The Billable Hour: Are Its Days Numbered?

Almost everyone agrees that the billable hour is the scourge of the legal profession. So why is it still around?
Douglas McCollamThe American LawyerNovember 28, 2005 For about 50 years now the billable hour has been the dominant feature of the legal profession. And for just as long lawyers have been trying to kill it. A group of litigators who usually couldn't agree that the sky was blue without several footnotes qualifying the shade will gladly sing in harmony about the evils of the billable hour and its partner in crime, the daily time sheet. Yet generations of lawyers have accounted for their work lives in six-minute increments. Both reviled and ubiquitous, the billable hour is the cockroach of the legal world. The basic flaw of the billable hour, say its detractors, is that it puts the financial incentives for lawyers in the wrong place. Back in a more genteel age, grouse many lawyers, when the practice was more of a profession and less of a business, the cost of legal services was determined not by the amount of time a lawyer spent on a matter but on the value he delivered to the client. That model broke down and was replaced by a time-based metric -- which, say critics, encourages firms to overstaff matters, lard their bills with marginally useful services, and draw out cases that might be brought to a swifter conclusion. "Their pricing model follows the production costs instead of following the needs of the buyer," says David Perla, a former in-house lawyer with Monster.com and co-founder of Pangea3, a new company that offers legal services performed by lawyers and scientists based in India at a steep discount to domestic rates. Perla calls the time-based American legal profession "grossly inefficient" and ripe for the competition that companies like his can provide. Offshoring is only one development posing a threat to the long hegemony of the billable hour. Technology in general has allowed firms to automate certain services for which they used to rack up billable hours. At the same time, as associate costs have soared, so have firm billable hour rates, climbing almost 30 percent during the last five years. That has prodded corporate clients, led by the likes of E.I. du Pont de Nemours and Co. and General Electric Co., to be more aggressive in exploring alternative pricing models for legal services, forcing even longtime outside counsel to bid for the right to represent the company. Fifteen years ago elite firms like Skadden, Arps, Slate, Meagher & Flom could get away with padding charges for photocopies and danish. Today sharp-eyed corporate accountants aren't afraid to put bills from even esteemed outside firms under an electron microscope. Such aggressive auditing, and a growing recognition of the defects inherent in the billable hour-based system, have led many inside the profession and outside to ask some simple but profound questions. What is it exactly that lawyers are selling to clients? Is it their time or their skill? And, if it is their skill, isn't there a better way to measure that value than by watching a clock? No one has put more effort into trying to drive a stake through the heart of the billable hour than Robert Hirshon, chief executive officer of the Portland, Ore., firm of Tonkon Torp. As president-elect of the American Bar Association in 2001, Hirshon traveled the country taking the collective pulse of the profession. The principal source of dissatisfaction, he says, was the billable hour. Associates complained that outlandish billable hour requirements were ruining their personal and professional lives. Partners resented that the almighty billable had become the single most important measure of their worth to the firm. And general counsel thought the billable hour caused firms to focus more on how much time they could put into a matter rather than to focus on the result obtained for the client. "All these complaints seemed to intersect at the billable hour," Hirshon says. So Hirshon put together a special commission to examine the impact of the billable hour on the legal profession. The commission surveyed hundreds of law firms and in-house legal departments, quizzing them about their billing practices and reliance on billable hours. The resulting report, issued in late 2002, ran more than 60 pages and fingered the billable hour system for a host of perceived ills in the profession, including bill padding, associate defections and the dearth of pro bono work. The report recommended a host of alternative billing strategies that firms could adopt to replace or augment the billable hour.
Law.com