Blawg Review # 53
My Shingle Posts on Law Firm Outsourcing

Billing Labels Are Meaningless

There’s been a lot of debate in the blogosphere over the last couple of weeks concerning the hourly billing system and alternatives to that system. Some people say the hourly billing system is the best way to make sure clients get value those people that reject the concept that the hourly billing system is bad. Others note that flat fee and hybrid fee systems work better.

The people who say the hourly billing system is an appropriate system to value legal services are, more often than not, simply afraid of change. It makes no sense to say that the hourly billing system is an appropriate way to value legal services. I could work for ten hours straight and provide literally no value in a case. I can read through depositions for days and never do a single thing with the deposition transcripts or the information contained therein. I could put little yellow sticky notes all over the depositions and at the end of the day have provided no value to the client or the client’s goals.

The problem with the hourly billing system is it simply tracks hours without any sense of whether an hour was valuable to the client. Why in the world would a client want to pay for an hour of time that didn’t move the ball forward?

People who say that lawyer’s time is valuable again miss the point. The value of one hour of lawyer time may or may not have any value. It all depends on what the lawyer did and why the lawyer did it. For those of us who have been practicing long enough, we know the hourly billing system is absurd because it has no checks or balances. The people who are defending the hourly billing system take a completely ego-centric approach to billing. Their logic goes something like this: "I am a lawyer and I am important. If I spend an hour of time doing anything for a client, then it must be valuable because I am important and therefore my time is important. I could of used that hour on behalf of another client and therefore have denied the other client my valuable time."

I have realized that working within client budgets forces the lawyer to provide value for each hour spent. I can’t waste my hours like a drunken sailor drinking rum on the docks. I have to accomplish client goals within a defined period of time. If I don’t focus and strategize appropriately, I won’t move the ball for the client.

But the one thing that this budgeted system fails to emphasize enough is the value of the hour spent and the difficulty of the task. I am beginning to think that we not only need incentives to be efficient and deliver meaningful work product to the client, but that some days we do really hard things for the client and other days we do easy things. Should one hour equal one hour no matter what the task? Doesn’t an hour of lawyer time spent developing the winning strategy count more than reading 150 interrogatory requests sent by the opposing party to get a general feel for what questions are being asked? And if a lawyer uncovers a strategy which will accomplish the client’s goals within budget, shouldn’t that time be valued at a hire rate?

We have something called the "travel rate" which we have designed into our billing system. When I’m traveling somewhere on behalf of a client in the car, I bill at 30% of my normal hourly rate. I did this because I felt it was essentially unfair to bill a client for me to sit behind the steering wheel of a car trying to get where I need to go for the client. I may be doing a little behind the scenes thinking, but essentially my task (driving) isn’t worth the same amount as when I’m standing before the Judge arguing on behalf of my client.

And isn’t my time worth more if my strategy accomplished a benchmark during a motion and hearing for a client? Shouldn’t I also have a stake in the outcome of the matter? If I accomplish the defined project task documented in our extranet, there should be a reward for that. If I miscalculated or failed to accomplish the benchmark, then my time wasn’t as valuable to the client as I had promised.

I’d be interested in anyone else’s thoughts concerning a billing system which provides incentives for both efficiency and defined and accomplished goals.

Comments

Paul

I agree with you and your assessment of the hourly billing system. I have moved across to a hybrid system and am developing it on an ongoing basis in my effort to bill based on value and give my clients greater certainty.

As I mentioned in a comment to one of your more recent posts, I am just not sure how to leave the hourly billing model behind altogether when dealing with attendances that are time-based. I am talking about things like drafting pleadings, the complexity of which can vary from case to case. Sure you can fix a fee for that work but it could work out badly if the work involved doesn't justify the fee or vice versa.

Or am I just afraid of big changes?

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