Skip to content

The Billable Hour is Dead to Me (And Why it Should Be Dead to You, Too)

June 4, 2013

Time for some straight talk.  Big Client, you might want to sit down.  Your trusted fiduciaries, i.e., BigLaw (pick your favorite, they are all equally guilty), have been stealing from you, for as long as both you, or they, can remember.  Not just squeezing you for a few extra ducats, but backing-the-armored-truck-up-to-your-bank-vault-and-cleaning-you-out kind of highway robbery.  Who says, thieves don’t prosper? These fat cats are living the high life, all because you’ve given them the ultimate hall pass.  You should be ashamed of yourselves.  I would have a hard time looking at myself in the mirror every morning.

What’s at the bottom of this gigantic pull-the-wool-over-your-eyes Big Swindle?  It really all just boils down to one single little white lie, told over and over, by just about every lawyer to every client, over the last 50 years:

Legal matters are simply too unpredictable to accurately plan and budget.  Because of this we have no choice but to bill you by the hour.

Really?  We can send a man to the moon, but we can’t figure out how to scope and price a lawsuit?  Law is somehow more complex than rocket science?

Man on Moon

Look What Upfront Planning Can Do

We can build the Eiffel Tower in less than two-and-a-half years, which had 18,038 different parts joined by 2.5 million rivets, using only 300 people on site.  Must have been too hard to plan for, right? Uh, no, there was plenty of pre-planning – 1,700 general drawings and 3,629 detailed drawings – all requiring each rivet hole to be specified within 0.1 millimeters.  You give the Eiffel Tower project to an AmLaw 100 firm and they would put 18,038 timekeepers on it and bill 2.5 million hours.  Then they’d send you 17 detailed bills with 3,629 general block-billed time entries.  Because they didn’t plan, they would have to scrap (settle) the project right before the public unveiling, because it would have a 50-50% chance of collapsing (losing at trial).  Of course, they’d get fully paid for this rudderless and bloated project, whether it remained standing or not.  Sound all too familiar, right?

So, are legal matters that much harder to plan and budget for than moon landings and the construction of world-famous monuments?  Of course not.  Yeah, but, well, uhhhhh……..then why doesn’t my law firm do it?  The answer is again, surprisingly simple.  Ready?  Because by not doing it they get to bill you whatever they want to, need to, or can just plain get away with.  By not requiring any upfront planning and budgeting, you enter a very dangerous and uber-costly world controlled by Parkinson’s Law and its nefarious corollaries.  And trust me, none of these stomach churning variants end well for you, the paying client.

For those weak of heart, you may want to locate your nitroglycerin pills.  Parkinson’s Law, which at first glance appears so harmless, was first postulated by Cyril Northcote Parkinson in The Economist in 1955:

Work expands so as to fill the time available for its completion.

Sounds tame enough to me.  If you have 4 hours to complete a project, you get it done in 4 hours.  If you are given 6 hours, you will use the 6.  But what happens when you have no deadline and you charge anywhere from $300 to $1250 an hour?  A macabre storyline right from Game of Thrones, unfortunately, as revealed by Parkinson’s legal corollaries below:

I. Parkinson’s MBHQ Corollary:

Work expands to magically fill (or exceed) a time keeper’s minimum billable hour quota, whether per day, week, month or year.

Here’s where things get downright nasty.  Let’s say I’m a BigLaw associate and I only have 3 cases to bill on, but I need to get an average of 9 hours a day in to meet my 1900 minimum billable hours per year quota.  Let’s say in a normal situation, i.e., one without quotas, I could do everything needed on those cases in 6 hours a day.  Fantastic, that leaves 3 hours for social media, long lunches and general workplace stuffing off.  Or, if I was an exemplary employee, I could use the rest of my day on business development and pro bono work.  In the real BigLaw world, I absolutely, positively, have to bill those 9 hours, whether the work is needed or not.  I have a couple of options:

  • First, I could actually do more work on the cases (although not needed).
  • Second, I could pull out my trusty magic-bag-of-associate-tricks and morph an honest 6 into the required 9 (rounding up, multiple 0.1’s for every email read and phone call made, unnecessary conferencing and file review, etc.).
  • Third, I could just make up the extra 3, the first few times promising myself that I’d make it up later (yeah right.)  From the client’s perspective, however, all three options result in an extra 33% of unnecessary time.  But that extra 33% of unnecessary time to the client, is the vig or juice that feeds the BigLaw machine.

Like I said folks, unchecked Parkinson’s Law is not your friend.  Don’t believe me?  Then you haven’t seen the bills that I have.  Teams of associates (and partners!) billing an average of 9 or more hours a day (sometimes up to 19!), month after month.  And they weren’t in trial, they were reviewing and re-reviewing this and that document and engaging in endless conference calls among themselves.  For almost 3 years and counting – no end in sight.  Did I mention this little $30 million matter didn’t, and doesn’t, have a budget.  Not a penny spent on project management.  Although I could find plenty of great project managers who would work for far less a day than just 1 hour of 1 partner’s hourly rate, and deliver a massive ROI on that investment.

II.  Parkinson’s HRMR Corollary:

Work billed at a higher rate produces more revenue than work billed by a qualified lower-rate time keeper.

Rational clients want work to be done by the lowest-rate qualified person.   Thus, for basic commoditized work like document review, the client would prefer $30 per hour contract attorneys to perform the work rather than $300-$800 per hour associates. However, given the fact that there is no budget to adhere to, or project management trying to best utilize resources, managing partners much prefer to use higher-billing associates for the work, and to do as much as is humanly possible (or inhumanly possible, if allowed – see above and below.)

III. Parkinson’s WTMCCAP Corollary:

Work expands to whatever is the most the client can afford to pay (or will tolerate).

This is the default law that comes into play when there has been no upfront planning and budgeting. The managing partner goes by gut instinct to determine what any given client will find acceptable.  Just how much blue Kool-Aid will the client drink.  This can become especially dangerous to clients in a “bet the company” case, where the firm is essentially given a blank check because of the importance of the matter. When client’s doth protest too much, the partner may even grant “discounts” to appease the client who walks away feeling vindicated, as the partner simply adds an extra timekeeper to make up the difference.

As you can see, Parkinson’s Law, and it’s money-sucking corollaries, all act to unfairly fill up BigLaw’s coffers, at the expense of the paying client.  There’s no getting around the laws of human nature – work is always going to expand to fill the time available for its completion, just like the sun is going to rise in the east and set in the west.  But while you can’t change the first part of the law, you can effectively manage and control the second part – “the time available for the completion” of any given tasks or phase of the matter.  Taking this step is the key to real legal spend management, and I’ll discuss exactly what this looks like in my next installment.

Despite what your attorney wants you to believe, the vast majority of the law isn’t rocket science, and even if it was, you can still plan and budget just like NASA did for those moon landings.  In fact, I know of a few firms that can do more than just give you a budget – they will give you an upfront value-based price for any matter.  And guarantee it.

Part I – The Billable Hour is Dead

Part Ia – The Billable Hour is Dead to Me (highly recommended for the picture alone)

14 Comments leave one →
  1. June 4, 2013 9:05 am

    Fascinating. Many apt observations.
    Here are two contrary thoughts from my experience as a solo (formerly of a big firm).
    1. Decades ago I agreed based upon optimistic assurances from my client at the outset of the case that I would take a “cap” (maximum) on my fee. After spending about five times that much in time, my pleading with the client finally paid off and he switched lawyers. So that is a never again which I have held to.
    2. It is virtually impossible to estimate the hours at the beginning of a case. I have gotten substantial complaint from one or two clients because there are always so many unforeseen motions and appeals and complications. As in trials, where you can always expect the unexpected, the unexpected almost always comes up and increases the fees.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  2. June 6, 2013 6:52 am

    There will be instances in which a flat rate is appropriate. As many people have pointed out, business law practitioners have been doing this for years. Need a business entity formed? $X. This is part of the move to unbundle legal services. The attorney who drafted your articles of organization or operating agreement did not become your business’ attorney until the end of time. They performed one task and you took it from there.

    There are many matters out there which require a billable hour. A hotly contested custody battle is too hard to predict. But pulling back, there’s the petition that got them into court. A lawyer could draft the petition and let a competent client take it from there. If the client needs help along the way – new engagement for a new matter with a new method of billing.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  3. June 6, 2013 6:57 am

    The picture is not new, but nicely drawn. I am looking forward to some new insights.

    [Originally posted on LinkedIn group “Project Management for Legal Departments & Law Firms”]

  4. June 7, 2013 7:54 am

    Mike I agree largely with the views you express in your article. Like you, I believe that every matter handled by a professional firm is capable of having the work scoped and a fixed price given. As a result, I disagree with Rich and Conor that matters require a billable hour. That is the myth perpetuated by professional firms for way too long. Professionals sell intellectual capital or knowledge to their clients not time.

    The key with fixed pricing is to properly plan what work needs to be done in the normal course of events (which after all as professionals we should be able to work that one out based on our experience and knowledge of these matters) and to set an appropriate price to undertake that scope of work. If the scope of work is properly done and the costs agreement with the client allows for variations to be separately priced (to deal with those unforeseen motions, etc), then there is no valid reason why fees cannot be agreed upfront with the client for a particular scope of work to be undertaken.

    Pricing in this manner is a skill and takes a lot of hard work to learn how to do it properly but it allows the professional to set a price that is fairer to the client and offers more certainty to the client at the outset and more accurately refelcets the value of the services being provided to the client. As opposed to giving the client a hopelessly inadequate estimate where the actual cost turns out to be several multiples of the estimate. It also allows other factors to influence the agreed price including value to the client, urgency, difficulty, complexity, the amount of money or property involved, the skill and specialised knowledge of the professional, etc, which the billable hour will never take into account as it is only a metric for selling time.

    In my experience, you do get much better with pricing over time and if, as knowledge leaders in value pricing like Ron Baker say, you don’t allow your fee earners to price their own work, then the fixed prices are much more realistic.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  5. June 7, 2013 7:56 am

    Craig,

    The biggest problem I have is that matters come up all the time that cannot be forecast at the outset. Consider this. You as plaintiff estimate a fee and then file your complaint. Defendants’ attorneys file an extensive motion to dismiss with a lengthy brief. That requires you to do extensive research and file a lengthy brief and prepare for argument. Then there is an appeal (in NY state courts you can do that). So already you have tens of thousands of fees expended that you didn’t anticipate. Later you have discovery disputes including fights over documents and e discovery and depositions of parties and nonparties and they cannot be resolved without formal motions. This requires extensive research and briefing and argument. Then halfway through the case the defendants’ attorney moves to withdraw because he’s not getting paid (by his client whom he gave a low estimate on fees). You wait while they fight that out. If counsel is permitted to withdraw you have expenses and delay while new counsel gets familiar and then fights for more discovery. Nonparties subpoenaed for depositions hire attorneys and move to quash necessitating more fees. Pretrial proceedings require motions in limine on both sides that were not foreseen. This is what concerns me in giving a binding estimate of fees.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  6. June 7, 2013 7:58 am

    Rich, this is what I was referring to as the importance of scoping the work properly and having a variation mechanism. I, like you, have a litigation practice and so this problem does arise. How I approach it is to tell the client at the outset that I can scope the work on their matter in a number of ways and provide them with options.

    I can scope the work to only include the “yes work” that I know has to be done (ie issue the writ, file a pleading, provide discovery). Alternately, I can scope the work to include the yes work plus the “likely work”, being work that is likely to be necessary to be done. Alternately, I can scope the work to include the yes work, the likely work and the “maybe work”, which may happen but might not and there is no way of telling up front. Lastly, I can scope the work to provide what is referred to as a “who the hell knows” price where I provide a price that is inclusive of any work to be undertaken. In 3 years that my firm has been doing fixed prices, I have only seen 1 file where we have given a who the hell knows price to a client in the last 3 years. From memory, Jay Shepherd or Mark Chin first came up with this and put it in a diagram with concentric circles with the yes work in the centre and moving out from the centre with each option.

    With each of these, except the last one, if something arises outside the scope of work, then I will provide them with a further price for the additional work that needs to be done (ie strike out application, appeal, attorney withdrawing, etc). We call these variations, in much the same way that if you ask a builder to build you a house off the plans he will give you a fixed price and if you deviate from the plans, then he will issue you with a variation of the price for the change in work.

    The other thing in pricing litigation work is to explain to the client that it is not always easy to scope a matter from commencement of proceedings to judgment and as such, you will scope it in stages. There are checkpoints in any litigation that you can use as a point to price a matter up to. For example, your first price might be to issue proceedings and to file your statement of claim. Once that work is completed, you tell the client that you will provide a further scope of work for the next stage of the proceedings up to whatever the next checkpoint is. I find that my clients are ok with this method of pricing.

    In my litigation practice, I price work in stages and generally offer clients the option of pricing the yes work and the likely work, which most opt for anyway. But I do offer the choice in case the client wants the work priced differently with a narrower or broader scope. I also explain that the more broader the scope, the bigger the price will be to take into account the risk of work potentially having to be done, that may or may not eventuate. This way they can make an informed choice based on their budget.

    So, it is possible if you approach it correctly and have some safeguards in your costs agreement.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

    • June 7, 2013 11:21 am

      What is amazing is how well Craig has figured out all this upfront pricing while being upside down in the land of Oz, although perhaps that is what it takes since the Aussies seem to be leading the charge. Too bad they can’t show the same resolve when playing the All Blacks.

      Craig, are you using any holdbacks and success bonuses in your pricing?

  7. June 7, 2013 7:59 am

    Rich, you make it sound like you’re shocked that your adversary would file a motion to dismiss. Clients hire expertise. That should include being able to reasonably predict whether such a motion is likely or a possibility. So price accordingly. Price A, but if they do this, Price B. The object is not to figure out how many hours you will spend, but instead the cost of generating an output. More and more are doing this and once you learn how, are doing quite well.

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  8. June 7, 2013 8:01 am

    I’m a little confused. Are we talking about pricing a whole matter? Steps along the way? Both?

    I could see an instance, in a very complex divorce case, in which you could flat rate individual steps. Petition/Summons/Service – $X. Move for a psychiatric evaluation – $Y. Petition for fees – $Z. And so on.

    It makes me think of a game of chess. You can attach prices to your pieces, so when you have to move them, the client knows how much it will cost. The problem I see is knowing if you have to move them, and how many times.

    The other half of the problem is the client. Generally, family law clients don’t have much cash to throw around. Further, they don’t understand why a divorce may cost $1,000 or $100,000. (That’s a bit extreme, but I hope you see my point)

    I wrestle with this because I have recently stated with an incubator program at the Chicago Bar Foundation called the Justice Entrepreneurs Project. The program seeks to deliver legal services to modest means clients through non-traditional billing practices. Any guidance on this topic has and will be extremely helpful.
    2 hours ago• Like• Reply privately• Flag as inappropriate

    [Originally posted in LinkedIn group “Alternative Fee Lawyers”]

  9. June 7, 2013 5:29 pm

    Mike, you’re getting closer but the flaw in all of this is that you are applying a common sense approach!

    [Originally posted on LinkedIn group “Legal Project Management (LPM)”]

  10. June 10, 2013 4:19 am

    When the in house lawyers are comfortable saying we don’t want a Rolls Royce and if we lose won’t blame the firm, then it makes sense. Until then, this is just one sided talk. I still want a Rolls, just want to pay for a Chevy.

    • June 10, 2013 6:50 am

      The problem is that they are still buying Rollses, even though the Tesla Model S can outcompete it on every level (except perhaps ‘brollies in the back door) for a quarter of the price. Time to enter the 21st Century, BigClient.

  11. June 10, 2013 7:01 am

    Many GC’s have a background in the large firms and maintain the status quo of sending work to their friends at their old law firms. They think that they know all the tricks. However they are victim of “Reputation Billing”. There is a simple tool to fight “Reputation Billing” by anonymous tendering legal services. As long as firms do not know who the client is, they will bid on the work and not on the brand name. All firms are ready to offer lump sums. Clients must write clear RFPs and use intermediaries to do the tenders for the sake of anonymity. GC’s have a hard time accepting the fact that intermediaries can get better results than tenders going out under the brand name. Smart firms that bring the work at the lowest possible level where it can be done well,sometimes bid 30x lower than firms unnecessarily using expensive partners. At Legal BenchMarket we achieve savings of 30-70% (often millions of $$)

    [Originally posted on LinkedIn group “e-Legal”]

  12. ilinarejeva permalink
    November 18, 2015 5:09 am

    Wonderful article! I enjoyed very much the part when the author says: “We can send a man to the moon, but we can’t figure out how to scope and price a lawsuit? Law is somehow more complex than rocket science?” How true! I think many lawyers see the disadvantages of the billable hour but still prefer to use it because they find it more comfortable, and familiar than the value-based pricing. Here’s a post where I tried to explain this: http://bit.ly/1NaIKn1 You may find it interesting.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: