What do pharmaceutical giant Pfizer, IT player Cisco Systems and credit powerhouse American Express have in common? They’ve ditched the traditional hourly model for legal fees to cut costs. Pfizer, which spends over $500 million annually on legal fees, says it will cut legal costs by up to 20%, mostly through flat-fee arrangements, according to the Wall Street Journal. Cisco Systems has shifted 80% of its legal work to flat-fee arrangements. American Express’s chief litigation counsel, Stuart Alderoty, told the Wall Street Journal “I haven’t had one firm in 2009 tell us, no, that they flatly wouldn’t…move away from the traditional hourly model. The paradigm has changed.”
Since the White House Office of Management and Budget upped its ten-year deficit prediction to $9 trillion from its may estimate of $7 trillion, could the federal government be the next customer to ditch the billable-hour model? Flat-fee contracts have long been the norm in Europe, and government has a way of emulating industry when it comes to cutting costs.
Our prediction: keep an eye out for more fixed-price work in Government Contracting.