The pandemic has changed many aspects of legal work that were once considered set in stone. With lawyers now working remotely, and legal services being delivered remotely, discussions about moving away from hourly rates to alternative pricing models are intensifying. However, industry experts, including certain staunch proponents of fixed fees, feel that the billable hour will be around for the foreseeable future.
COULD THE PANDEMIC KILL THE BILLABLE HOUR — WHY, OR WHY NOT?
KEVIN BOWERS, partner, bowers.law
Over the last two years or so, the global COVID pandemic has created massive amounts of uncertainty, logistical supply-chain difficulties, and rising costs and conflict in all walks of life, which have drastically changed the way that we all live and do business with each other. Modern law firms need to adapt to the changing environment in which they work by providing certainty and value to their clients — the very things that the billable hour is designed not to give to consumers of legal services. Agreeing fixed staged and retainer fees allow both corporate and individual clients to have increased certainty, value for money and an element of shared risk — just the things which clients are craving when living and doing business in the midst of such uncertainty and rising costs. Internally, eliminating the billable hour significantly reduces the cost of running a law firm, enhances the collegiality and productivity of its lawyers and vastly reduces instances of disputes with clients over mystery bills for mystery fees for mystery tasks and mystery time recorded by mystery fee earners. So, it’s a win-win for both law firms (who are able to streamline their business and increase the productivity of their lawyers who are judged only by the quality of their work product and not how well they fill in, or pad, a timesheet) and their clients (who are finally able to have clarity and control over their legal budget). The answer to the question is that the pandemic should kill the billable hour stone dead, but is exceedingly unlikely to do so as a consequence of the level of resistance to change within a legal services market in which the larger international law firms use the (eye-watering) price of their billable hour as a marketing differential to smaller independent firms who often provide the same (if not better) quality legal services to their clients. RIP hourly rates!
TONY WILLIAMS, principal, Jomati Consultants
The COVID pandemic has proved to be remarkably benign for the legal sector with many firms recording record revenues and profits in 2020, and many likely to have repeated this in 2021. Ultra-loose monetary policing with record low-interest rates has produced an M&A feeding frenzy with record global M&A activity in 2021. In relation to the billable hour, this has produced a bifurcation in the market. Some clients, especially those in private equity, that just want their multi-billion-dollar deals done, or are managing bet-the-farm litigation or high-level investigations, are prepared to pay whatever is necessary as legal fees; these are still a small percentage of the deal size or the potential impact of the litigation or investigation on the market capitalisation of the client. If their preferred lawyers are available and insist on billing on an hourly basis, then so be it. As the billable hour builds in a good profit margin, firms will keep it if they can.
For other clients operating in a less rarefied world, the realities are different. Many sectors have been severely impacted by the pandemic and revenues and profits are constrained. These clients may well seek price predictability and perceived value from their lawyers. This will militate towards alternative fee arrangements, including fixed fees. This is already the norm for many clients especially outside the U.S.
We are likely to see a range of different approaches by law firms and clients, but the hourly rate is not yet dead.
DAVID CAMERON, principal, David Cameron Law Office
One positive to come out of the pandemic is that it has made lawyering more efficient and effective in many ways. For one, no one really cares where you practice from. There is much less “managing by walking around” by partners supervising associates at their desks tolling away for hours on end. Presenteeism has been shown up for what it always was - a mirage. If an assignment gets emailed to an associate, and it comes back in time and done well, there’s no way to really tell how much (or little) time she spent on it. At the same time, clients are more focused on the outputs and outcomes than how long it took lawyers to do a given task. In this new, flexible economy, no one is going to be rewarded for time spent at their desks. Clients want high-quality results, solutions and more predictability and certainty around their legal spend, and, if anything, they want them sooner rather than later. Firms that embrace fixed fees, like my law firm does, will be well placed to meet these client needs, in particular, compared to the billable hour. There are also practical considerations. During the pandemic, the lines between home and work have been blurred, to say the least. If a parent is working from home to also help take care of their children, how can they honestly say to a client that each hour billed to them was 100 percent devoted to them? They can’t. Recording time has always been inaccurate and non-transparent, and the changes this pandemic has forced upon us emphasize this. A lawyer/parent like me may be interrupted by my kids a dozen times an hour, but that is my choice to help at home even if work may take longer (and my clients won’t be paying more for the extra time). I don’t consider it a bold statement to say it’s impossible to keep accurate track of every six minutes of your working life.
