One Man's Thoughts on the Billable Hour

Jim Taronji, an antitrust partner at Howrey, sent me the following email about the billable hour poll, which I am taking the liberty of reproducing in haec verba because it's so thoughtful and articulate:

"Eventually, the "billable hour" will go the way of the Model T (just a curious novelty from the past). Why? Because that's what corporate clients really want. They want certainty in billing because that's what they need for internal budgeting purposes.

Law firms will continue to resist until they are forced by their large corporate clients to accept it.

The smart law firms will get ahead of their clients and accept (dare I say, "offer") flat fees for each project, with a "change option" for unplanned situations.

Professional service providers do this now with a detailed "Statement of Work" that is created by the service provider and the client. It lays out what will be done and when, the number and level of human resources devoted to the project (times the number of hours each person will devote to completing the project, times their hourly rates), and additional costs (travel, copying, etc.). The end result is a budget that is agreed on by both sides. Any changes to the "assumptions" will result in a change in the final cost of the project.

What this requires is for the relationship partner to work with the client to understand the "scope of work" upfront so that he/she can prepare a project management matrix that identifies the number of partners, associates, staff attorneys, paralegals, administrative staff needed for the project, the work that each will undertake, the number of hours each will devote to completing their tasks (by quarters, then drilling down by months, to come up with an annual "budget" number), and an estimate of additional costs (and when they will be expected to be incurred).

Once the annual "budget" or total project cost (if less than a year) is determined and agreed upon, that's the amount the firm will bill to the client each month and that is the amount that the client will wire transfer to the firm at the beginning of every month.

Net result, the firm no longer has to put together a monthly invoice (saving administrative costs), the firm will get paid by wire transfer at the beginning of each month (saving carrying costs), and the client won't have to review huge invoices with daily recitations of work performed by each person billing that month (saving time for inhouse counsel to do more productive work).

These savings to the law firm will compensate for the "unbillable" time it will take to prepare the matter budget.

Will this "sea change" happen overnight? No! But it WILL happen. The clients demand it and there is no reason why law firms can't deliver."

I agree with Jim that the demise of the billable hour, if it ever comes, will be primarily client-driven.  I am less confident that the precise contours of the Post Billable Hour World will follow Jim's template, but it's both a carefully specified model and one that has been proven to work in other professional-service contexts.

Thanks, Jim!