October 12, 2007

"Hourly billing is wrong, and it's anti-client."

"There's a disincentive to be efficient since you get paid more if you take longer to finish a matter..." says Jay Shepherd, of Shepherd Law Group, which has abandoned billing by the hour.

Fast work is a good thing. How hateful to be embedded in a system that rewards inefficiency. This was a huge factor in my preference for law teaching over law practice.

23 comments:

Methadras said...

And this is one of the reasons why I despise the business of law. In no other industry do you get paid more for taking more time to perform a certain set of function(s). The system is simply gamed to this one particular profession without any competition outside of it's multitudinous practitioners. It's absurd and it simply proves once again to the general public that attorneys are nothing more than cash generating machines at the expense of their clients time and their clients pocketbook.

vnjagvet said...

Compulsive dronism (sm) is the curse of law practice.

Hear! Hear!

I abandoned hourly billing when I left big firms behind after forty years of practice.

I now quote my monthly or total fee up front and stick with it, even with litigation matters, after I have evaluated the case.

It then becomes my job to plan and execute the legal work within the quoted fee.

Efficiency is rewarded with free time.

The only exceptions are "lodestar" cases where the prevailing party gets "reasonable attorneys fees" by statute or contract.

In those cases, for self-preservation, I keep time and bill at a rate roughly 20% below my peers in big firms. That seems to have worked well.

Lisa said...

I don't understand people who think the billing system rewards inefficiency. Clients are not stupid and they know when attorneys milk them by overbilling. My clients tell me they appreciate my efficiency, and they send me more work because of it. I think people who overbill lose clients and/or annoy the originating attorney by requiring lots of write-offs, so they can't get away with it for long and be successful.

My two cents. But I still hate billing, just because there is always an inherent pressure to bill more--not unfairly or inefficiently--just more. I'm sure you miss that, Ann.

Methadras said...

vnjagvet,

Thanks for sharing your billing practice. I do appreciate the tone you've taken. At least you've been able to find the wiggle room you need to make money and remain profitable and competitive and that is a unique hallmark. At least in the business of law.

If I can ask you a question and just out of plain curiosity, what is your opinion on plain english law vs. legalese? I've tried to ask Ann about this, but I'm not sure if she's read my question, seen my question, or if she has seen and read my question has ignored it.

The reason I ask is because I favor plain english law and the removal of fine print in contracts. Not the removal as in total omission, but removal in the sense that fine print converts to the regular contractual verbiage instead, so it's all the same. Just curious.

Mindsteps said...

"How hateful to be embedded in a system that rewards inefficiency. This was a huge factor in my preference for law teaching over law practice."

How would you change it?

Methadras said...

Lisa,

The problem with billing, at least the way attorneys do it get negative press and rightly so. Look at the type of billing that occurred with Larry Birkhead and his attorney Debri Opri. A small, but not insignificant example, because I have to wonder if it was done in such a high profile way, how is it being done industry wide and to what extent.

hdhouse said...

Lisa

i'm fairly sure the average worker who's productivity enriches the corporation understands your point thoroughly....and is very sympathetic to your plight.

Joe said...

I had an attorney at a "reputable" law firm try to rip me off with hourly billing. What should have been a 90% boilerplate contract ended up being one of the worse piles of garbage I've ever seen. There wasn't a paragraph in it without serious grammatical and spelling errors. He then tried to bill us for 45 hours of work (in which he claimed to have done all the work and to have consulted with another attorney about this for six hours.)

We wrote a very nice letter, telling the law firm to go to hell and if they didn't like it, to take us to court. They dropped the matter.

Joe said...

By the way, this isn't the only, or even worse, example of billing. Anderson Consulting and Perot Systems specialized in getting contracts for both writing software and performing maintenance on that software with no checks and balances. They were notorious for delivering late and running up maintenance bills. (When Anderson Consulting went down, documents emerged revealing that this incompetence was actually factored by them when negotiating contracts.)

tc said...

Lets be real Ann,

The practice of law is often no more than a shakedown. Getting the most you can get for the least amount of work is quite common in our profession. Oh,we have our bright-eyed optimists... young men and women-in-general who usually fuck things up admirably well. But the truth is that the law today is often a consummate waste of time and we would all have been better off if most of the new lawyers -all bright- had become engineers or scientists.
Except for the women who should have stayed home and had children who could have payed for their parents Social Security... retire- ment.
Ah, Ann, for nearly 20 years I practiced law ( criminal and family court defense, wills, estates, real estate, corporations, business, commercial, matrimonial, negligence ...you name it and I probably did it) and I've seen the inside and outside of courtrooms, jails, law offices, lock-ups, holding pens, prisons (the south Bronx can be
worse than a prison)... and the seediest and most divine and pleasant places....
So take it from me that I know the law -its in my blood. And I know that it is out of kilter and off-balance today in a major way.
And it has been getting worse and worse for more than the past 50 years. And you know why ? Feminism and all its foul, amoral and debased creations. And I know and can prove this. Of course, for my efforts at pointing all this out to the powers-that-be in the legal profession (in accordance with the oath I took on becoming an attorney), that very legal profession, smothered by the feminism that is destroying our world, kicked me out.
But I have not given up...and I will change the world. You should not have become a lawyer Ann. You would have been better off had you got married, had children and stayed home to care for them. Words, words and more words are no substitute for children -and a real life- of your own.

Tom

Hey said...

Andersen Consulting went down? Never heard of Accenture, have we?

All time based billing systems are horrible for both the client and the provider. It revolves around the difficulty of creating a price for the service outside of the time involved.

Look at investment banking as compared to the corporate lawyers on a transaction. The bankers take a percent of the value of the transaction, while the lawyers bill for some number of hours. The most valuable legal approach has the transaction speed as a primary concern, but the lawyers have no incentive to be faster. They can only bill a certain numbers of hours in a year, doesn't matter to whom.

But what is the value of the lawyers to the transaction? It's more as insurance, but there are issues with the bar as to how to capture the value of the deal. So thus a horrid culture revolving around the billable hour. Same in accounting and consulting.

mtrobertsattorney said...

I once became involved in a piece of complex litigation involving a very wealthy organization as the client. I suggested to the mega-firm trial attorneys who were lead counsel that the case was ripe for a summary judgment motion. (For you non-attorneys out there, this is where you ask the judge to rule in your favor on the uncontested facts thus making a long drawn-out trial unnecessary.)
The trial attorneys didn't take kindly to my suggestion. In no uncertain terms,they told me that they were geared up for a long trial and that was that. No need to discuss any other approach to the case.

Needless to say, they were able to generate many more billable hours (at $350 to $400/hr.) in a long trial than they would had the case had been resolved by summary judgment.

As for the client, it was none the wiser and paid all the bills. What would it know about summary judgment motions and how they work?

Mindsteps said...

I am obviously a nonlawyer and am not famiiiar with any economic mechanisms that can change the practice of hourly billing. When I need the services of an attorney, I typically ask around. I don't know how much pressure this places on practicing lawyers to alter their billing routines.

It would be nice, when shopping for a lawyer if there were relatively objective measures by independent entities of cost, quality, cost-effectiveness, customer service, etc (the legal profession is not very client/consumer centered, rather it seems to have evolved into a lawyer, court, and judge centered profession). I don't think I have ever seen a comsumer report style rating system for individual attorneys or firms.

About the only attempts that I have been aware of to manage the costs of legal services have been related to federal tort reform efforts as opposed to the practice of hourly billing.

Trooper York said...

A doctor and a lawyer were talking at a party.
Their conversation was constantly interrupted by people describing their ailments and asking the doctor for free medical advice.
After an hour of this, the exasperated doctor asked the lawyer, "What do you do to stop people from asking you for legal advice when you're out of the office?"
"I give it to them," replied the lawyer, "and then I send them a bill."
The doctor was shocked, but agreed to give it a try.
The next day, still feeling slightly guilty, the doctor prepared the bills.
When he went to place them in his mailbox, he found a bill from the lawyer.

Zeb Quinn said...
This comment has been removed by the author.
Zeb Quinn said...

When it comes to the fee agreement, whatever it is, it's one place where the attorney-client relationship ruptures and becomes explicitly adversarial. When undertaking any other activity or endeavor of this magnitude in life a good lawyer's advice would be, "don't sign that contract until you have it reviewed by an attorney."

Mary Ann said...

I don't have any problem with the billing and being billed by the hour, within the framework of binding estimates for a total job.

How about financial advising and money management? I'd love it if finacial advisors were willing to bill by the hour, rather than taking a percentage of my money every year for a few hours work. I'd far rather have someone set a price for their time, so that I could decide if I want to purchase that time.

Linus said...

What's the solution? I'm serious, I'd love to know. Even lawyers who get rich off the billable hour would like to not be slaves to the clock. A question for Mr. Shepherd: What is the flat fee for a divorce? And do they ask for the $25,000 up front? Or do they spend a significant amount of time dickering over each new specific task? "Hey, Bob? It's your attorney.I need to call your wife's attorney for some discovery matters. It'll be $40 for the call."

"No way, man, I won't pay more than $20."

"But Bob, I don't know how long it'll take, it could take an hour or so. How about $30."

"$25."

Yeah, that's how I want to spend my time each day.

save_the_rustbelt said...

Given the wild high salaries for new associates (at the big firms) and the intense pressure for billable hours this auditor thinks there is a 100% probability of billing fraud.

I suspect corporate America puts up with it to obtain "name" firms and considers it immaterial theft.

Out in the middle of the country hourly billing often (not always) can result in a reasonable approximation of value billing.

Richard Fagin said...

I am reminded of the incident that caused me to leave a partnership at an IP boutique a few years ago. I had complained to my partners that a fixed hour goal was not working for me because I just work too fast. Jacking up the billing rate wasn't feasible because clients don't like high hourly rates, notwithstanding that the total cost for a particular matter may be less when billed by some of the higher rate attorneys. They eventually agreed on a "value" billing arrangement, where bills for my work would be adjusted to reflect some subjective determination of the market value of the work. That was all great, until when one partner asked the other about how it was all working out, the other partner complained that my billed hours were inadequate.

That is why I work on my own, and if I want not to bill for phone calls and reporting letters, that's my choice and I hope the clients appreciate it.

dmfoiemjsof said...

Wow, lots of lawyer hating going on here. Lisa got it right.

Oh, and should we try to point out all the inefficiencies of corporate or academic life? That would take forever. Billing actually forces you to be very efficient.

Revenant said...

An hourly rate encourages attorneys to spend time doing SOMETHING related to your case, because they get to charge you for it. If they're making a flat $25,000 whether they work 50 hours or 500 hours, what's their incentive to go all-out on your behalf?

Linus has a good point too -- exactly how the heck do you negotiate a flat rate for an open-ended service, anyway?

SWBarns said...

There is a place for both hourly billing and flat fee billing. About 80% of my practice is based on flat fee billing. I can do this because I have established clients where I know about how much time a task will take and my clients know what the value of the task is to them.

I am lucky because Intellectual Property law (at least if you are not litigating) has easily defined tasks. Drafting a patent application? Let me know the technology and I can give you a pretty good estimate. A mechanical case will be a little less than a chemical case, nanotechnology will be more than both. Opinions, I can give you an estimate and stick to that estimate, sometimes I take a haircut, but with a long-term client, I am happy to do so.

I can’t imagine doing this with a divorce trial. No repeat business, no way to predict how the parties are going to interact. I once saw two lawyers in court fighting over who got the lawn furniture. Husband and wife spending $600 per hour to get $300 worth of sun faded furniture. I certainly hope it was the clients who insisted on this rather than the lawyers trying to prove themselves. You can’t anticipate this kind of fight and you have to bill by the hour.

If you want to be happy with your lawyer, establish a long-term relationship. Just like your favorite restaurant, they know you when you walk in the door and you know what to expect.

A lawyer parachuting in to solve your problems is going to cost you. Talk with the lawyer ahead of time about what you expect from him and how much it will cost. Many times, once I explain the costs and benefits of obtaining a patent, I end up talking a potential client out of using my services. Not the best business model, but I’d rather not have them use me as an example on the next Althouse blog post.