Doing away with the billable hour has been the mantra of legal commentators and practice innovators for about as long as we can remember. The global financial crisis and the decimation it wrought through the transactional markets seemed destined, at minimum, to nominate the grave site of the billable hour, if not bundle the practice into the coffin and nail it down.
Yet a decade on, billing clients by time continues to thrive, despite the many fixed fee and success-based alternatives.
Pop “benefits of the billable hour” into your favourite search engine, and you’ll find pages of explanation of how the practice benefits clients, the profession, and, it would appear, the course of justice. Charging by time underpins the integrity of the profession in that it covers the risk that law firms assume on behalf of their clients in developing expertise, in holding that expertise for the time it’s required, and then applying that expertise through rates that apply different cash values to the various levels of input.
It also provides transparency for clients who, the argument runs, are otherwise unable to put an accurate value on the advice they obtain.
And, of course, even if a law firm accounts for lawyers' productivity in six-minute increments, it doesn’t necessarily mean that that the final bill to the client will be an aggregate of that time. Any number of intended or unintended discounts may be applied that will supposedly find the economic value (the maximum value the client will pay, at that time) for the legal work. The final invoice paid may bear little relation to the actual time worked.
In which case, of course, the billable hour is working neither for the law firm, nor the client. And the arguments to support it (at least those outlined above) fall over pretty quickly.
So, why does it survive?
I recently attended an excellent breakfast seminar at the Law Institute of Victoria. The keynote speaker presented a pretty compelling case to support the proposition that the way lawyers bill, by input (time), not output (value), had retarded productivity growth within the profession.
But doing away with billing by the hour means that you have to re-think entirely how a firm is organized, who it employs, what assignments are taken on, how the work is managed, and the tools and technologies you employ. It’s not just about adding a pricing specialist and/or using an LPO.
We’re going through an extraordinary era in the legal profession, where not only the law firm is being re-imagined, but also what it is to be a lawyer, what skills you need, how and where you work. And as the discussion at the LIV event illustrated, it’s really exciting that much of this innovation is coming from smaller firms and sole practitioners who are actively seeking new ways of doing business in law.