What's Wrong with the Billable Hour?
The billable hour hasn’t been around that long, relative to the centuries-long history of the legal profession.
Years ago, lawyers would bill at the conclusion of a legal matter based on the lawyer’s view of the value to the client of the advice and assistance provided. Or the weight of the file, as the joke goes.
Sometime in the middle of the 20th century, law firms began to track the number of hours being spent on a file as a way of measuring whether the fees being charged were proportionate to the use of firm resources. That soon evolved into a way of measuring associate and partner performance and then into a way of billing clients. As often happens, metrics began to trump professionalism.
The concept of “billable hours targets” developed which required that associates bill a certain number of hours in a year in order to be considered for performance bonuses and advancement. Targets gradually increased over the years and the pressure to bill more time increased as well. Now, many firms may have stated billable goals of 1,800 or so a year, but the associates who work there will tell you that 2,000 is truly the minimum.
Of course, when lawyer performance is based on how much time is spent, inevitably there will be a temptation to spend as much time as possible on any given task.
Clients, after all, generally have little concept of how much time it takes to draft a claim or an agreement, to conduct research into a thorny legal issue, or to analyse a situation and develop a legal strategy for dealing with it.
So clients who hire lawyers for their expertise end up paying for their time and having no way of measuring how the time spent related to the result achieved. To top it off, lawyers can sometimes be a bit mysterious about what it is exactly that they’re doing, which leaves clients further in the dark about the value they are receiving.
After all, lawyers do provide value to clients; well, most lawyers do, anyway. Lawyers are experts in anticipating the possible outcomes of a business relationship and drafting agreements to take those outcomes into account. Lawyers are well-versed in risk recognition, analysis, management, and resolution. Lawyers are generally more experienced in business negotiations, particularly in high-tension situations.
The amount of time it takes to do any of these things, however, is not always the most meaningful way of judging the value that is delivered, nor is it the most predictable way of billing.
So we get to the point at which the dominant way of billing for legal services is unpredictable and opaque, and in a significant way, pits the interests of a lawyer (in billing as much time as possible) against those of a client (in spending as little as possible to get the advice that is needed).
Spark LLP is challenging this disconnect head-on.
Our RealTime Spark service provides entrepreneurs and business people with an on call “virtual in-house counsel”—a trusted advisor and counsellor who is available for consultations for a flat monthly fee. We work with clients to identify opportunities to bill in block fees or flat fees wherever possible. And when we do take files based on hourly rates, we ensure that clients are closely involved in their files so that they clearly understand the value that they are receiving for the fees billed. We talk to our clients about fees regularly and we welcome comments, questions, and criticisms.