The Economist: Killable Hour

The Economist magazine has a short writeup on the billable hour’s demise, and the growing use of fixed fee billing.

One of the more interesting statements noted, “If the billable hour does perish, it will be at the hands of the clients, rather than the private-practice lawyers themselves.”

This may be partially true, but tends to paint law firms in a poor light. The demand for alternative billing could come from clients, and it could also come from law firms. There are many firms experimenting with alternate pricing models, and have been for quite some time. Where the shakeout needs to occur though, is in demand … from either side.

Neither party seems to care that much about the billing model. Cost certainty? yes. Getting value? yes. Those are worth fighting for, but method of billing? If clients or firms were demanding changes, wouldn’t we have seen it by now?

The push-pull between clients & firms when negotiating price (and understanding costs, for firms…) is going to exist in either scenario, and frequently depends on the situation. Think: area of practice, work volumes, the substance & length of client-firm relationship, average time for matter execution, and so on. But rather than describing this balance to readers, the sensational prevails – pitting one billing model against the other in a full-on death match! I suppose it’s not sexy to say ‘different clients & matters may require different billing models’. A shame, really.

I’m not trying to defend the billable hour, and am actually a big supporter of value billing. The concepts of margin and production efficiency won’t get full consideration within law firms until hourly billing reduces some of its stranglehold. But that’s not an either/or proposition, and the billable hour will likely still have a place.

Should more legal work deviate away from the billable hour? Sure, but the concept isn’t new. Firms & clients have been negotiating price for years. And truth be known, even law firms get asked ‘how much will it cost?’, and face consequences when they don’t deliver.