| Summary |
The legal profession is facing pressure from clients, the market, and even its own employees to change the way it charges for its services. Billable hours, the traditional model of charging for legal services, is under attack. The billable hour has been criticized for its lack of transparency and its incentive to increase billing time, even when more efficient workflows could save time and money for the client. In addition, many law firms are facing increased pressure from clients to provide visibility into their legal fees.
In response to these pressures, law firms are beginning to explore alternatives to billable hours, including fixed fees, value-based billing, and unbundled services. Fixed fees provide clients with a predictable, budgeted cost and remove the incentive to increase time charges to increase revenue. Value-based billing structures the fee around the value of the services provided, rather than the amount of time spent on them. Unbundled services allow clients to purchase specific components of legal services without the need for a comprehensive package.
Law firms are also exploring ways to improve the billable hour system, such as phasing out minimum charge increments and requiring lawyers to explain their bills in greater detail. Other firms are looking to new technologies, such as time tracking software and machine learning algorithms, to help improve the accuracy and clarity of billing information.
The combination of these approaches reflects the changing nature of legal services. Law firms are responding to the demands of the market by seeking out alternatives to the billable hour model and incorporating new technologies to improve transparency and billing accuracy. By doing so, firms are hoping to reduce costs, promote greater efficiency, and improve client satisfaction.
| QUESTIONS ANSWERED IN THIS ARTICLE |
What are Billable Hours?
Billable hours are the measure of time that a lawyer spends working on a client's case or legal matter. This time is tracked and billed to the client for payment in increments, typically ranging from 6 minutes up to several hours. Billable hours may be tracked manually or with the help of a software program that specializes in tracking legal time. Lawyers may charge for time spent in court, research time, attending to administrative tasks, or any other activity that is related to the client's case or legal matter.Pros and Cons of Billable Hours
The use of billable hours is beneficial to both the attorney and the client. Billable hours provide an accurate representation of the time that the lawyer spends on a case and allows the lawyer to charge a fair price for their services. On the other hand, physical tracking of billable hours can be difficult, leading to discrepancies between what is charged to the client and the actual amount of time worked. Furthermore, many clients feel that the billable hour system can create an incentive for the lawyer to take more time than necessary to resolve a case.The Increasing Controversy of Billable Hours
In recent years, the use of billable hours has come under increasing scrutiny from both the legal profession and the public. Criticism of the billable hour system centers on the perceived lack of transparency that comes with tracking time in this manner. Furthermore, many see the billable hour system as a way for lawyers to pad their invoices by charging for unnecessary time and services. As a result, many clients are now seeking alternative billing methods that provide more transparency and accountability.Alternative Billing Methods
In response to the increasing criticism, many lawyers have begun utilizing alternative billing methods. Examples of these methods include flat fee billing, contingency fees, and discount fees. These methods can provide a more cost-efficient way to pay for legal services and allow the client to set a budget for their legal matters, while still ensuring that the lawyer is adequately compensated for their services.The Future of Billable Hours
With the increasing debate surrounding the use of billable hours, it is clear that the legal profession must find a way to accommodate the needs of both lawyers and clients. While billable hours remain a popular choice for many lawyers and clients, alternative billing methods have emerged as a viable option for those seeking more cost-effective solutions. Regardless of the billing method chosen, it is important that both lawyers and clients have a clear understanding of the associated costs and responsibilities.Is the billable hours system of calculating fees and assessing associate performance undermining the quality of both legal service and attorney lifestyle?
American Bar Association President Robert Hirshon thinks so. The Commission on Billable Hours that Hirshon created last August is currently in the process of surveying law firms and corporate counsel to formulate alternative billing practices models that may help alleviate those concerns.
Speaking at the ABA Board of Governors Retreat in August, Hirshon said law school graduates frequently sign on with firms requiring 2,400 or 2,500 billable hours a year. "If you bill those hours, you don't have time for pro bono, you don't have time for the bar association, you don't have time for life," he said. "And that is what is happening."
Anastasia Kelly, senior vice president and general counsel for Sears, Roebuck and Co., is co-chair of the commission with Jeffrey Liss of Piper Marbury Rudnick. While Kelly shares Hirshon's concern over quality of legal service, she said the billable hours system is just plain not working.
"While I think the question of quality in the profession is very important, I think it is equally as important that with all the focus at law firms on realization rates, salary rates going up, and pressure by CEOs to cut costs, it's coming to the point where something has to happen," Kelly said. "The traditional way of doing business with law firms is not going to provide either firms or their people with a good answer."
Katy Englehart, presidential initiative manager for the ABA President's Office, said the commission has developed electronic questionnaires for corporate counsel and law firm attorneys and a Web bulletin board - at www.abanet.org/careercounsel/billable.html - to serve as a forum for idea and experience exchanges. Law students are encouraged to contribute to the dialog.
A full report -including model law firm metrics, policy and evaluation processes, best and worst practices and models for alternative methods of bidding work - will be released at or just before the ABA's annual meeting in August 2002.
The report will also include a model diet for associates, breaking down the number of hours associates should be required to work and what percentage should be actual client billable work.
Kelly said the inclusion of corporate counsel in this survey is a critical difference in previous attempts to address the billable hours dilemma.
"One of the reasons this discussion wasn't successful when it first came up 15 years or so ago was that it didn't involve inside counsel," Kelly said. "We [inside counsel] are the client - there should be an understanding that CFOs need to be involved."
Kelly said that in her capacity as corporate counsel, she has had numerous discussions with law firms regarding an alternative to the billable hours system and she believes they are listening.
"All of the law firms I talk to are very willing to do alternative billing arrangements - they're absolutely willing to try," said Kelly. "Technology makes these things possible. I can define my project, put it on an RFP in e-mail, send it to my 10 or 15 favorite firms, and then find out what each one will do it for."
Kelly said that while there are a variety of alternative fee methods - flat fee, contingency fee with a success premium, monthly retainers and others - the real measure of value is the quality of the work.
"We should do it the old-fashioned way - by quality of work," she said. "Any law firm that uses the billable hour as the measure of the quality of work is doing it wrong. You could use it [to determine] a bonus, I suppose, but it should be the quality of work first and foremost."
The system is not only hard on associates, but can also create major client problems for the firm.
"If you've got an associate spending 100 hours on a product your client thinks is only worth 25, you've got a problem," Kelly said.
This story appeared in the March 2002 edition of The National Jurist, www.nationaljurist.com.
