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Law firms to merge, offer flat fee

BYLINE: Claudia Grisales, AMERICAN-STATESMAN STAFF
DATE: January 15, 2004
PUBLICATION: Austin American-Statesman (TX)
SECTION: Business

Anyone who has ever hired a lawyer knows there can be sticker shock when the bill arrives. Hourly fees can add up to an unexpectedly large total. A well-known Austin media and business litigation firm soon will offer clients an alternative: flat-rate billing.

George & Donaldson LLP will merge with Brothers & Thomas LLP next month. The new firm, which will be called George & Brothers, will give clients the option to pay a flat fee or an hourly rate.

"We want to focus on our skills and not our effort," said Jim George, founding partner of George & Donaldson, whose clients have included Dow Jones & Co., Time Warner and CBS.

Although flat fee billing isn't a new phenomenon, more firms are embracing some type of alternative fee arrangement, according to Texas Lawyer's annual salary and billing survey.

"There's more of a movement towards alternative fees, in part because both lawyer and client frustration with the billable hour," said Susan Fortney, a Texas Tech University law school professor who has studied legal fees.

Hourly billing means lawyers must keep detailed records of the time spent on each case. Firms typically set annual billable hour targets that lawyers must meet.

For clients, there is the uncertainty of not knowing how big the final bill will be and sometimes concerns that firms might be running up the clock.

Fortney supports alternative billing in some cases because it awards lawyers for being efficient. She said it would not be appropriate for some cases, such as drawn-out divorce cases.

George & Brothers still will offer hourly billing, but George said the choice will be up to the client.

A top lawyer at George & Donaldson charges about $450 to $500 an hour, said managing partner Gary Lewis, who will be part of the new firm. The lawyers now have to figure out how to translate their costs into a flat-rate structure.

The slow economy has cut into the legal business and made clients more conscious of what legal services cost.

George said he had done one or two cases a year on a flat-rate basis. He said he thinks the new approach will make the firm more competitive.

One reason the firm is able to offer the option is lower overhead: George & Brothers' seven lawyers will occupy two floors in Norwood Tower downtown, down from the 4 1/2 that the two firms now occupy.

Doug Brothers said he was excited about the change. "This model gives us an unfettered opportunity to focus on the value we can give the clients," he said.

Some of the George & Donaldson lawyers are not as convinced. Four partners, including co-founder David Donaldson, are leaving. Three of them -- Donaldson, Pete Kennedy and Jim Hemphill -- said they hope to join another firm as a group. The fourth is Roger Williams.

"We are not leaving mad; we are not upset. It's a mutual decision," said Donaldson, who has been with the firm for 11 years.

Lawyers didn't always charge by the hour. The method took off in the 1950s as a way to increase salaries in the industry.

Lisa Lerman, a law professor at Catholic University of America in Washington, said hourly rates often cause problems.

"Lawyers who bill by the hour have an incentive to be inefficient so that they will earn higher fees," Lerman said.

At the same time, Lerman said, flat fees might compensate a lawyer too much or too little for the time they spend on a case.

Fortney said law firms should figure out ways to use more alternative fees but, at the same time, recognize that they are not a panacea.

"The time sheet will not become extinct because they cannot be used for all clients in all kinds of situations," Fortney said.

cgrisales@statesman.com; 912-5933