7. The price-value disconnect
Thus far, I have talked mostly about practical anomalies and difficulties arising out of hourly billing. But there are more fundamental objections to the billable hour — ones that focus on the disconnect between the amount that is charged and the value that is delivered.
The more you know, the less you get
Let’s assume that Client A comes to me with a legal problem and we agree that I will bill for my time spent dealing with it. The problem Client A presents is within my general area of competence, but it involves some legal research and analysis. I spend three hours and bill accordingly. All typical stuff that occurs in law offices every day.
A month later, Client B comes to me with a quite similar problem, which I also agree to handle on an hourly billing basis. Because of the time that I spent on the earlier matter, I can handle Client B’s problem in only one hour and I bill accordingly — i.e., for one third of the amount billed to Client A.
One can debate whether Client A paid too high a price, or whether Client B got a bargain. But what is clear is that one of them paid three times as much as the other for the same overall value.
Of course, lawyers who feel they are learning on the job often do discount their bills for time spent figuring out how to do what the client may have assumed they understood already. But this does not necessarily occur. It’s especially unlikely to occur if the lawyer reviewing bills containing other timekeepers’ entries doesn’t really know how much “learning” occurred. And the client probably doesn’t have a clue as to how much “learning on the job” took place.
Moreover, it can be hard to distinguish between a situation where the lawyer is learning on the job, in such a way that a client shouldn’t be picking up the full tab, and one where research is simply an inherent part of the task. Unless one handles only the most cookie-cutter matters, the practice of law is all about finding things out. In that sense, there is a “learning” element in just about every matter — especially litigation, which, if done properly, generally involves extensive legal research.
And if the correct approach to hourly billing is to discount time when it includes too much of a learning process, then why not have a system that formalizes some form of value-oriented billing? Why only correct for overcharging on a piecemeal, unsystematic basis, where there is a good chance that adjustments will be applied inconsistently, if at all?
High bucks for mundane matters
Another aspect of the price-value disconnect is that a fair amount of the time spent by lawyers involves doing unskilled, undemanding things for which one barely needs a law license:
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•Driving to a deposition.
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•Sitting in court waiting for a hearing on a motion when there are 10 cases in front of yours.
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•Taking part in a conference call in which one’s role is very limited.
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•And so on.
Usually, those sorts of things are charged at the same hourly rate as legal work that is highly skilled. But why should they be?
The stock answer given by defenders of the system is that by sitting there performing the undemanding task, the lawyer loses the opportunity to do sophisticated legal work at that particular moment. This answer relies on the premise that lawyers who aren’t sitting in traffic or waiting in court would be doing sophisticated work at that very moment.
But there is no inherent reason why that premise should apply. They might at that very moment be doing some other unskilled task. Or they might be doing nothing at all.
The argument about charging the full rate for unskilled time works only if there is an assumption that lawyers have enough highly skilled, hourly paying work to fill every hour they are willing to work — such that doing any unskilled work for less money would lead to a loss of revenue. That may hold true for some — but it is probably not true for most.
The arbitrariness of unitary hourly rates
What the analysis above shows is that lawyers who apply the same hourly rate across the board are disconnecting price from value in two respects: First by charging the same for their time regardless of their experience level in a given skilled task; and second by charging the same regardless of whether the time is spent doing something that even requires skill. By having a unitary hourly rate regardless of the skill possessed or required, they charge what amounts to an arbitrary amount.
If one is going to charge by the hour, a more rational and less arbitrary approach would be to set, say, three hourly rates for each lawyer. The one that would be applied would vary depending on how skilled the lawyer was in a particular task and how much skill the task required.
No doubt this would itself lead to anomalies, gray areas, and arguments. But it seems less arbitrary than applying a unitary rate to cover all the work a lawyer does.
The under-appreciated brilliant hour
The price-value disconnect rewards some lawyers, but leaves others under-compensated. By charging simply for time spent, the lawyer misses out when inspired and skillful work is performed, which delivers considerable value but happens not to take very much time.
The billable hour delivers an irrational set of incentives. The fact that service is performed quickly should be grounds for extra reward. In practice, the lawyer who delivers quickly is penalized. The one who profits under the billable hour is the plodder who struggles or meanders to complete a task or resolve an issue. The point was made eloquently in an article in the Harvard Law Review back in the days when the billable hour was still a relatively new concept:
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“One thousand plodding hours may be far less productive than one imaginative, brilliant hour. A surgeon who skillfully performs appendectomy in seven minutes is entitled to no smaller fee than one who takes an hour; many a patient would think he is entitled to more.” (George D. Hornstein, Legal Therapeutics: The Salvage Factor in Counsel Fee Awards, 69 Harvard Law Review 658, 660 (1956).)
The lethargic hour
At the other end of the scale from the brilliant hour is the one in which the lawyer devotes 60 minutes to the client’s affairs, but is simply not very productive or inspired.
I would say that most of us are on our peak form at certain times of the day, and off our peak at others. The human body rarely delivers consistent performance at all times. Mine certainly does not. There are times when one is either slow or when, lacking drive, one resorts to tasks that can best be described as “near-work experiences” — activity that at some level is related to the mission, but that barely counts as work. (Fixating on the choice of exhibit tabs. Re-reading one’s work product, but more to admire it than to improve it. Or whatever.)
There is nothing to be ashamed about if you experience these tendencies. Lawyers are not automatons. But the billable hour takes no account of these natural fluctuations in human energy and work intensity. The meter ticks away at a steady pace, oblivious of the amount of drive that is present and adrenalin that is pumped. Every hour costs the same, regardless of whether it is an optimum exemplar or one that is sub-par.
Unfair to cabbies?
Above, and at various points in this book, I refer to the “meter” ticking away. The implication, perhaps, is that lawyers charge in much the same way as cabbies — the most visible operators of ticking meters.
But this might be unfair to cabbies. With most taxi meters, the tab is calculated using a paradigm that combines time and distance. If you’re stuck in a traffic jam, the meter will go up. But it will go up more quickly if you’re making rapid progress to your destination.
So the taxi billing model is value-related. The taxi driver’s meter makes more sense than a lawyer’s. If my references to “meters” suggests that I am accusing taxi drivers of charging like lawyers, then I apologize to the cabbie profession.
Entire contents © 2008 John Derrick