London-based Norton Rose, installing the global firm's new sign at Ogilvy's headquarters a few days ago.

The Canadian firm's other offices in Toronto and elsewhere were to get their makeover Tuesday night, erasing the Ogilvy Renault name in lobbies and on doors for good. Senior partners are celebrating Wednesday morning by ceremonially opening the Toronto Stock Exchange.

The merger of one of Canada's oldest firms with Britain's expanding Norton Rose, announced in November, prompted talk of other foreign incursions into Canada's legal market. But whether or not other international players set up shop here, Norton Rose's merger with Ogilvy Renault could accelerate another trend that is transforming the way some firms do business.

It is called alternative, or "value-based," billing, and while it does not exactly sound groundbreaking, in the conservative cloister of Canadian law firms, it is revolutionary. It involves scrapping the traditional "billable hour" method of charging clients for legal services - where clients are charged an hourly fee plus expenses - and instead agreeing to new ways to tally up costs. These can run the gamut from fixed fees for particular services to "all-you-can-eat" arrangements in which clients pay one lump sum for whatever they need.

The idea has been championed most recently by many large corporate legal departments worldwide, eager in the wake of the economic crisis to get a better handle on the bills they pay to external law firms. But in Canada, it has been slow to catch on.

Ogilvy Renault was seen as one of several Canadian law firms leading in the area. But Norton Rose and its massive global competitors have been even more aggressively embracing the concept. And that, says one of the former Ogilvy Renault's biggest clients - Royal Bank of Canada - means alternative billing at the new Canadian arm of Norton Rose should become even more entrenched, perhaps prompting other law firms to take notice.

"I think Canadian firms are really moving on this," said the bank's vice-president and associate general counsel, Emily Jelich. "It's obvious that if there's one firm that really figures out how to do this very well, many others will have to come to the front."

The advantage of the merger for the former Ogilvy Renault, Ms. Jelich said, will be for it to make use of Norton Rose's global experience in offering alternative fee arrangements.

The hurdle for any law firm moving away from the billable hour - which is how it tracks its internal costs - is figuring out, based on experience, what price to offer a client for a particular type of legal service, whether it is litigation or advising on a corporate acquisition. This process is more complex, and financially risky for the law firm, than simply tallying up the hours spent and handing clients a bill, sometimes a month or two after the fact.

The push has been coming for years from the corporate in-house lawyers that hire external law firms, especially since a highly publicized initiative called the Value Challenge launched in 2008 by the U.S.-based Association of Corporate Counsel. But the advantage for clients isn't necessarily lower bills, Ms. Jelich said. It is more predictable bills.

"It's been a challenge in the past when the budgeting people come and say, 'Please give me your budget,' and because of hourly billing and the way that it works, we're not able to do that with anything other than perhaps a dartboard degree of accuracy," Ms. Jelich said.

Lawyer Andrew Fleming is the former Ogilvy Renault's leading proponent of alternative billing, and says the billable hour actually hasn't been around that long; it only became the gold standard for setting prices in the 1970s.

He said moving away hourly rates isn't only good for clients: It's good for law firms, as it can make them more efficient, and force them to better manage themselves.

"It's kind of an insidious thing," he said of the billable hour in a phone interview from Berlin, where he was speaking on a panel about the issue. "It encourages lack of efficiency, because, the more hours I spend the more I get paid. Well, that just doesn't make sense."

Indeed, the move away from the billable hour could speed all sorts of changes in the profession aimed at shaving costs, including the outsourcing of work to cheaper lawyers in India or the better use of new technology.

Scott Jolliffe, the chairman and chief executive officer of Gowling Lafleur Henderson LLP, said alternative fees make up about 25 to 30 per cent of his firm's business.

He said flat fees are much easier to bring in for repetitive legal grunt work, so-called "commodity" work like mortgage defaults or trademark applications, for which is it easier to predict costs.

Simple tasks like these are also easier to streamline, as Gowlings does with an automated computer system that allows its banking clients to send data on mortgages in default to the firm's computers to prepare foreclosure documents - for a fixed fee.

For complex "bet-the-farm" litigation, gambling on how long things will take is much more difficult, he said.

"It's just different, that's the main thing for lawyers," he said. "We kind of get set in our ways and we're also very skeptical. … But I think the profession is getting a lot better at it."

Legal industry consultant Richard Stork said the entry of Norton Rose into Canada means the former Ogilvy Renault can "tap into global initiatives on how this is done, and leapfrog" its Canadian competition.

"We are going to be talking a completely different story in five years," said Mr. Stork, founder of Catalyst Consulting in Toronto. "We are going to reach a tipping point, where everybody's going to want to do it. Where the law firms are going to be turning around and asking their clients to do it this way."

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