Is there really blood in the water around the billable hour? Or are we simply hearing an updated version of a familiar refrain? This morning the Wall Street Journal took another look at killing the billable hour (subscription):
People who follow the world of law firms know, among so much else, two things: 1) that billing-by-the-hour has long been the way law firms get paid and 2) companies have over the years had only limited success in getting firms to agree to do it any other way.
That’s changing. In a big way. Companies are starting to ditch the hourly structure — which critics complain offers law firms an incentive to rack up bigger bills — in favor of flat-fee contracts and other types of arrangements.
Of course, we’ve heard all that before. Heralding the death of the billable hour is much like predicting the end of the world: eventually somebody is going to be right.
Has anything fundamentally changed this time around to make the billable hour more susceptible to death? Here’s the best argument.
At its core, there are two very good things about the billable hour that accounts for its staying power: (1) It helps firms make money and (2) it is an easy way to measure employee productivity. Over on Ideoblog, Larry Ribstein imagines a future where clients are simply unwilling to pay the money firms are used to getting based on a billable hour model:
The billable hour has worked well for law firms. They just count lawyer hours and slap a profit on them. Historically, clients haven’t been in a position to question that profit, because they haven’t had a better way to control costs. But now with beefed up in house counsel offices, increased sophistication about what lawyers do, and competition from outsourcers, among others, clients are in that position, and there’s no reason to think they’ll revert to old practices when the economy improves.
But what about measuring productivity? Once you abandon the billable hour, you need to come up with some other criteria by which to measure your productive associates against the low performers. All of the firms that are moving strongly away from the billable hour are looking at a hodgepodge of associate evaluation factors that seem utterly subjective.
It is easy to say that the billable hour doesn’t reward efficiency. And clients can demand fixed rate solutions if they want to. But right now the most objective way to measure an associate’s contribution to the firm is by looking at hours. Until somebody comes up with a better system that provides some measure of objectivity, the billable hour isn’t going anywhere.
‘Billable Hour’ Under Attack [Wall Street Journal]
The death of hourly billing [Ideoblog]