Like Jason, I've always thought the billable hour was an antiquated system that needed to go (and in fact part of the reason I never considered going to BigLaw after graduation). It looks like the economy is finally starting to make law firms to rethink the billable hour.

As a technologist, I find the whole system appalling. It rewards inefficiency. There is absolutely no incentive to be productive – if you can bill an extra hour by printing and binding stuff (charging the printing and binding costs to the client of course) as opposed to reading it electronically, so be it. Think about it this way: if your gating factor is the number of hours you bill to a client, there is a disincentive to work faster. If you accomplish the work in half the time, there is no real benefit. Sure, you can take on a second client and bill them, but you can never increase your overall profits beyond what you can bill in a single day.

The billable hour has a fundamental scaling problem.

Contrast this to, say, investment banking, in which fees are calculated largely on a project basis and based on the size of the deal. During my time at Goldman, we spent a lot of time trying to make the bankers more efficient, because the more deals they could do the more money they could make.

The billable hour is especially scary to early stage companies who are likely on very light budgets. There was a recent nextNY thread about flat rate legal services, prompted by a flat fee schedule (pdf) offered by MasurLaw. (Personally I think the fees are on the high side for largely boilerplate, but at least it's a known quantity).

As Roman (who obviously offers flat rate billing as well) put it on the thread:

I believe that flat fees should and can be extended to most legal work and not just to early stage startups or initial documents. Many moons ago, before becoming an attorney, I ran a video production company and I recall how disheartening it was when our lawyers billed by the hour and how awful I felt knowing that when I called them the meter was running. So when I started my law practice flat rate billing and range billing were an integral part of my service commitment.

Hopefully, this is a trend that continues – the billable hour is a broken system that doesn't really work for anyone.


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