Hourly Billing = Communism?

An interesting post yesterday from Ron Baker at the VeraSage Institute. VeraSage is dedicated to getting rid of billable hours in the accounting profession, but this post deals with lawyers and the billable hour.

Here's the best quote from the post:

"Imagine a life where each hour was measured exactly the same. It sounds like communism to me. It doesn’t matter how hard you work or the quality of your work, you get paid the same. If capitalism is all about incentives, then we cannot help but pose the most fundamental question of all. What is the incentive of the billable hour?"

I'm not sure I would go that far, but I think those of us who used to work at large law firms get the point. We all felt like a member of the proletariat at some point.

Memphis Lawyer Switches To Alternative Fees

There was an article in last Friday's Memphis Business Journal about a former big firm business litigator switching from billable hours to alternative fees.

Scott Ostrow, formerly an attorney with Wyatt, Tarrant & Combs, LLP, has opened his own shop in which he promises to use only value billing or task-based billing. According to the article, Ostrow will charge clients $100 for filing a typical motion and $500 for attending a typical deposition.

He is also quoted using one of my favorite billable hour analogies -- that of being trapped in a taxi in a traffic jam while watching the fee meter keep running. I think that is what a lot of business clients feel like when they are billed by the hour for litigation.

Ostrow's announcement in Memphis follows the recent announcements of other firms in Denver, Boston, Chicago and even Toronto, Canada, who similarly switched from billable hours to alternative fees.

While I commend Ostrow for making the switch and totally agree with his reasons for doing so, I'm not sure that I fully endorse his task-based billing method of $100 per motion or $500 per deposition. Perhaps his method is more sophisticated than what the article described, but it seems to me that such a fixed, task-based charge could also lead to some surprise bills for the client. What if a seemingly routine case suddenly erupted into a lot of motion practice? Or as the case progressed, it became apparent that twice as many witnesses needed to be deposed than originally thought? There is still some unpredictability to the monthly bills here.

While task-based billing may work well for discrete, non-litigation projects, my recommendation to Ostrow for litigation would be to negotiate either (a) an appropriate monthly retainer or (b) a fixed fee per phase of a case (and obviously, those amounts would vary depending upon the nature of the case and the projected amount of work involved). That way the business client will have greater certainty as to what its fees will be.

What Are Alternative Fees?

Welcome to my blawg. Let's kick this off by listing the primary alternatives there are to the traditional practice in the legal profession of billing by the hour at full hourly rates. Principally, the alternatives to full-rate, billable hours are:

• A contingent fee;
• A flat fee per project or per case (or per phase of a project or a case);
• A fixed or set retainer that is paid monthly, quarterly, semi-annually or even annually;
• A success fee;
• Deeply discounted hourly rates;
• "Value billing;" or
• A combination of any of the above.

Each of these fee structures have qualities to recommend their use in certain situations. I hope to explore those qualities more in depth in future posts.

In the interest of full disclosure, I am a strong advocate of moving away from always billing clients by the hour at full hourly rates.

In fact, I have become such a staunch advocate of non-hourly, alternative fee agreements that on January 1st, our office began the process of working with our business clients still being billed by the hour to transition them from billable hours to an alternative fee arrangement that works best for them in each particular case or matter.

For anyone, lawyer or client, interested in this issue, a great starting point is to read the 2002 report of the select ABA Commission on Billable Hours. It's 90 pages, but with large type and a lot of blank space, it's a quick read.

Can Business Clients Kill The Billable Hour?

Much has been written and posted in the last six months or so about the billable hour and its effect on clients and on the legal profession itself. One of the most recent pieces was an article by Lisa Lerer in Slate.

Lerer's article is a concise overview of the history of the billable hour with links to some recent articles and posts about its effects and calls by some Fortune 500 GCs to do away with it.

I'm intrigued by her subtitle: could law firm clients finally kill off the billable hour? Personally, I don't think we're going to see the total demise of the billable hour any time soon, if ever. The better question is: in the next, say, 25 years, will non-billable hour alternative fee agreements become the predominant mode of legal fees among business clients and their lawyers?