The Billable Hour Is Neither Dead Nor Dying

I have to admit upfront that I am stuck in the billable hour mode.  I prosecute federal fee-shifting cases.  Under all relevant case law the courts MUST determine our fees based upon recorded billable hours.  So, I have no choice.  I, myself, have tried to figure out a better system for having my fees awarded because I do not like keeping up with time but, truth be known, there is no better system.

The further truth of the matter is that most consumers have not operated on a true hourly basis since before I started practicing law in 1986.  Want a divorce?  Fix fee.  Injured?  Contingent fee. Bankruptcy?  This is what we need upfront.

Hourly fees are primarily for business clients who demand accountability, and that is the rub.  Attorneys charge hourly fees because they are forced to negotiate hourly fees.  Business clients may state they prefer capitation fees, but they fear that the attorney will either not do his or her best, or that they will pay too much.  I know not one attorney, Big Law or otherwise, that much appreciates hourly timekeeping.  So, it is what the market demands.

Also, although I greatly respect The Greatest American Lawyer, because the blog represents the ideal, I do not agree with its statement that "Lawyers who bill by the hour typically spend their time thinking about hours rather than results".

Good result oriented attorneys primarily worry about result whether they work on an hourly, fixed fee, contingency, or other method.  It represents the pride of practice.  Besides, repeat business and referrals only go to attorneys that worry about results.

To those where that is not true, I would contend that capitation fees cause the worse trouble for the attorney is constantly trying to figure out if he or she is wasting too much time on the case compared to what he or she has been paid.  There is nothing better to queer the enthusiasm of an attorney than to take a $1,000.00 for a matter only to find out he or she has had to put 30 hours in the case.  Likewise, there is nothing worse than a client upset by discussions that the fee paid does not now seem reasonable and they will have to come up with more to continue the relationship.  The client feels like it lost the benefit of the bargain.

Firms that charge a fixed fee or a unit fee must record time and expenses of their attorneys in order to evaluate if the firm's fee strategy is working effectively.  So, the failure to charge hourly should not save you time.  If it is saving you time, you cannot properly and effectively judge your firm's performance.  Time and money is the only effective business gage.  After all, you need to know, at least in the future, whether what you charge is worth it.

There is no correlation that I am aware of that says lawyers who charge hourly do not think strategically.  Business based law firms want to keep clients.  Many do keep their clients.  They do not do so by not being strategic and client centric.

Also, most cases are not all that clear cut or there will not be a dispute.  The presence of hourly fees forces a client to judge the realities of the situation and determine if settlement is meaningful based upon a business judgment rule.  That is not necessarily so with some types of fixed fees and unit fees.

I have no love loss toward hourly fees.  I would rather not have to keep time.  But, they are not the evil incarnate claimed.  They serve the purpose of paying an attorney for the time he or she rightfully has in a case. Capitation fees leave the attorney gambling with his or her client as to who will get the better advantage.

Comments

[Ron Baker]

Hi Chuck,

There is much to dispute in your post, but since space is limited I will attempt brevity.

The billable hour is dying for a simple reason: There's no proven economic theory that shows there's a relationship between time (inputs) and value to the customer.

It's the wrong theory. My think tank, VeraSage Institute, is on a quest to bury the billable hour, and the timesheet. There are hundreds of Professional Knowledge Firms that don't use timesheets, despite your belief they are necessary, including Chris Marston's firm that is on your Blog roll.

How do they do it? We have an entire Web site dedicated to explaining it, along with many Fellows who live and breathe this topic every day in their own practices.

You can read three free ACCA books by me on this topic (Burying the Billable Hour; Trashing the Timesheet; and You Are Your Customer List), at:

http://www.verasage.com/index.php/resources/C55/

For some interesting posts on timesheets and the billable hour, see:

http://www.verasage.com/index.php/community/comments/are_lawyers_really_this_intellectually_lazy/

http://www.verasage.com/index.php/community/comments/the_billable_hour_must_die_by_scott_turow/

http://www.verasage.com/index.php/community/comments/ask_verasage_how_do_you_measure_client_profitability_and_employee_productiv/

I sympathize with your plight of having to account for time to the courts, which will always lag behind the free market by decades.

But in the majority of legal cases, clients want to know the price BEFORE they engage an attorney. We expect this for EVERYTHING else we purchase as human beings. Why do people think it's different for lawyers (or other professionals)?

Last I checked, law firms are subject to the same economic laws as airlines, hotels, etc. To think they are not is folly cloaked in "professionalism" rhetoric.

I hope this contributes to the debate.

Sincerely,
Ron Baker, Founder
VeraSage Institute
www.verasage.com