The billable hour: A cure or disease?

by NZ Lawyer18 Jul 2014
If the billable hour is the cure, what’s the disease? 

According to An Investigation of the Billable Hour, a recent article by LexisNexis, the billable hour is destructive, setting unreasonable and unachievable targets.

Equally as damning is Christine Parker and David Ruschena’s paper titled The Pressures of Billable Hours: lessons from a survey of billing practices inside law firms.

The paper concludes that regardless of whether you are working with the billable hour (which can reward inefficiencies), or fixed fees (which can reward minimal effort), there is an inherent conflict of interest in the billing of clients.

The paper continues that billable hours, along with competitive cultures and beliefs about how lawyers achieve advancement, are more likely to push lawyers towards unethical behaviours than alternative billing methods and a culture focused on other forms of merit.  

A further 2012 article by the Pittsburgh Post Gazettes estimated that firms required lawyers to do a minimum of 1,700 to 2,000 billable hours per annum, and this pressure could lead to the padding of hours.
The billable hour is not the answer for healthy, sustainable law firms. 

In the course of preparing this column, I found an extensive commentary on achieving billable hour targets; however, it made no mention of delivering value to the client. So is the billable hour good for in-house counsel?

Most commercial businesses look to customer research, feedback or insights to ensure their offering remains relevant. Those that don’t are not considering the environmental changes happening around them.
The facts are: 
  1. In-house counsel are decision-makers within the business, accountable to the organisation, and assigning workflow based on value and effort.
  1. In-house counsel are employing more options for managing workflow: insourcing; up-skilling; project management; and outsourcing to the provider that represents best value – top tier firms, mid-tier firms, boutique firms, direct briefing of barristers, legal process outsourcing and contract labour firms.
  1. In-house counsel are not content with the current situation. ACLA research shows that legal functions rate their main law firm (the one they wish to deal with most) as lacking in key aspects of the relationship:
  • 22% disagree their main firm provides commercially applicable advice
  • 38% disagree their main firm is upfront and transparent about pricing and 43% disagree their main firm provides realistic quotes
  • 54% disagree their main firm provides advice at a reasonable price
  • 89% disagree their main firm offers alternate billing methods that work
The research signals an important issue: current usage, does not translate to fixed loyalty. Equally, a price based business model must continually seek to undercut others. Therefore, a differentiation model based on the tangible and intangible value created (and exceeding the price paid) is a good starting point for a sustainable law firm model.

The billable hour is the disease. A cure is needed. ACLA is about to commence work on our next research report on the subject and we look forward to sharing the professions progress.

Trish Hyde is the current CEO of the Australian Corporate Lawyers Association. This article appeared in NZ Lawyer's sister magazine Australasian Lawyer. The lastest magazine editions of NZ Lawyer (6.2) and Australasian Lawyer (1.2) are now available. Subscribe for more articles and detailed legal features.