Is time running out for the billable hour?

Ineffective, old and outdated; how has the billable hour continued without reform for so long? Adopted by law…

Ineffective, old and outdated; how has the billable hour continued without reform for so long? Adopted by law firms, this cost calculation system requires lawyers to record the time they spend on each case in six-minute segments. This method has been beneficial for its clarity of pricing, its ease of use, and in allowing lawyers scope to make price alterations when an unforeseen difficulty arises. However, this method is problematic for several reasons: it is difficult to accurately predict hours to a client beforehand, the price has no relation to the value of the work produced, the method itself promotes inefficiency and the system has little regard for the mental health of lawyers. In a field which is becoming increasingly more client-centric and people-focused, is the billable hour still sustainable against other pricing methods?

It is impossible to predict how long a person will take to complete a task to the exact minute. The principle issue with the billable hour method is the uncertainty surrounding the length of time required for some cases, particularly those that are long-running. Taking mergers and acquisitions as an example, the transaction timeline is extensive and vastly dependent on the client’s industry, the risks involved and the quantity of due diligence required. Fortunately, in the age of technology, this prediction is becoming better formulated. Artificial intelligence and predictive analytics compare the facts of each case to previous data, in order to generate a more accurate prediction. However, cases are accompanied by their own unforeseen problems and no two cases are the same; thus, an alternative pricing method would be favourable to reduce the element of financial uncertainty for the client.

Furthermore, the rigid structure on which the billable hour system is based is discordant with the modern legal market. Clients are more price conscious and seek an arrangement which presents value for money. The billable hour measures price merely by the hours spent on the case, not the quality of the work produced. This pricing system fails to consider the effort contributed to developing a case and promotes inefficiency. Positive and trusting client relationships are intrinsic to their loyalty; thus, perhaps pricing a case based on the value of the solution would be better aligned to the client.  Value pricing considers the case’s type, value and jurisdiction, alongside the type of firm and risk-sharing when generating a price for clients. This results-based method has been adopted by some smaller firms such as Radiant Law; but is typically more favourable by in-house legal teams due to its decrease in costs.

The frequent burnout experienced in the legal profession is often due to the overwhelming pressure on lawyers to reach their demanding targets. The billable hour is accompanied by annual target hours, which is the amount of time a lawyer is expected to bill working on cases across the year. According to Legal Cheek’s Most List, Latham & Watkins request the highest amount of target hours from their solicitors, demanding 1900 hours of billable time, closely followed by Clifford Chance and White & Case who both expect 1800 hours. The focus on the quantity as opposed to quality of time can lead to lawyers losing motivation to put in as much effort into each case in a bid to stay on track. Firms such as Slaughter & May have recognised the detrimental impact of target hours on a lawyer’s mental health, hence have removed them in order to reduce peer competition and promote high quality work.

It is clear that the billable hour is outdated and in need of transformation: why has this not happened yet? Transitioning to an alternative pricing method requires a paradigm shift for all of a firm’s employees, which is obviously difficult for large and global firms. Alternative methods, such as value pricing, reject the traditional business model that sells time in favour of selling quality and results. Furthermore, the billable hour model is the easiest method to implement and justify to the client – measuring time is objective but measuring quality isn’t. Evidently, the clock is ticking for the billable hour; however, the development of alternative pricing models is required before any change can be implemented. 

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