Alternative Fee Arrangements in 2026: Why the Billable Hour Still Dominates

For in-house counsel, the billable hour is a bit like fruitcake during the holidays—a little hard to swallow, and it keeps turning up year after year.

Consider: back in 2003, a top Silicon Valley in-house counsel declared to The Recorder that "the days of blank checks are over," calling on law firms to embrace alternative billing arrangements. It was one early sign of a broader push by corporate legal departments to move away from hourly pricing.

More than two decades later, the pressure hasn't let up. Big companies continue to push back on rising legal bills, and hourly rates at top firms have climbed well past $2,000 an hour in recent years. So the question remains: are law firms actually offering meaningful alternatives to hourly billing, or is the menu of choices still too limited for in-house teams to break the habit?

Each year, as part of its annual rankings process, Best Law Firms® surveys thousands of firms across the United States about their billing practices. The most recent survey drew responses from nearly 4,900 firms and offers one of the clearest pictures available of how deeply alternative fee arrangements (AFAs) have taken hold in the U.S. legal market—and where the billable hour still rules.

Alternative Fees Abound

Best Law Firms' first question is straightforward: "Does your firm offer alternative billing arrangements?"

In the most recent survey, 72% of responding firms said yes—consistent with prior years, and a sign that AFA adoption has plateaued at a high level rather than continuing to climb. Adoption rises sharply with firm size:

• 150+ lawyers: 96% offer AFAs
• 50+ lawyers: 91%
• 20–49 lawyers: 78%
• 2–19 lawyers: 68%
• Solo practitioners: 70%

Even the smallest firms, in other words, are more likely than not to negotiate on price—though the largest firms have made AFAs close to universal.

Geography plays a role too. Firms in large legal markets—particularly the Mid-Atlantic corridor of New York, Washington, D.C., and Philadelphia—report some of the highest AFA adoption rates. Firms in the Southeast, where the respondent pool skews toward smaller markets, report somewhat lower rates.

Put plainly: a quarter to a third of firms still rely on hourly billing exclusively, but the clear majority now offer something else. At what point does "alternative" become standard operating practice?

Types of Billing Arrangements

Best Law Firms also asks firms which specific alternative arrangements they offer, from a defined list:

• Blended hourly rates — a single hourly rate applied to all lawyers on a matter
• Capped fees — pricing that won't exceed an agreed maximum
• Collared fees — hourly rates within a set range, with reductions if hours exceed the top of the range
• Contingency fees — payment tied to a successful judgment or settlement
• Volume discounts — reduced rates for clients committing to a large volume of work
• Fixed fees — an agreed price for a specific matter, set in advance
• Flat fees — a set price for a defined type of work, often routine or standardized
• Hybrid fees — hourly billing for part of the engagement, an alternative structure for the rest
• Retainers — an upfront payment the firm draws down as work is completed
• Other — including success/bonus fees, prompt-payment discounts, reduced rates for pro bono and nonprofit clients, and flat monthly subscription models

The Most Common Approach

Flat fees remain the clear leader among alternative arrangements—and they're growing. In the latest survey, close to three-quarters of firms offering AFAs said clients can negotiate a flat fee for at least part of their work, up several points from the prior year. Flat fees rank first in every region and every firm-size category.

Part of the appeal is simplicity. Hourly billing is easy to explain: time spent times rate. A flat fee is just as easy to explain, and it gives in-house teams more budget certainty than an hourly bill that can swing with a matter's complexity. The tradeoff is that a large flat-fee engagement can be a harder sell internally, which sometimes pushes in-house leaders back toward the billing structure everyone already understands.

On the firm side, flat fees reward efficiency—less time on a matter means more profit—but they also carry risk if a matter turns out to be more complex than expected.

How Other Fees Fare

Retainers (67%), contingency fees (62%), and blended hourly rates (55%) are the next most common structures, followed by fixed fees (50%). No other single arrangement—capped fees, volume discounts, collared fees—tops 50%. Hybrid fees are notable mainly for their growth: usage climbed 20% year over year, though still only about a third of firms with AFAs use them.

Smaller firms tend to offer a wider variety of fee options than larger ones. On average, firms with fewer than 20 lawyers offer more alternative fee types than firms with 150-plus lawyers—a pattern that has held steady across multiple years of the survey.

Big Law and Billable Hours

The narrower range of billing options at the largest firms tracks with a familiar complaint from general counsel: Big Law's hourly rates keep climbing, even as clients ask for more predictability. Hourly billing continues to drive strong revenue growth at the largest firms, with top-lawyer rates well above $2,000 an hour.

That dynamic works in favor of elite firms and star partners, but it cuts against in-house counsel trying to control costs. Hourly billing rewards time spent rather than the complexity or value of the work—and many companies keep paying full rate anyway, often because switching to a new fee structure (or a new firm) feels riskier than sticking with what's familiar.

That gap creates real opportunity for midsize firms and practice-specific boutiques, which the survey shows are both more likely to offer AFAs and more likely to offer a wider range of them.

AI's Potential Impact

Artificial intelligence continues to loom over every conversation about the billable hour. Earlier estimates from Goldman Sachs suggested that a large share of legal tasks could eventually be automated by generative AI—and as AI tools become standard in day-to-day practice, that shift is no longer hypothetical.

Legal industry coverage heading into 2026 points to AI-driven efficiency as one of the strongest catalysts yet for AFA growth, even if most observers still expect gradual change rather than a sudden break from hourly billing.

If AI can complete in minutes what once took a lawyer hours, justifying an hourly rate for that work gets harder—and flat fees, which already reward efficiency, are well positioned to fill the gap. As one legal business strategist has put it, firms that shift toward flat and value-based pricing can offer clients more transparent, predictable costs.

Still, predictions of the billable hour's demise have circulated for over a decade without coming true. Like holiday fruitcake, it keeps turning up.

The Bottom Line

Most U.S. law firms are now open to alternative billing, and flat fees have become the default alternative of choice. But the billable hour isn't disappearing—it's coexisting with a growing menu of options, and in-house teams that want more flexibility may simply need to ask for it, or look beyond the largest firms to find it.

For this year's full survey findings—including AI's measured effect on billing, revenue trends, and client satisfaction data—see Law Firms Embrace AFAs, But Clients Want More Flexibility. For broader market data, see the current Best Law Firms Legal Market Report.

FAQ

What is an alternative fee arrangement (AFA)? An alternative fee arrangement is any pricing structure other than the traditional billable hour, including flat fees, fixed fees, retainers, contingency fees, and capped or collared rates.

What percentage of law firms offer alternative billing arrangements? Roughly seven in ten U.S. law firms now offer some form of alternative billing, according to Best Law Firms' annual survey, with adoption rising to about 90% among firms with more than 50 lawyers.

What is the most common type of alternative fee arrangement? Flat fees are the most widely offered AFA, used by roughly three-quarters of firms that offer alternatives to hourly billing, followed by retainers and contingency fees.

Will AI replace the billable hour? Not immediately. AI is expected to accelerate the shift toward flat and value-based pricing by making some legal work faster to complete, but most industry observers expect a gradual transition rather than a sudden end to hourly billing.

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David L. Brown is a legal affairs writer and consultant, who has served as head of editorial at ALM Media, editor-in-chief of The National Law Journal and Legal Times and executive editor of The American Lawyer. He consults on thought leadership strategy and creates in-depth content for legal industry clients and works closely with Best Law Firms, as senior content consultant.