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Microsoft Plans to Phase Out Billable Hours

By William Vogeler, Esq. on September 01, 2017 | Last updated on March 21, 2019

If you are lucky enough to have Microsoft as a client, don't complain that the company will not pay your hourly fees.

The company has announced that it will no longer pay hourly attorney's fees, opting for alternative billing arrangements with select law firms. It's a two-year project, but the future is almost here.

As in-house counsel know, the alternative fee agreement is the new normal. Outside counsel should consider themselves lucky to get the business.

The New Normal

Corporations have resisted paying billable hours for a long time, and have made inroads against the practice in the past decade. A financial crisis that cut across American businesses, including law firms, started to change the traditional billing model.

Many companies moved legal work in house, while others sorted things out with outside counsel. Technology impacted the legal industry, too, as software and robots have taken over many legal tasks.

In Microsoft's case, the New York Times reported the law firms in the revised billing program include: Arent Fox; Covington & Burling; Greenberg Traurig; Latham & Watkins; Orrick; Perkins Coie; Sidley Austin and other large law firms.

Microsoft wants to establish a "new type of relationship" with the law firms handling its most important work, said David Howard, deputy general counsel for the company.

Comparing Rates

The new program will create a "competition" among firms for the work. It will not necessarily go to the lowest bidders.

"We've learned that simply comparing the billing rates of different firms doesn't tell us very much," Howard said. "Firms which work less efficiently usually cost us more, even if their billing rates are lower. Competing on the basis of a fixed fee or similar alternative fee permits a true apples-to-apples comparison."

Consumers are taking notice and saying it was about time to end the 'tyranny of lawyers billing by the hour. "Now if only plumbers and auto mechanics would try something similar," Quartz Media said.

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