Is the concept of the billable hour dead and buried?
- June 13, 2017
As we all know, the billable hour has been the de-facto payment structure adopted across the legal sector. In fact, according to Sean Braswell, a leading legal journalist, the practice dates back to 1975 and the American case of Goldfarb vs Virginia State where it was discovered that the prior ‘minimum fee’ structure was outdated and favoured richer clients. However, it appears as if this trend – and the idea of the billable hour as a whole – could be coming to end. But what does this mean for legal professionals and the firms they work for?
RIP billable hour
The trend of moving away from the billable hour gained momentum during the financial crisis when consumers started to look for more cost effective external legal guidance and began identifying alternative fee arrangements (AFA). These came in various forms including flat fees, request for proposals (RFPs) and reverse auctions over the once universally accepted hourly fee structure.
Why did this happen?
The financial crisis – rather obviously – put extra pressure on both individuals and organisations which started putting more of a focus on their legal costs and how to reduce them, improve efficiency and value for money so clients essentially get a fairer deal from their legal partner.
However, it looks like this renewed focus has in fact had a negative impact and led to a decline in output. Firms’ productivity has traditionally been measured on billable hours per lawyer, which presents leaders with a challenging situation as remuneration and bonuses have also traditionally been calculated by total number of hours billed.
A report from Thomson Reuters has also highlighted how billable hours have dropped in the last 10 years and gone from an average of 134 per lawyer in 2007 to 122 in 2016. That may not seem like a huge fall, but this monthly reduction – extrapolated over a full year – equates to a loss of 144 billable hours per lawyer per year, which ‘costs’ firms around £53,000 annually.
It would be unfair to suggest that this is solely down to a shift towards AFAs in recent years, however legal firms have a challenge on their hands bringing productivity up to its previous level. And legal professionals will also need to be prepared for change.
It’s likely that, as a result of this changing market, negotiation will become an increasingly sought after and important trait as firms seek those who have the ability to agree upon and adopt more flexible fee structures that are embraced by legal consumers. Professionals will also have to change the way they document the work they’ve done for clients. And let’s not forget communication, which will be absolutely pivotal as clients cast a more discerning eye on their legal partners. Perhaps most importantly, lawyers will also need to find ways to demonstrate how they can show value to the business beyond the numbers of hours they can bill for.
Do you think the age of the billable hour is coming to an end?
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