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The Billable Hour: Its Heyday May Be Ending

The last edition of the CBA Record (April/May 2016) contained an article by Chicago Bar Foundation Executive Director Bob Glaves entitled “The Billable Hour Needs to Go.” The article was written in the context of providing access to justice to the low and moderate income individual or business who has been priced out of the market for legal services. The article also contains a reference to a “Pricing Toolkit” to educate attorneys on how to provide services to low and moderate income clients and to develop methods of billing alternative to the traditional hourly rate.

Over the years the problem of access to justice has been addressed in countless forums, including many of these columns. As an unsolicited endorsement, I recommend the Pricing Toolkit to any lawyer interested in investigating alternative billing methods. It is a clear presentation of many of the possible methods, and can be downloaded from: chicagobarfoundation.org/pricing-toolkit.pdf.

The purpose of this column, however, is to put into historical context the billable hour as applied to corporate clients and suggest that its heyday may be ending.

The first legal bills I ever saw (in the late 1960’s) simply stated “For legal services rendered in connection with … “ followed by a dollar amount. Both the lawyer and client knew what the services were worth (like buying a car), and if the client thought the bill was too high, the client would ask for a reduction or never use that lawyer again. That was how the market worked.

Then in the 1970’s, the simple invoice came with pages of time sheets based on fifteen (and then six) minute increments. My belief then was that someone in corporate management or accounting had questioned the legal bills and demanded some sort of backup. Quantifying the time spent seemed to be a good basis of valuation. The secret was that the law department approved the bills on the old method – what was the fair market value of the service rendered, and paid little attention to the time spent.

(The following is my personal opinion and not based on any independent investigation.) Then the legal profession forgot that the time sheets were mere validation of the fair market value of the services rendered, and began to believe that the value of the services was based on the time spent on the matter – a questionable concept. This was followed by an explosive growth in the size of law firms and legal fees (the more lawyers - the more hours to bill). The concept that time spent equated to value of service also spread from the corporate world to services provided to low, moderate and middle income clients, where it really was not applicable.

Corporate pushback came over time. Corporate law departments took on more and more of the work once directed to outside counsel, who were pricing themselves out of the market. There were many other techniques for mitigating the effect of the unrestricted hourly rate. I personally used techniques such as limited scope representation in which the outside counsel’s responsibilities were limited to certain functions; project budgeting in which specified tasks were costed at specified rates; limiting use of associates on a matter; and adjusting the fee through caps, discounts to the hourly rate, or blended fees. These techniques, as well as others, are referenced in the Pricing Toolkit.

Getting rid of the hourly rate entirely, however, has proven difficult. In my private conversations with partners of large firms, we acknowledged that we could agree on a fixed price for a number of types of matters. However, the risk of being wrong was too great to try the concept except in limited instances. My (very unscientific) survey has shown that this is still the case. Nevertheless, the heyday of the hourly rate is ending, and I predict that its unqualified use in the future will become more and more limited.