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February 12, 2011

Is the Billable Hour Past?

David Boies

David Boies, managing partner with Boies, Schiller & Flexner LLP

Should lawyers still get paid by the hour? The economy, as well as the chance for law firms to vary their expertise and prove their worth, are among reasons that firms are reconsidering the way they charge clients, lawyers said yesterday at a meeting of the _ in Atlanta.

“I remember when lawyers billed for legal services rendered,” said ABA President Stephen N. Zack, introducing the presidential showcase CLE program sponsored free-of-charge by the Tort Trial and Insurance Practice Section. “Lawyers had relationships with clients: If there was an issue with the bill, we’d sit down and talk about it.”  Relationships are at the core of the way lawyer-client transactions are trending as the billable hour has become a plague for both lawyer and client. As Joseph K. West, associate general counsel, Walmart, noted, “Both in-house and outside counsel hate the billable hour.  It hurts relationships.”

Lawyers and their clients are considering new structures such as fixed fees, flat fees and success fees, among others.  So-called value billing, which can mean a flat rate for work for the year, frees lawyers and firms from recording billable hours — though keeping track of overall hours and work conducted may still be ongoing in order to determine overall efficiencies and work done by a lawyer within the firm.

“We became lawyers because we’re passionate about justice, we want to be liked and respected, and we enjoy winning,” said David Boies, managing partner with Boies, Schiller & Flexner LLP.  “Value billing feeds all of those reasons.”

Clients have more security in knowing how much the fee over a certain period will be, and lawyers are also more satisfied because they don’t want to spend their time figuring out quarterly or even 10-minute time allotments of their day.  That will draw the brightest of young lawyers, Boies said. “If we don’t get the best lawyers, ultimately we aren’t going to keep the best clients,” he said.

Value billing also provides an opportunity for firms to gain expertise in areas in which they may not be known as specialists.  As Boies explained, “If a corporation has a flat fee for a year, a firm can go the company and say, ‘You’re already paying us, you might as well use us.’”  Rather than hiring another firm, a corporation may want to give their flat-fee firm a chance to prove what they can offer.

A flat-fee structure can allow relationships to spread across different corporate departments and to different specialty areas within a firm, explained panelist Amy Schulman, executive vice president and general counsel with Pfizer.

Panelists, who also talked about the need for law firms and legal departments to become more efficient through the use of project management, encompassed both in-house counsel of large companies and partners at independent law firms.

For more on the future of the billable hour listen to ABA President Steve Zack’s interview on American Public Media.

Watch highlights of the ABA’s Midyear Meeting panel on the future of the billable hour, featuring David Boies and general counsels from Wal-Mart, Pfizer, and the DuPont Company.

Comments (8)

  • *Pingback*
    10:34 AM February 15, 2011
    This Post Referenced in: ABA Discusses Alternatives to the Billable Hour | Thomas Wade Young: Trial and Appeals

    ... have sounded a clarion call and are urging the profession to reevaluate use of the billable hour. This article by the _ observes, “Relationships are at the core of the way ...

  • Hadley V. Baxendale
    1:46 PM February 15, 2011

    Like most topics addressed by the ABA, this discussion and its recommendations would only apply to the large firm/corporate client model. It it largely irrelevant, and unworkable, for most lawyers and their clients, and the legal services involved.
    “Success fee” is called “contingency fee” and is well established for torts and collections. “Flat fee” or “task billing” occurs in consumer legal services ranging from bankruptcy to residential real estate transactions.
    But returning to the “value billing” returns to the problems that hourly billing addresses. The notion described above of “Let’s send a bill and if they complain, cut it back” is just bad business practice.
    We are required to inform our clients in advance, and to reach a true agreement and understanding, of our fee structure. Hourly billing gives each a yard stick, indeed, the same yard stick. To bill based on the lawyer’s view of value starts with an unenforceable contract and lends itself to the unethical in many cases.
    If there is a problem, it is not in whichever process is used; it is in the integrity with which it is used.

  • Ed Poll
    3:35 PM February 15, 2011

    The value is NOT in the lawyer’s view of value, but rather in either the client’s view or, most appropriately, the joint, negotiated view of both the client and the lawyer.

    One area, however, where fixed or alternative fee billing will have more difficulty … from the perspective of the Disciplinary Board, is in divorce work … The opinions indicate that only hourly billing is acceptable for divorces.

  • Beverly B. Bates
    4:17 PM February 15, 2011

    A flat fee is practical for definitive tasks such as a will, power of attorney, a trust or other instrument or a definitive task such as organizing a corporation, and as indicated by Mr. Baxendale, for non-corporate bankruptcies and residential transactions. In civil litigation, I would be able to offer a flat fee only for a single segment of work, such as 10-15 hours for representation before the Magistrate Court where discovery is rare, and cases are usually reached for trial at the first hearing. Unfortunately, there is a jurisdictional limit in this court of $15,000 for damages in Georgia. In higher jurisdictions, with lengthy discovery and motion periods, a much larger “segmental fee” would be difficult to set but possible. In federal employee appeals, I can offer a flat fee for filing an appeal, but often jurisdictional issues are raised by the Merit Systems Protection Board administrative judge or the federal agency which often require briefing. A sizable segmental fee is appropriate because administrative and judicial decisions must be reviewed as well as development of the operative facts. The segment must allot for the complication that discovery begins and concludes within a short time table. Interrogatories, discovery requests, and often depositions must be employed at the same time jurisdictional motions are before the administrative judge. Counsel for the federal employee appellant, often incurring discovery problems with the agency, must then file a motion to compel discovery within a short interval of opportunity while the jurisdictional issues are being considered. Similar problems in even defining a segment of the case occur in state and federal court litigation. Segmental fees, akin to flat fees, are difficult to administer, but do offer the litigant the opportunity to stay on board or jump ship at various junctures in the case. In district court litigation, segmental fees will probably not be feasible unless the courts take a more flexible position on permitting withdrawal of counsel. A flat fee in civil litigation is often only practical for an appeal where the briefing and oral argument are more definable events and there is no discovery. For middle class litigants, litigation in non-contingency cases has become a burden for both clients and attorneys. One appropriate response is to substantially increase the jurisdiction of the small claims courts. The corporate law firm and major corporation house counsel can continue to grapple with the hourly fee, and perhaps reach some generally acceptable modifications.

  • Fred McClimans
    11:29 PM February 16, 2011

    David – A very nice post about value-based pricing in the legal profession. I am not an attorney, but have written about, and utilize, “value pricing” (a pricing strategy that closely follows what Ed Poll mentioned above) where the fee charged for a services is fluid and directly proportional to the up-front “perceived” value that a client receives (or the level of pain the client believes you can cure). Perceived value can come in many forms, such as quality of work/expertise, time to deliver, 24×7 availability, etc. (and must, of course, be backed up or exceeded).

    I’ve seen, through various discussions that I’ve led in the general professional services realm (I personally work in the business sector, analyzing and solving business problems), a clear need for alternative (non-hourly) pricing strategies. I find many can be extremely effective and help differentiate a true professional service from a “fixed price” product. You’ve got my interest with your article, and added another area of professional services to consider when discussing pricing strategies in the future.

    Thanks – Fred

  • David Garnsworthy
    8:49 AM February 17, 2011

    Great story. shouldnt we be talking about value pricing? And this is about the whole of the client relationship.

  • Gregory Dennis
    10:50 PM March 1, 2011

    They have been talking about moving away from the billable hour for at least the past 25 years, but in my practice when a business client comes in the door and says “I am in trouble, please help me”, it is extremely difficult to calculate a fair fee on anything other than an hourly basis. Maybe transaction folks feel differently.

  • *Pingback*
    2:15 PM November 28, 2011
    This Post Referenced in: Value Billing Saves Lawyers and Clients Headaches and Overheads |

    ... “[I remember when] lawyers had relationships with clients:If there was an issue with the bill, we’d sit down and talk about it,” ABAPresident Stephen N. Zack said to the ABA Now. ...