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Always on Time

Billable hours are under scrutiny, but they're here to stay

Back Web Only Oct 2, 2014 By Steven Yoder

The billable hour is under attack. After a scandal involving allegations of overcharging at global law firm DLA Piper last spring, Northwestern University law professor Steven Harper wrote a New York Times op-ed in which he asserted that the billable-hour system serves no one.

Critics like Harper  argue that it skews incentives for lawyers. Attorneys who charge based on the time they spend on a case will be tempted to move in slow motion on tasks or bill for hours not worked.

Still, the billable hour will almost certainly survive. Here’s why:

Legal consulting firm Adam Smith, Esq. notes that attorneys are loathe to quote fixed fees on often-complex cases. Flat-fee estimates could leave them working uncompensated when complications on a case arise.

And Harper himself observes that in many areas of law, courts only approve legal fees that have been calculated using the billable hour. Until courts change, lawyers won’t.

Alternatives like fixed fees don’t actually get rid of the billable hour, argues Bank of America in-house counsel Ken Swenson. Flat fees still are based on the lawyer’s calculation of how long a case or task will take, multiplied by their per-hour rate. So for complicated cases, lawyers could jack up their estimates to protect themselves from getting stiffed if it takes longer than expected.

Flat fees also reward speed and efficiency. That sounds good until it goes too far, with attorneys cutting corners that matter.

In essence, it’s hard to come up with a fair price for work that’s complex and unpredictable.

Of course, not all tasks in the legal profession are–document review, trial preparation, and contract drafting are often straightforward, for example. That’s why many in-house corporate counsels are sending off more predictable tasks like those to legal outsourcing companies, which often bill them for flat fees. Outsourcers usually can do those jobs for far less than what it would cost the company to hire an attorney.

But that still leaves the problem of how to price the more complex legal work that remains.

The billable hour will likely remain the standard because lawyers are selling their expertise, not a product, asserts Stuart Pardau, Assistant Professor of Business Law at Cal State-Northridge. He shares an apocryphal quote from Abraham Lincoln: “A lawyer’s time and advice are his stock in trade.”

 

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