The jury’s still out about how to fix billable hours

Filed under: News |

Get a group of lawyers together and they’ll have trouble agreeing on anything without a number of footnotes and caveats. But, increasingly, attorneys are finding common ground about one thing: the problem with the billable hour.
Critics of the billable hour say the practice — in wide use since the 1960s — encourages firms to use more attorneys on a single issue, pad bills with services that are only marginally useful and draw out cases that could otherwise see a swift conclusion.
The practice raises several questions: What do lawyers sell to clients? Is it their time or their skill? And, if it is their skill, isn’t there a better way to measure that value than by watching a clock?
“The problems are pretty straightforward,” said Michael Goess, Sullivan professor at the John J. Sullivan Endowed Chair in Free Enterprise at Regis University. “Any time you have to keep track of everything you do during the day, it’s a pain in the neck — or other region of the anatomy.”
Lawyers, like all professionals, spend time performing a variety of tasks that are not considered billable, but are mandatory for their jobs, he said. Doing that takes away from time they could be billing — and there is always pressure to bill more hours, especially at large national law firms.
“And then there’s a sense from clients that they shouldn’t pay for time spent researching the law, or time at the copier or for the paralegal’s time,” he said. “They only want to pay for time the attorney spends actively on a case.”
Doctors, accountants and dentists charge flat fees for their work, and some legal professionals do the same.
“Contingency fees have been around the legal profession for a very long time,” Goess said. “Personal injury attorneys always do this, you see it on television: ‘if you don’t get paid, we don’t get paid.’”
The billable hour took over the legal profession after the Supreme Court said that fixed rates violated the nation’s antitrust laws. The profession turned to billing by the hour as an option. But many say it hasn’t worked well.
Because associates are being paid more at law firms, the amount they are expected to bill has increased. And as associate costs soar, so have billable hour rates, climbing almost 30 percent during the last five years.

ABA seeking changes

The American Bar Association is leading the charge against the billable hour, issuing a 90-page report in 2002 that accuses the practice of generating a variety of negatives — including waning public respect for the profession.
“The billable hour is fundamentally about quantity over quality, repetition over creativity,” said Robert Hirson, then-president of the ABA. “With no gauge for intangibles such as productivity, creativity, knowledge or technological advancements, the billable hours model is a counter-intuitive measure of value. Alternatives that encourage efficiency and improve processes not only increase profits and provide early resolution of legal matters, but are less likely to garner ethical concerns.
The report recommended several alternatives to the billable hour, but five years later, the ABA admits that billing by the hour isn’t going away soon.
“… the outright elimination of time billing is not a likely proposition,” Hirson said. “In fact, time billing as one aspect of price-setting for legal services is an appropriate and necessary tool in certain situations.”

Firms vary billing structure

Local firms are accepting the ABA’s stance and using alternatives to hourly billing whenever possible, but retaining the practice in the majority of their work.
“The vast majority of the work we do still is billed out,” said Kent Karber of Holland & Hart’s Colorado Springs office. “We are doing some alternatives that are different — contingency work for large cases with a number of plaintiffs and defendants, product defect type of work we’ll accept on a contingency basis.”
Karber said the firm also negotiates flat fees with some clients.
“In certain areas of our practice, the cases are done the same way, every time,” he said. “So we offer a flat fee in some areas, such as trademark registration. We talk to the client and if we’re confident of what our internal costs will be we will offer a flat fee.”
Many attorneys who specialize in bankruptcy or foreclosure cases also use the flat-fee billing format, Karber said. While Holland & Hart doesn’t handle either of those kinds of cases, he said flat fee structures are popular with clients.
“We offer flat fees on a piecemeal basis,” he said, “right-of-way work, development work.”

Sometimes, no alternative

Many firms also use retainers if a client expects to use the same attorney repeatedly, Karber said, but the billable hour still reigns supreme at most law firms.
“Some cases just require it,” he said. “If the case is particularly unique, there’s no other way to determine what the fee will be. If it’s tremendously complex, we have to use the billable hour.”
Goess agrees, citing the Microsoft antitrust case as an example.
“There’s no way to tell how many lawyers are working on that case,” he said. “It’s a tremendously complex case, with hundreds of lawyers working hundreds of hours. And it could go on and on. It’s impossible to figure out a reasonable fee for that kind of case without using billable hours.”
And that’s one of the reasons the ABA cites for the entrenchment of the billable hours: simple, familiar methods that serve when no one can calculate the value of the service.
“For law firms, the value of the same amount and quality of legal work to one client could be completely different than the value of the same work to a second client,” the report said. “Yet, it simplifies life to stay with the lowest common denominator — hours worked.”