What If We Put A Value On Tasks, Not Time?

Billing system which puts a value on a lawyers time, irrespective of whether the lawyers used his/her time well or provided any value for that time, puts many of the wrong incentives in play for the lawyer. The lawyer’s incentive is to take more not less time what does the lawyer care. He/She gets paid for every hour irrespective of whether or not he/she is efficient, productive or focused. Since the lawyers business model is built on generating hours irrespective of others factors, the lawyers incentive is to drag a matter out rather than bring it to resolution which cuts off his/her revenue stream.

A great feature of our virtual worker program is that we have workers available at most every billing level. Because we work on a max budget, the incentive is to push tasks down to the lowest competent billing level in order to get more done for the client in less time. The virtual worker makes the budgeting process easier. The fact that workers are available at lower billing rates, has the potential to bring the overall budget down for the client.

In a way, we also put a value on tasks, as opposed to people. More complicated tasks like determining what strategy will achieve the client’s goals are accomplished at higher billing levels. Basic research, document summaries and the like are accomplished at the lowest billing level. Drafting and other tasks involving the execution of strategy are accomplished at a billing level somewhere in the middle.

But today I am wondering about further refining the system. Should there not only be an incentive to value tasks and assign them, but an intrinsic value to the task itself. Lets face it, I sometimes doing tasks that are relatively easy and require less thought. Shouldn’t those tasks be valued less than my more critical tasks? In a way, I account for this with my zero billing rate method. Main tasks that I do in the day are really administrative. I bill those out at a zero rate meaning it costs the client nothing. When I travel for a client, I have a travel rate which is approximately ¼ my normal billing rate. While I’m traveling, I try to do other things for other clients, again at low billing rates because I’m not sitting at my desk where I can truly provide value in order to make up the difference. Again, I’ve provided myself an incentive to do more than accumulate hours.

As I move forward in my law firm, I am more and more focused on letting tasks become the true focus of billing. While a task-centric system is more complicated then simply logging raw hours, it provides more of the right incentives for the lawyer and drives value for the client.

Comments

[Max]

While I whole-heartedly agree that time does not equal value, at some point in your quest for perfect valuation you'll just split hairs. Most of the experienced attorneys I've worked with tweak their hours (always down, never up) to represent the actual value to the client, and most truly professional attorneys will make it clear to the client that they are always happy to discuss and re-evaluate (even retroactively) their billing.

True, there are disparities -- sometimes an hour of critical work adds a tremendous amount of value to a client -- but try this thought experiment. Pick out five long-time clients at random. Now think of how much you billed them over the past few months. Now compare that to a theoretically perfect client-side valuation of your contribution. Really, how much do they diverge? My guess would be less than 10%. Sure, some attorneys and clients would be up in arms over 10%, but at 10% I think the most important factor is that the client *understands* the value contributed by the firm. If the client better appreciates hours, or flat fees, modified contingent, or whatever, then that's what you should do.

Outside of the Huge Corporate Firm context (which has its own issues that distort billing), I just don't know any professional, competent attorneys for whom the numbers didn't "work out" in the end, regardless of billing style. My personal preference is to bill at an hourly rate well above the market rate, log all of my time, then only actually charge the time that truly advanced their case. Sometimes I'll annotate my billing to show that I spent 3 hours on something, but felt it should have been done in 2, so I charge 2.

[Paul]

I have been battling with billing methodologies for a couple months now. Coming from a large law firm I automatically imported the hourly billing system into my new firm. I changed my billing system a couple weeks ago and adopted a hybrid billing structure which I like to think focusses more on value added than time spent. I like the idea of a max budget but the difficulty I have as a litigation attorney is how to apply a max budget or fixed fee system to litigation work, much of which is time based.

It is a tough one. I believe that a billing system that is based on fixed costs is preferrable to clients who want certainty above all. The question is how to achieve that and still pay my mortgage?

[That Lawyer Dude]

"What about Clients" is having this discussion here and here. I have wieghed in on this. The fact is that the billable hour is counter-intuitive. We all love to hate it. However in working in criminal defense, it is the fairest way to be sure both lawyer and client are treated correctly. I believe it is that way for all litigation. I think there are some requirements. One is that the client and the attorney must negotiate a rate. I am far more willing to take a lesser hourly fee if the client puts up more money on account. I want to be assured of getting my fee.

If judges were more willing to let lawyers out of litigation when they are not being paid that too might bring down fees.

Setting a time limit for the litigation, and giving a bonus for coming under budget may also help.

The problem isn't that lawyers over-charge. It is more that lawyers who are charging too little will not do the work necessary to win.

If I were a client I would be worried that a lawyer who has reached the budget might not have the incentive to go the extra mile.

I am very sure that in most firms they cannot afford to work on any one case to the point that the case is overbilled. They have to keep too many clients happy.

Moreover, a client can pick up and go if she is unhappy with the billing culture at a firm.

In interviews with the firm, General counsel should find out what the hourly billing requirements for each lawyer working on the case is. If a lawyer has a ridiculously high billing requirement, the chance for over billing is higher. I would not hire a firm where anyone had a billable requirement above 1800 hours. Think about it given 50 weeks of billing, that comes to 36 hours a week. Figuring 1.5 hours worked for every billed hour that comes to over 54 hours of work a week. The impetus to overbill is ripe. Lawyers will force associates to bill as much as they can. Associates have needs to. Who gets screwed in the scenerio? The client. A big client can dictate firm culture, and should at least in this case.

[That Lawyer Dude]

"What about Clients" is having this discussion here and here. I have wieghed in on this. The fact is that the billable hour is counter-intuitive. We all love to hate it. However in working in criminal defense, it is the fairest way to be sure both lawyer and client are treated correctly. I believe it is that way for all litigation. I think there are some requirements. One is that the client and the attorney must negotiate a rate. I am far more willing to take a lesser hourly fee if the client puts up more money on account. I want to be assured of getting my fee.

If judges were more willing to let lawyers out of litigation when they are not being paid that too might bring down fees.

Setting a time limit for the litigation, and giving a bonus for coming under budget may also help.

The problem isn't that lawyers over-charge. It is more that lawyers who are charging too little will not do the work necessary to win.

If I were a client I would be worried that a lawyer who has reached the budget might not have the incentive to go the extra mile.

I am very sure that in most firms they cannot afford to work on any one case to the point that the case is overbilled. They have to keep too many clients happy.

Moreover, a client can pick up and go if she is unhappy with the billing culture at a firm.

In interviews with the firm, General counsel should find out what the hourly billing requirements for each lawyer working on the case is. If a lawyer has a ridiculously high billing requirement, the chance for over billing is higher. I would not hire a firm where anyone had a billable requirement above 1800 hours. Think about it given 50 weeks of billing, that comes to 36 hours a week. Figuring 1.5 hours worked for every billed hour that comes to over 54 hours of work a week. The impetus to overbill is ripe. Lawyers will force associates to bill as much as they can. Associates have needs to. Who gets screwed in the scenerio? The client. A big client can dictate firm culture, and should at least in this case.