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All Billable Hours Are Not Created Equal

September 24, 2012

It sure is tough being a billable hour these days.  Despite all the uproar about the evils of the billable hour, perhaps a gun slogan analogy is helpful:  Billable Hours Don’t Overcharge Clients, Attorneys (and the Status Quo) Do.  I see two fundamental problems with the billable hour, one of which is always discussed, and another which is rarely discussed.  Many, including myself, have argued that the high billable hours quotas required by most firms today are unsustainable and almost certainly lead to bill padding and rampant overbilling.  The 1300 hours the ABA felt could be reasonably billed per year has somehow risen to anywhere from 2000 to 2400 per year at most firms today.  If you are using one of these firms, it’s safe to say you are being overbilled.

The second fundamental problem, which is rarely discussed, is that there is no real basis for an attorney’s hourly rate being fixed (no matter what his or her customary hourly rate is), i.e., all work done by the attorney is billed at the same hourly rate.  I came across this concept in a great post by Mitch Kowalski, “The Lost Art of Pricing for Legal Services“:

Sadly, this “lost art of pricing” was thrown overboard by the ease (and feigned business-like process) of simply billing for every minute spent on a manner, despite the fact that not every minute spent on a file was equal in value.

As a result, the billable hour has created a false reality for lawyers; that a lawyer’s mere presence, or any activity undertaken by the lawyer, no matter how mundane, is worthy of compensation at a very handsome rate.

In other words, the amount of skill and experience needed to initially advise a client on a complex and risky matter, which may indeed be worth more than $1,000 per hour, is far different from the amount of skill and experience needed to make a telephone call, read an email, or review a box of routine documents, which could and should be done at a much lesser hourly rate, all the way down to no charge for administrative and secretarial work.

It’s time for clients to take responsibility for their bills and to wake up their lawyers from the “false reality” that all hours are equal.  Clearly, they are not.  Whether you accomplish this through litigation guidelines, budgets and proper staffing, or through well-designed AFA’s, the bottom line for a smart client is to only be billed at the rate appropriate for the work being done.

3 Comments leave one →
  1. September 26, 2012 8:40 am

    I prefer flat fee billing myself. I agree with your overall premise here that lawyers should not charge the same fee per hour if they are just reforming routine office task for clients versus researching legal theories for a claim. Great post!

  2. September 28, 2012 12:04 pm

    I completely agree that every minute of every hour does not have the same value and should not be priced the same way. After 25 years as in-house counsel, I have recently launched my own law practice dedicated to serving the accounting profession. (www.newgatepartners.com) As I have thought about billing models, my goal is to have clients that are completely satisfied with the service they received and the fees they paid. Accordingly, when I do work for a client I ask myself whether the amount charged reflects the value of the service delivered to the client. That means that I may need to adjust my hourly rate downward to be commensurate with the value the client received, or write the time off completely. It’s just the right thing to do. Some lawyers will say that they are more efficient and that their higher hourly rate reflects it. No doubt there is truth to that. But some things (e.g. reading an email) take just as long for a lawyer with 20 years of experience, as does a 2nd year associate. With other things, the incremental hourly rate simply does not translate into a superior product or a corresponding reduction in the time required. In the end, clients should pay no more than the value received.

    [Posted on LinkedIn “Law Department Management http://linkd.in/W7Mfxd%5D

    • September 28, 2012 12:07 pm

      Peter, would you also adjust the price up if you deliver an excellent result for less hours than expected? I think you deserve to, but there is also an ethical problem if the client is not aware of this possibility.

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