Career Development --> Law Firm Economics

Time is Money

Billing by the hour is central to private law practice today. But many think it is the bane of the profession, negatively impacting the service attorneys provide for their clients and the quality of life of the lawyers themselves. In August 2002, the ABA released the results of a study conducted by its Commission on Billable Hours which elucidates the deleterious effects of hourly billing and urges alternatives. (See: www.abanet.org/careercounsel/billable.html).

For most attorneys currently in practice, billing by the hour is the way it has always been done. The practice of using time as a measure for fees did not enter the legal profession until the 1960’s, however. Before then, lawyers and clients used many factors to set fees, including the result obtained, value of the services to the client, customary fees in similar cases in the locale, experience of the lawyer, and length and difficulty of the matter. Therefore, the final fee often was not determined until the conclusion of the matter, and a level of trust between client and attorney was required. But, as litigation and transactions became more complex and clients requested a more precise accounting of the services provided, the billable hour gained widespread acceptance. Initially, hourly billing was intended to establish the baseline fee, with adjustments for other factors such as success and value to the client. However, by 1970, pure hourly billing was the norm.

The great advantage of hourly billing is that it allows lawyers to readily plan and measure their productivity. A significant downside, however, is the incredible pressure placed on attorneys to continually increase their workload to maximize profits. The ABA study found that, in 1965, lawyers billed between 1200-1600 hours a year. By 1980, a full workload was measured at 1600-1800 billable hours per year. In contrast, today that number for big firm associates is from 2000 to upwards of 2400 to earn top bonuses, and around 1900 for partners. These billing requirements do not include time spent on anything other activities essential to a successful law practice such as administrative or management duties, recruiting and mentoring, pro bono work, continuing legal education, client development, and community or bar activities.

What does billing 2200 hours a year, for example, really mean? Studies show that, in reality, attorneys work many more hours than are billed; usually three hours are worked for every two billed. Therefore, to bill 2200 hours per year, a lawyer will need to “work” 12 hours a day, five days a week to bill approximately 40 hours per week. With three weeks of vacation and no sick or personal days, that yields 1960 hours. To pick up additional hours, the attorney can put in shorter days, working 7.5 hours to bill five, on 48 weekend days per year. Those additional 240 weekend hours would bring the total billables up to 2200 hours. Any “extra” activities, such as training, administration, client development, pro bono, community or bar activities, etc., would be in addition to these working hours.

Minds and bodies need a modicum of rest and relaxation in order to function well. No one can be at the top of their form at all times while putting in such long hours, leading to the possibility of poor quality work or even malpractice exposure. The pressure of such a grueling schedule can lead to burnout and has forced many attorneys out of the private practice of law, especially those with additional family responsibilities.

Nearly all of the large law firms surveyed in the ABA study use billable hours as a component in determining partner compensation and the vast majority tied associate base compensation and bonuses to hours. Very few firms give full credit for time spent on non-billable activities, leading to a significant reduction in participation in such activities. The clear message being sent to attorneys is that billable hours is the only thing valued by the law firm. However, many attorneys would gladly make less money in exchange for working fewer hours to achieve some balance in their lives.

A strong argument against billing by the hour is that it actually puts the interests of the attorney in conflict with the interests of the client by emphasizing quantity over quality. The number of hours it takes to complete a task does not necessarily correlate to the value of that particular task to the client. It rewards the lawyer who takes the most time rather than rewarding efficiency, creativity, or the use of technology to streamline the practice; hourly billing favors aggressive time recording and repetitious or unnecessary work, and may even encourage “padding” hours to increase profits.

While tracking time spent on particular tasks is an essential tool for time management, it may not be the best way to set legal fees. Several alternative methods have been debated in the legal community, but there is resistance to change, in part due to the relative simplicity and ease of use of the billable hour model. As with most changes in the legal profession, the push must come from the client. In this tight economy, many general counsels are under pressure to cut costs and are looking for alternatives to traditional fee arrangements with outside counsel. Some are negotiating set prices and capped fees. While it is too radical to propose the complete abandonment of billable hours, the ABA report advocated the study and at least limited adoption of alternatives such as value billing, partial or full contingency, flat fees, task-based billing, success fees, or fixed or blended rates.

Any change in a system that has become so entrenched in the practice of law will clearly take time, but would be a worthwhile endeavor. Introducing some of the suggested alternative billing arrangements arguably would better reflect the value of services provided by attorneys to their clients, as well as ease the time pressure on attorneys to the benefit of the profession as a whole.

Career Development --> Law Firm Economics Time is Money Billing by the hour is central to private law practice today. But many think it is the bane of the profession, negatively impacting the service attorneys provide for their clients and the quality of life of the lawyers themselves. In August 2002, the ABA released the results of a study conducted by its Commission on Billable Hours which elucidates the deleterious effects of hourly billing and urges alternatives. (See: www.abanet.org/careercounsel/billable.html). For most attorneys currently in practice, billing by the hour is the way it has always been done. The practice of using time as a measure for fees did not enter the legal profession until the 1960’s, however. Before then, lawyers and clients used many factors to set fees, including the result obtained, value of the services to the client, customary fees in similar cases in the locale, experience of the lawyer, and length and difficulty of the matter. Therefore, the final fee often was not determined until the conclusion of the matter, and a level of trust between client and attorney was required. But, as litigation and transactions became more complex and clients requested a more precise accounting of the services provided, the billable hour gained widespread acceptance. Initially, hourly billing was intended to establish the baseline fee, with adjustments for other factors such as success and value to the client. However, by 1970, pure hourly billing was the norm. The great advantage of hourly billing is that it allows lawyers to readily plan and measure their productivity. A significant downside, however, is the incredible pressure placed on attorneys to continually increase their workload to maximize profits. The ABA study found that, in 1965, lawyers billed between 1200-1600 hours a year. By 1980, a full workload was measured at 1600-1800 billable hours per year. In contrast, today that number for big firm associates is from 2000 to upwards of 2400 to earn top bonuses, and around 1900 for partners. These billing requirements do not include time spent on anything other activities essential to a successful law practice such as administrative or management duties, recruiting and mentoring, pro bono work, continuing legal education, client development, and community or bar activities. What does billing 2200 hours a year, for example, really mean? Studies show that, in reality, attorneys work many more hours than are billed; usually three hours are worked for every two billed. Therefore, to bill 2200 hours per year, a lawyer will need to “work” 12 hours a day, five days a week to bill approximately 40 hours per week. With three weeks of vacation and no sick or personal days, that yields 1960 hours. To pick up additional hours, the attorney can put in shorter days, working 7.5 hours to bill five, on 48 weekend days per year. Those additional 240 weekend hours would bring the total billables up to 2200 hours. Any “extra” activities, such as training, administration, client development, pro bono, community or bar activities, etc., would be in addition to these working hours. Minds and bodies need a modicum of rest and relaxation in order to function well. No one can be at the top of their form at all times while putting in such long hours, leading to the possibility of poor quality work or even malpractice exposure. The pressure of such a grueling schedule can lead to burnout and has forced many attorneys out of the private practice of law, especially those with additional family responsibilities. Nearly all of the large law firms surveyed in the ABA study use billable hours as a component in determining partner compensation and the vast majority tied associate base compensation and bonuses to hours. Very few firms give full credit for time spent on non-billable activities, leading to a significant reduction in participation in such activities. The clear message being sent to attorneys is that billable hours is the only thing valued by the law firm. However, many attorneys would gladly make less money in exchange for working fewer hours to achieve some balance in their lives. A strong argument against billing by the hour is that it actually puts the interests of the attorney in conflict with the interests of the client by emphasizing quantity over quality. The number of hours it takes to complete a task does not necessarily correlate to the value of that particular task to the client. It rewards the lawyer who takes the most time rather than rewarding efficiency, creativity, or the use of technology to streamline the practice; hourly billing favors aggressive time recording and repetitious or unnecessary work, and may even encourage “padding” hours to increase profits. While tracking time spent on particular tasks is an essential tool for time management, it may not be the best way to set legal fees. Several alternative methods have been debated in the legal community, but there is resistance to change, in part due to the relative simplicity and ease of use of the billable hour model. As with most changes in the legal profession, the push must come from the client. In this tight economy, many general counsels are under pressure to cut costs and are looking for alternatives to traditional fee arrangements with outside counsel. Some are negotiating set prices and capped fees. While it is too radical to propose the complete abandonment of billable hours, the ABA report advocated the study and at least limited adoption of alternatives such as value billing, partial or full contingency, flat fees, task-based billing, success fees, or fixed or blended rates. Any change in a system that has become so entrenched in the practice of law will clearly take time, but would be a worthwhile endeavor. Introducing some of the suggested alternative billing arrangements arguably would better reflect the value of services provided by attorneys to their clients, as well as ease the time pressure on attorneys to the benefit of the profession as a whole.	Hot Tips The Search Planning Your Search Assessing Your Marketability Resumes and Cover Letters Interviewing Strategies Special Circumstances Following Through Compensation Making the Transition Career Development Getting Ahead In a Down Market Making Partner Hot Practice Areas Law Firm Economics California Legal Market View our most recent Hot Tip - Preparing for a Callback Interview, posted 1/11/10 The California Bar Exam Listen to Your Recruiter Check out our new book, "The Right Moves: Job Search and Career Development Strategies for Lawyers"

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