JCougar wrote:And I don't know if the "fixed fee" stuff I read is bogus or not, but everything I read suggests that's getting more popular. If clients demand fixed fees, the Cravath model becomes less and less advantageous for firms.
I think the "fixed fee" stuff is overblown - not that it isn't happening (clients would much rather pay fixed fee) but rather in its effect. Fixed fee predominantly happens in repeatable transactions, where it's easy for a firm to predict roughly how much work it will take. To give an example, if a task typically takes 9-11 hours, and billing is at $400 per hour, this would typically cost from $3,600 to $4,400 to a firm. If there are 100 of these tasks over a year, typically the total cost will approximate $400,000, but no one knows exactly what the end bill will be.
Now imagine this transaction has a fixed fee of $4,000. If it happens to take 9 hours, the law firm is better off, but if it takes 11 hours, the client saves money. If there are 100 of these over a year, the total bill will be exactly $400,000. The client is much happier because they know the bill will be exactly $400,000, rather than somewhere between $395,000 and $405,000. (predictability is important).
Now for a law firm, they know they will make exactly $400,000, so they can allocate 1 First year associate ($160k), 1/3 of a senior associate (1/3*$210k=$70k) and a fraction of a partner's time and still make a decent profit.
Now the first year associate might have to work a few hours more, or a few hours less, but the associate is making the same salary regardlesss. Therefore, it's actually a win for the firm. The issue is when the estimate is wrong.
However, if it turns out that the task, for whatever reason, starts taking up 13 hours, instead of 10, on average, then they'll renegotiation the fixed fee. If a particular transacion is unuaual and ends up taking 20 hours, the firm will need to decide whether to let it fly (because they also had a few that took a lot less time, or relationship building), or if they should discuss it with the client and maybe charge more that one time.
The net/net difference between hourly billing and fixed fee is, on a whole, not going to be significant.