William Nelson Cromwell famously earned a million dollars for his work in selling the Panama Canal a century ago. His fee, the New York Times noted in 1908, was "the like of which can hardly be paralleled in the history of the legal profession."

News of some recent paydays probably would have Cromwell, whose legacy lives on in the top-tier Wall Street firm Sullivan & Cromwell, wishing he could get back to work.

Delphi, an auto parts maker, racked up nearly $100 million in legal, accounting, and consulting fees in the first eight months of its bankruptcy proceeding in 2006. Lawyers who succeeded in an Iowa antitrust case against Microsoft were awarded $75 million in fees and costs last August. And this March, the law firm representing one segment of investors suing financial institutions tied to the Enron bankruptcy requested a whopping $688 million in fees.

With some lawyers now charging upwards of $1,000 an hour, and phalanxes of partners and associates being marshaled to fight increasingly complex and time-consuming (read: billable-hour-generating) battles, one can rightly wonder whether the first billion-dollar legal bill could be far behind.

The fear of just such a billing Armageddon has caused some of the nation's largest corporations to push back. Some are instituting a moratorium on fee hikes, others are insisting that fees actually be slashed, and many are installing new billing software to track and cap expenses. A few are even prodding law firms to come up with wholly new compensation arrangements that better align their interests with those of their corporate clients.

Last November, the news that some new law firm associates were being paid $160,000 a year spurred Wal-Mart to action. The company responded with a "moratorium on across-the-board rate increases" for all of its outside firms and demanded that they provide the hourly rates charged for every associate working on a Wal-Mart account going back to "the class of 2004."

That same year, Tyco International named a single firm, Eversheds, as its preferred outside counsel in Europe, the Middle East, and Africa, pulling about $20 million in legal work from more than 200 other firms. Eversheds got the work by discounting fees and agreeing to let Tyco have final approval over cost estimates.

Companies like Pfizer are making strides in reducing legal costs by making law firms compete head to head for business, with cost as a major factor. Others, including AOL, Barclays, and General Motors, have embraced electronic billing systems that flag legal expenses over set amounts.

These firms "can't enter a cost that doesn't fit in the box you create," says Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel, whose 24,000 members are among the major employers of outside law firms.

"It can be something as simple as saying no plane travel in excess of $500," Hackett adds. "If the lawyer tries to enter a ticket for $650, it will bounce, and the onus is then on the firm to say why the expense was necessary."

This September, Hackett's association plans to begin a more organized assault on high legal fees. The multiyear effort will result in a set of tools that can help even small corporations get a handle on legal costs.

These include best-practice guidelines to help model and price specific legal services such as certain stages of litigation, and an online network where corporate counsels and law firms from across the country can easily obtain references and compare fee information in specific geographic areas.

"The billable hour stinks, but it is the symptom of the underlying problem," Hackett says, noting that most corporate law departments are too small to easily monitor what their outside counsel is doing.

Combined with that reality, "law firms are not run on the concept of how quickly and efficiently they can do work for their client," Hackett adds. "They are run on how much they can charge their client before they are fired. It's the throw-up point."

Getting a handle on outside legal costs certainly makes sense for corporations. It can be a boon to the bottom line. Dupont, for instance, pioneered a program to partner with its law firms in the 1990s after mass tort litigation left it swimming in outside legal fees.

"We had a docket in excess of 4,000 cases and we were spending $140 million a year in 1994 dollars," notes Thomas Sager, Dupont's general counsel and senior vice president of litigation.

The company has since whittled down the number of law firms it uses to 43 from 350, has traded a promise of long-term relationships for a willingness by the firms to offer alternative fees and discounted rates, and has produced a host of systems to better track and monitor the legal work that results.

Sager said Dupont's cost savings is between $15 million and $20 million a year, or about 18 percent of the company's total expenditures on outside counsel.

Felice Wagner, who heads Sugarcrest Development Group, a law firm consultancy, notes that other companies have had similar success. It's no coincidence, she adds, that the industry spending the least on counsel is the group that most aggressively tracks its outside firms. The insurance industry pays, on average, just $294,098 per lawyer per year. “They have been very successful at putting the screws into their law firms,” says Wagner.

Whether or not these corporations will soon force white-shoe law firms into a new way of thinking is another story. "The Sullivan & Cromwells of the world like the status quo and don't see the need to move toward alternative fees," Sager says.

It's easy to see why. The 2007 Law Firm Economics Survey from Lexis Nexis found that the operating profit margins at top firms climbed to 41 percent in 2007 from 35 percent a year earlier, while a separate recent survey by the National Law Journal found billing rates locked in a long-term climb, gaining an average of 7.7 percent in 2007.

The bill to clients is considerable. The median amount that large corporations pay annually for each outside lawyer working for them was $616,519 in 2007, according to the 2007 Altman Weil Law Department Metrics Benchmarking Survey. Chemicals manufacturers topped the list, reporting that average outside legal expenses reached more than $1.1 million per lawyer. That is music to the ears of law firms on the receiving end.

Still, some firms see the growing discontent as an opening to take a new tack. Jay Shepherd, who runs the employment-litigation firm Shepherd Law Group in Boston, jettisoned the billable hour system in favor of flat rates for all client matters at his firm.

Other firms have taken similarly drastic steps, though the number can be counted on two hands—among them, Bartlit Beck Herman Palenchar & Scott and the Valorem Law Group, both in Chicago, Exemplar Law Group, in Boston, Summit Law Group, in Seattle, and Leader & Berkon, in New York.

However, Shepherd's success in gaining business is noteworthy. His firm's year-over-year revenue more than doubled in 2007, after increasing 5 to 10 percent per year between 2004 and 2006. Among his new clients is Adobe Systems.

Although the vast majority of the software company's outside legal work is still done on the billable-hour system, Ronald Friedman, associate general counsel and head of litigation at Adobe, says he's been pleased by Shepherd's flat-fee arrangement, noting that it "allows you to know up front what your costs are going to be."

He hints that, unless billing rates begin to fall, more such deals could be in the offing.

"I am always interested in exploring alternative billing arrangements," he says. But "the more the hourly rates continue to increase to the point of being difficult to justify, the more I am going to be interested in exploring other alternatives where the interests of the client and the lawyer are better aligned."

If enough companies like Adobe make that call, the Sullivan & Cromwells of the world may have to begin listening.