03
May2013

The Billable Hour

Just one month after embarrassing disclosures suggesting overbilling a client, the law firm involved was written up as the world’s largest revenue producer. Who couldn’t fail to link the two stories?

Whether the suggestion of overbilling negates the whole idea of billing by the hour is an important related question.  Stephen J. Harper, adjunct professor at Northwestern University and retired partner at Kirkland and Ellis, wrote an op-ed for the New York Times about a month ago highlighting the negative impacts of billing by the hour.

The Timesthen published a letter to the editor from Alan Moldawer, the Vice President and General Counsel for Veolia, a major transportation company, in support of hourly billing because it allows clients to track the progress of the work being performed.

But Harper argues that while the billable hour originally arose to provide greater levels of transparency, it now serves as a means for firms to manage productivity levels internally; the minimum annual billing requirements imposed upon attorneys have led to a quantity over quality issue; and clients lack the knowledge of how much time is required to perform many of the duties that will appear on their legal bills.

The issue is both simple and complex. The simple part of it is ethics; it is wrong to overbill. While attorneys are expected to act ethically, the competitive atmosphere of today’s legal market may cause incidents of overbilling to increase. But in addition to the obvious immorality involved, surely such lawyers are thinking short term or not at all if competitive pressures cause them to overbill. Lawyers should want long term clients and referrals to others from even short term or one-time clients. Businesses with the highest percentage of satisfied clients that refer new clients to it have the fastest growth rates. My own firm has grown fast because of referrals from existing clients.

A more complex issue is whether one system or another promotes overbilling? Flat fees incorporate profit. If clients lack the knowledge to determine the time required to perform legal tasks, how are they going to know enough to evaluate flat fees? Contingent fee percentages? Whether a settlement in a contingent fee case is reasonable? If flat fees are used, aren’t law firms as a matter of internal management going to impose an aggregate monetary target inducing acceptance of too many flat fee assignments? The quantity over quality issue won’t go away if flat fees are used.

I analyze hourly billing to manage productivity levels internally, in a good way: I can see issues that lawyers are having trouble with and rectify them; I can reallocate work; I can prepare budgets.

So what should a client do?

1   Communication is important because sometimes you can do less and still win the case.  The client has to provide informed consent before reducing the scope of investigation or discovery, but these are useful client conversations even if the scope of the assignment is not reduced.

2   Simply making the cost of legal fees an open topic of conversation reduces misunderstandings and helps illuminate the cost/benefit analysis necessary to litigation decisions.

3     Asking your attorney to predict what will happen and then judging it by what actually happens is a concept clients can use to compensate for their lack of knowledge of the law.  By comparing predictions to actuality you have the lawyers judge themselves.

    When you are a plaintiff, asking your attorney to take the assignment on a contingent fee basis or a blended hourly/contingent fee basis is a good check for whether the lawsuit should be brought.

The Patterson Law Firm offers billable hour as an option and sometimes it is a necessity, but we also have a comprehensive list of payment options designed to provide flexibility and ensure a positive client experience. To learn more about our offerings, call (312) 223-1699 to speak with one of our attorneys.

Sources: http://dealbook.nytimes.com/2013/03/25/suit-offers-a-peek-at-the-practice-of-padding-a-legal-bill/

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