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Law firm bill tweet sparks heated chargeable hour debate

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‘An industry waiting to be disrupted one day’

A start-up founder has started a passionate debate on Twitter after posting a picture of a law firm bill with some extravagant hourly rates.

There have been hundreds of responses, which broadly take one of two sides in the debate. There are the ‘traditionalists’, who support the hourly rate, versus the ‘legal tech innovators’ who challenge the existence of the hourly rate and seek to promote greater cost efficiencies through an increased reliance on AI.

On the ‘traditionalist’ side of the debate it has been suggested that the “world-class” advice of lawyers cannot be replicated by machines. The complexity of the law and the inability of AI to decipher and solve multi-layered legal issues effectively are frequently cited examples to support this argument.

A notable voice here is, somewhat counterintuitively, that of Jack Sheperd, an ex-Freshfields insolvency lawyer who now works for legal tech company iManage. He seems to suggest that hourly bills may be preferable for clients, who might not trust lawyers to set fixed fees without seeking to benefit by over-charging and under-working. Moreover, he notes that a centralised, automated cost calculator, based on how satisfactory the ‘execution’ of a legal contract is, would never work: “Not all obligations can be determined to be fulfilled upon objective criteria. If they could, we wouldn’t need courts,” he tweets.

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Contrastingly, there have been a flurry of responses which emphasise the need for greater cost efficiencies, via the use of legal tech, as a means of eliminating hourly rates altogether. Noah Waisberg, CEO of another legal tech company, Kira Systems, describes the support for his side of the argument in this Twitter debate as signalling a “hunger for change” in this area.

Steve Stevenson, co-founder of legal tech start-up Rally Legal, also expresses his support for the innovators and suggests that some of the key ways cost efficiencies can be improved are through the better storage of legal data, a standardisation of legal protocols, document automation and increased online collaboration.

This debate is nothing new, having rumbled on in the legal industry for decades. Legal tech has taken some strong steps forward in recent years, with its adoption having only been accelerated by the COVID-19 pandemic, but so far most of the progress has been around the margins. If the innovators came up with a way to replace the billable hour, everything would change.

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20 Comments

Kirkland Big Dolla Billa

Ah, the legal tech crowd, stalking around Twitter in their little echo chamber. Stick to chattering among yourselves boys, with a little e-discovery on the side, as we real lawyers do the chargeables (which you ain’t never gonna stop)!

(52)(6)

Ian

It must be tough still living with your parents

(46)(15)

Rev O'Loushean

The billable hour is racist and sexist and must end if we are to end the white male dominance of the profession.

(8)(3)

A

I’ve managed to bill over 24 hours in a day when flying back from Hong Kong. Sweet.

(28)(1)

Hooray Henry

…a second year Anglia Ruskin student writes

(56)(23)

A

Yes, yes, you honed your trolling on the Daily Mail site did you? Your post is the tragic equivalent of “I bet you live with your mum”. So lacking in wit, so lacking.

(14)(39)

Archibald Pomp O'City

Your mum won’t let you back into the house, I expect!!!!

(12)(1)

I. O. Penner

When I was in-house pre-qualification, I looked at a question for our product team. It took me 2-3 hours to produce a detailed answer on what they were trying to do and why it couldn’t be done that way, and propose some alternative solutions.

That wasn’t a convenient answer, so the team, fairly, asked to farm it out for a second look. We sent it to a firm that was very highly rated in this niche and in our industry, with a summary of my views plus some details on what we were trying to achieve. The reading materials totalled maybe ten pages, and the scope was narrow.

Even though it was a pretty straightforward question, was document-light and they should have known substantially more about it than I did, they took 12+ hours of associate time, plus 3-5 of partner time to give an answer that did nothing more for us than “what he said”. No idea how they spent all that time, with more knowledge and resources, when we’d found the same answer, with the same materials (actually, less – no access to PLC, practitioner texts, institutional knowledge, etc.), in a fifth of the time.

On the other side, during my time in private practice, I’ve seen requests from fee earners to look at things that everyone knows will not affect the outcome and are barely even facially relevant to the question, seemingly as a premise to add more time. This is why capped fees end up looking a lot like fixed fees in practice – firms don’t want to look like they over-quoted, or give up revenue that a client has signaled a willingness to pay (especially not in years like this one).

It seems like people forget the appeal of occasionally being able to say “we ran down some leads for you, but here’s a relatively simple answer that gives you what you need. By the way, we did that all under budget, enjoy.”

Hourly rates, properly used, can save clients money, and the model would encounter a lot less opposition if firms acted in a way that would remind them of that sometimes.

(35)(3)

Archibald Pomp O'City

People are greedy, Irwing, lawyers especially. The thought of giving their clients a good-value tummy-rub won’t appeal to them.

(1)(0)

Peter

It is the process, the certainty, and the sign-off from the law firm that you pay for. Sure, you ended up with the same answer in 2-3 hours. However, you pay the law firm to go through the detail with a fine comb and to overturn all stones, which takes 18-20 hours. This time the answer was the same, but on other occasions they might raise points you did not think of, or they may come to an altogether different conclusion.

(5)(0)

Archibald Pomp O'City

That’s what we tell ’em Pete. Daft mugs. Now where’s that old rope…

(2)(2)

FlourPour

If he’s actually paying those rates then he’s a mug. The industry has been disrupted by American Firms and mid-level firms competing on fees. Pretty much every matter I have worked on had some discount and he doesn’t look like he has shopped around if he’s paying that. (unless those are the discounted rates!)

Judging by those hourly rates he has gone to a top top firm where he will get a literally 24/7 service from some of the best lawyers currently working in the industry – what did he expect to pay? Just because he doesn’t understand what they did doesn’t mean it wasn’t worth the money. When the other side look to sue him or break the deal off at a cost of millions of pounds he will be glad to have spent the 20k on decent legal advice.

If he has a problem with it he can try a smaller firm and see how it compares but they won’t be responding to emails past 7pm and won’t have the knowhow or employees to give the best result.

it looks like they tacked on some trainee time there though. Nothing I did as a trainee was worth the £200/hour charged.

(22)(3)

Amber Nectar

I charge when I go for a dump. I have great ideas there.

(9)(1)

H

I actually find myself underbilling hours, (5 for say 8 or so) to keep the client on-board.

(13)(1)

Pre-qualified

I’m in a high street firm and time recording is stupid. Most cases we do finish with roughly the same costs and so constantly having to click log hours for things like prep, perusal, tel call is just another job on a list of many smaller tasks that eats away the day. These are fairly standard things you know are required for every case, so could easily be done by way of some sort of package, like associated costs tier 1 or something, then go up scale. Theres a little timer you can set on our case management system which I find hilarious, I know how long I’ve just spent doing something!

(3)(1)

Realist

This is an old, boring argument, and has long since been settled by the continuing dominance of the billable hour model. This is why:

https://adamsmithesq.com/2013/05/in-defense-of-the-billable-hour/?single

“In Defense of the Billable Hour

May 3, 2013 | Articles, Compensation, Finance | 8 comments

I enjoyed reading the recent exchange here (“What’s Your Client Mix,” April 9, 2013) triggered by reports of the lawsuit accusing DLA Piper of overbilling. As expected the comments included a few laments about lawyers’ strange practice of charging clients for inputs in the form of billable hours – strange in the sense that when we buy a quart of milk we expect to pay for milk, not bushels of livestock feed and hours of dairy workers’ time. Like you, I’ve heard and read that the profession falls short in failing to invent and adopt different charging models. What I notice in these discussions is how the critics of the billable hour often fail to grasp the bigger part of the story – what it is that clients expect in exchange for what they pay.

Assuming the role of the clients, we may say: We know exactly what we want from our suppliers of outside legal services – we want high-quality outputs:

We clients want excellent and efficient performance of legal services whether delivered as advice, management of legal affairs or “wins” in adjudicated controversies
But it doesn’t end there. That’s not all that clients demand of their law firms. That’s just item one on the list. Here’s the rest:

We clients want the capacity to commit legal resources to a problem or project with hardly any investment on our part
We clients want our suppliers of legal services to bear the full risk of building capacity but we don’t want to agree to long-term contracts or exclusivity arrangements in support of the associated long-term costs.
In fact, we want to be able costlessly and instantly to stop work for any reason and to drop one supplier and employ another at will
We want our legal suppliers to be able to provide, on demand, teams of varying size and experience to match the scale and scope of different problems as they arise, typically with very little predictability
We want suppliers to compete with one another and we want to rely on multiple suppliers, sometimes even within the scope of a single project
We want the ability to supervise, insofar as possible, the level of activity and expense associated with a given project
However crucial success in legal affairs is to the value of our enterprise, we want to keep legal expertise outside the realm of our core competences – what investors buy when they acquire our shares. We don’t want to be evaluated by markets as creatures of the legal system
On top of all that is the fact that we can’t define legal services outputs as we can quarts of milk. In litigation for example, the output isn’t just wins, it’s also settlements, reductions in the cost of losses and enhancements to the client’s reputation for not knuckling under to legal threats.

My point is that when legal-market pundits complain about the standard billable hour charging model and its defects but fail to notice that there’s a lot more to the bargain than what shows up on the invoice, they just don’t get it.

I like cars and when I think about this subject, I can’t help but imagine myself as a kind of auto-racing impresario. You’re the client but if you have ordinary needs, then get ordinary solutions – you don’t need me. You need a fleet of Ford Tauruses, so get Ford to lease them to you, hire a fleet manager and that’s that. If you have more exotic requirements then I’m your man. You want to hire an auto racing operation? You need me to get you the whole apparatus – drivers, mechanics, cars, pit crews, transportation – several times over? OK. But you don’t want to invest; you want to rent the whole deal? It isn’t just a hobby though, right? Winning is very important to you. You get to decide when to press for a checkered flag and when to drop out of a race. The racing calendar (contrary to fact) is unpredictable so you and I never know in advance just how many teams will be working at any moment or how long any race or any series will last. If you don’t like the results or just on a whim, you can tell some or all of my teams to pack up and go away and you can go and hire someone else.

How do I charge you for this? Given the variables involved, I can’t risk charging you just for wins. We might arrange for a bonus scheme as a reward for winning but I can’t pay my expenses on that basis. With all the uncertainty and all the moving parts I can’t charge you an annual or even monthly lump sum. What if we need an extra car?

The answer is that, given the idiosyncratic nature of the deal, I charge you the cost of the inputs with a mark-up to cover my investment cost, to pay my management fee and to compensate me for the risks I bear that are inherent in the relationship. I can tinker at the edges of this model – bonuses, penalties and other risk-sharing arrangements in a small way – but I can’t come up with a better model for remuneration in these circumstances.

Admittedly the deal is not without risks for you, apart from the risk of losing races. I may be overstaffing to inflate my earnings or the staff I’ve hired for you may be shirking which costs you in expense and performance. As a check on this, your own experience tells you approximately what most tasks and projects ought to cost and you can engage in a certain amount of oversight and monitoring. My competitors are hanging around your door telling you stories about how they will get better results for less money. In the meantime, our interests are closely aligned. I want to keep you as a client and I want our teams to win races for both our sakes.

Let’s leave the race track and get back to lawyers and their clients. What is clear is that the standard billing model has been remarkably robust both over time and across different degrees of clients’ reliance on their legal service providers. That is because billing is just one part of a more extensive arrangement that is full of benefits for the clients and risks for the law firms – a deal that balances the interests of both.

Not by any means a Euclidean proof of the necessity of the billable hour but you see the point.

Richard Rapp”

(9)(0)

Archibald Pomp O'City

Cool story, bro

(0)(0)

Anon

The inane clichéd passive aggressive response of a troll bereft of wit or imagination to a post that has content. Says so much about a poster in so few words, none of it good.

(1)(0)

The secret specialist

Jack was well known to not know the difference between word or ppt at FBD.

(0)(0)

Anonymous

Chargeable hours are fine as long as they are decided by the client and not the lawyer.

(0)(1)

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