Bruce MacEwen has posted Savvy Blawgers Query #2: The Future of the Billable Hour. It’s thought-provoking reading on the much-debated value billing topic. This topic was the subject at one of the sessions at LexThink.
I gave what I thought was a short, pithy statement that argued, I thought, that inertial forces would keep lawyers from making the change to value billing on their own. Unfortunately, Bruce interpreted what I said almost in almost exactly the opposite way from what I meant.
I said:
“Answer: The future of the billable hours is in the hands of clients. Without client pressure, there is little reason to expect many lawyers or firms to change the current system on their own. Ultimately, however, there will be practical limits for how high rates can go and the number of hours lawyers can work. Until then, I expect alternative billing to remain in the realm of experiment, primarily used by innovative lawyers who will be criticized by some of their peers and praised by their clients. Here’s a great experiment: ask lawyers whether they like to have repair, construction or any other services done on an hourly billing basis, without an estimate or cap. If lawyers don’t like that approach for their services (and, believe me, they do not), what makes them think that their clients like it any better? Forces for change are building, but the pressure has to come from clients and, even then, change will be slow.”
It was sentence #3 that caused the problem. What I meant was that, as a practical matter, there are practical limits to how high hourly rates and the number of hours can go. The market will set a cap on high hourly rates can go. Physical and mental exhaustion will set the limit on the number of hours you can work. When a lawyer’s hourly rate hits the market cap, the lawyer (assuming the simplest scenario) will only be able to make more money in succeeding years by billing more hours.
The result of a focus on hourly billing is then a consistent push to raise hourly rates, to maximize the number of working hours and to have incentives to spend more hours on projects.
If, and I know that this is a radical proposition, we assume that lawyers would like to make a lot of money, then, as many critics of the billable hour have argued, they’ve chosen the worst way to do so.
Unfortunately, at the same time, they’ve also chosen a way that puts their incentives at odds with those of their clients.
Here’s the example I like to give. When we moved to our house, we used a moving firm that estimated that the job would take 3.5 hours and quoted us a flat fee of $350. In fact, the movers were great and got the job done in about two hours. We were so pleased that I think we even tipped the guys. For our $350, we had a great, FAST, no-hassle move and felt we got our money’s worth in value.
We recommended the movers to someone else. In a similar experience, they had a great experience and the move was done around an hour faster than the time estimate. They were livid that they had been cheated out of $100, even though they were completely pleased with the work the movers did.
Now the careful reader will have realized that almost everything in this post is a non sequitur. However, I have come this far and have vowed to pull all of this together and make a solid point.
My observation is that billing is largely based on inertia. Once you start down one path, it’s difficult to change. As long as lawyers feel that there is still room for either rates or number of hours to increase, inertia will keep them in the hourly billing model. The force that will push them out of hourly billing must, therefore, be external, which means from clients, or perhaps from other innovative lawyers or other professional services providers.
Unfortunately, I wrote my comment in a way that Bruce interpreted: “as soon as it’s not an optimal deal for firms, they’ll turn to something else.”
That’s not what I meant. Value billing will almost invariably be an optimal deal for both lawyers and clients, so long as there is trust and agreement on value. Value billing requires more thought and a change in approach. Inertia will almost always win.
Ah, hell, it’s easier to write about technology than this stuff. I’ll leave this subject to Matt Homann.
I’ll only note that the most telling evidence on this issue can be found by watching how hard lawyers will fight to avoid getting into an open-ended hourly billing arrangement with any other service provider.
I’ve always found Alan Weiss’s “Ten Ways to Convince A Buyer That Value-Based Fees Are Best” to be a very useful way to think about these issues.
[Originally posted on DennisKennedy.Blog (]