It appears that billable hours , once the bane of stressed newly-qualified and junior associates, are now becoming less popular, and, indeed, are being phased out of some law firms.
The system has long been recognised for its shortcomings – the lack of transparency and opportunities for “creative” invoicing, cost uncertainty, plus unrealistic workloads – have all come in for criticism.
Traditionally, lawyers log their time in six-minute increments and in many top firms are expected to bill around 2,000 hours a year. The system has become infamous for pressuring staff to hit demanding targets – often irrespective of outcome. Also firms are not able to give a client a good estimate of exactly how much a piece of work will cost – and this can leave both private and corporate customers bewildered or shocked when the final bill comes in.
In the UK, trial judges have raised concerns about the costs incurred when firms bill by the hour. In 2018, High Court Judge George Leggatt said a £1.47 million (US$20 million) bill submitted for a lawsuit was “unsustainable”. He pointed out that some of the lawyers involved had their time charged at more than £700 per hour, with the highest at nearly £1,000. (Trainees, meanwhile, were charged out at £280 an hour.)
But things are changing. While the billable-hours model may have been effective in the past, many people have pointed out that its rigid structure is incompatible with the current market, where clients are more price conscious, and see more value in project-based pay and success fees.
So more and more firms are turning towards alternative pricing models. For one example, in 2019 Clifford Chance began a pilot scheme in its Abu Dhabi and Dubai offices where NQ and associate bonuses were based not on hours billed, but on activities such as business development, time in community programmes and promoting diversity and inclusion. The firm said that this new approach would place more emphasis on innovation and professional development.
And technology is helping to re-shape the landscape as well. Some legal businesses are offering brokerage-type services, using computer algorithms to find a best-match for clients and lawyers or firms. Some work on a bidding model – firms offering the lowest price and with the most suitable lawyers sit as the top of a “league table”.
Data analytics and artificial intelligence (AI) are also having an effect. Firms can now draw on troves of data to help them give a reasonable estimate of the final costs of a particular job. Meanwhile AI is being used to tear through tedious grunt-work. Document-review services are available that can do in minutes what would normally take para-legals hours. Such technologies are another clear motivating factor to move away from the old hours-billable model.
However not all sectors are being equally affected. Billable hours are still going strong in litigation. This is mainly due to law firms’ expectation that they will recover costs no matter what the outcome, and so believe the only way to determine profit or loss is to log the amount of time spent on a case.
But the general move towards alternative billing methods has been ongoing for some time now. For example, even back in 2011, a survey of the 200 biggest law firms in the US showed that 92 percent had used flat fees for at least one complete case that year. There are now also a number of new firms in Hong Kong that have completely eschewed the billable hours model. All the signs are that billable hours are on the demise – no doubt to the delight of young associates and their clients alike.
By BEN COOPER, Managing Partner, Ashford Benjamin Ltd.