Letter from America

To the billable hour and back again

By Thomas Berman, founder, Berman & Associates

Once upon a time (in the 1970s) lawyers would receive an assignment from a client, determine what was involved in fulfilling their responsibilities, accomplish the task required, and upon completion, send out an invoice. Before the advent of the personal computer it would be fair to say, in fact, that more lawyers billed their time on the basis of the assignment given and the expertise required than billed solely on the basis of the time it took to perform the work necessary to fulfill their client’s request. Indeed, the notion that a lawyer’s time spent in reviewing a file in office is equal in value to the act of delivering a final summation in a courtroom, has always been difficult to accept. Hourly billing is considered a metric for time spent on a particular file, but it was never really intended as a metric for lawyering quality or case results. Unfortunately, it has come to so dominate the lawyer’s workplace, however, that few law firms and/or their clients have developed or utilise any other means of determining the actual pricing of legal services. Rumpole (of the Bailey) would have been aghast.

All in the timing

In the 1980s, as the computer began to take hold in law offices, something called a ‘Service Bureau’ was created. Service Bureaus fulfilled a function, which was essentially a transition for lawyers to accustom themselves to tracking their time in specified time increments utilizing standardized forms. Law firms that had not as yet put into place a computerized billing system used the Service Bureau. These entities required timekeeping on forms using abbreviations, which would then be read off site by computers that would subsequently generate pre-bills and invoices. Prior to that point, of course, it was up to the lawyers involved to determine when bills would be sent to the client, as well as the nature of the work and the basis for the charges. Service bureaus, however, were unrelenting in requiring conformity. They mandated that all timesheets should be entered in a particular timeframe, and as a result, US law firms began the process of billing virtually all their files on a monthly basis. Then, as computers became a necessity rather than a luxury, law firms began the process of acquiring computerized billing systems. Such systems negated the need for an outside service, but some of the basic requirements that had been used by the service bureaus had caught on with law firm administration, including the requirement that people enter their time uniformly, the requirement that bills be sent out once a month, and most importantly (and some would argue negatively), that lawyers started to bill on the basis of the hours spent rather than on the quality of their time, their expertise and experience, or even the needs of the client.

By the late 80s and early 90s hourly billings had become the norm. Clients also began to insist that they be billed on an hourly basis, and the natural inclination lawyers had used for decades of billing on the basis of what they accomplished, and the success at the completion of the assignment, fell by the wayside. By that time, things had changed to such an extent that ‘value billing’ seemed to be a radical notion and lawyers were unsure about using any method other than a strict hourly accounting of their time.

Now, fast forward to 2010. In the last 12 to 18 months more and more clients have required a ‘set price’ of their lawyers for particular lawyer activities. Often this request also comes attached with a requirement for the lawyer to present a budget for the work (and a timeframe by which the work must be accomplished). So, in 2010, in many ways, the profession returns (at least as regards the billing elements of the practice of law) to what was common practice before the advent of the personal computer. Ironically of course, this has worked to the economic disadvantage of many law firms which are now (and have been for some time) geared to an economic matrix entirely dependent upon the billable hour. The many layoffs and general diminution in the number of lawyers (particularly) in larger law firms is testimony to the fact that this re-alignment has had, and is having, the same earth-shaking impact on law firms that the crumbling of the widely accepted internal pyramid structure had in the 1990s. It remains to be seen as to whether this environment will last, but for now the change in direction imposes many of the same challenges that the hourly billing requirements imposed on law firms a quarter of a century ago.

— tberman@bermanassociates.net