Tuesday, January 27, 2009

Death of the Billable Hour: Relationship First, Billing Method Second

As many interested in this topic would know, a couple of months  Time is Money-smallago, the ABA Journal published an article by Scott Turow entitled The Billable Hour Must Die.  The article has created a buzz in legal circles about the use of the billable hour as a means of getting paid.  Like all attorneys who have had to bill by the hour and track their time tediously, I have struggled with the billable hour.  However, I am not so sure that the method of charging is the real issue.

Recap of Turow’s Article

Turow’s article starts with the attorney prospective.  Specifically, the billable hour is a prison because making more money means charging more, or working longer hours.  Because there are only so many hours in a day and so much one can charge, the limits can be problematic. 

Second, Turow suggests that the billable hour puts the attorney adverse to the client by creating an incentive for the attorney to be less efficient and to prolong the engagement—particularly in litigation.  For example, attorneys often talk about the opposing attorney doing things just to run up the fees.

Not a Unique Problem

People-small In thinking about this, the problems underlying the billable hour are not unique.  For example, do not the same problems apply to every wage earner in the workforce?  If I make an hourly wage, the only way I can make more is to work overtime.  And do not hourly wage earners have an incentive to be inefficient or to prolong their workload in order to fill the time with work?  Yet I don’t hear cries to end the hourly wage.

Alternatives Not Really Different?

And what about the problems with the commission based payment system (i.e., contingent fees for attorneys).  Interests are aligned to get the deal done, but not necessarily in the same way.  An extra $10,000 to a client may be a big deal, but because the agent only gets a fraction of the amount, the value of working more hours to get an extra amount becomes marginal.    This does not even address the potential problems associated with an attorney who has in interest in the deal when they are supposed to provide objective counsel.

Similarly, a flat fee system just means that the attorney has an incentive to try to get the work done as efficiently as possible.  This does not promote quality.  Instead, it promotes speed, potentially to the detriment of clients. 

One alternative identified in the Turow article was doing the work and coming to an agreement on the payment at the end based on what the client thought the value was.  And while this picture, assuming it works, is nice, the same can be done with an hourly rate system.  This is because the client is free to offer more, and the attorney is free to write off parts of the bill—the billable hour can be the starting point.   

Relationship First, then Billing Method

Which brings me back to relationships.  It seems that the discontent with the billable hour is in part a discontent with the fact that a fee-for-services system is inherently incapable of perfectly aligning the economic interests of clients and attorneys. 

But, the billing method is not the issue.  The problem is Shaking Hands-smallthat attorneys and clients have to deal with each other, and cannot rely on their billing systems to make them buddies.  The emphasis, as with any business deal, should be on the relationship first like getting expectations out early, identifying interests and goals, and then taking the time to address these before engaging in representation.  The billing method will become less and less  material when the parties are focused on having a good relationship with communication and trust that is aimed at being mutually beneficial. 

Attorneys are not mechanics, they are advisors and counselors.  If an attorney is having a hard time addressing the advantages and disadvantages of the billable hour with their clients so they can work together toward a mutually beneficial understanding of the relationship, there is a serious underlying problem which will exist regardless of the billing method.  In short, how can a client trust that the attorney is going to be honest and straightforward on any aspect of their case if the attorney is embarrassed about their own interactions with their client?   

The billable hour may not be the holy grail of billing methods, but it is not the cause of disharmony between attorneys and their clients.  Instead, the billing process is an opportunity for clients to learn about their attorney’s basic mode of operation and bring the parties together.  It is an opportunity for an attorney to demonstrate to the client the kind of honesty, integrity and responsibility the attorney practices.  When this discussion and communication is a normal part of interaction with clients, the billable hour simply becomes the starting point for the parties to reach a fair compensation system. 

No comments:

Post a Comment