April 07, 2006
One GC's View of the Billable Hour.
In response to the Exemplar Law Partners post two days ago, James T. Holden, the General Counsel of Rhino Linings USA, Inc. in San Diego--a first-rate lawyer and litigator I've known for years who like me spent many years at BigLaw doing defense work--e-mailed me the following insightful comments on the Billable Hour. These are quite good, and on points re: the BH I didn't quite cover in the post. So Jamie graciously agreed to let us post them here:
Dan, I’ve been railing against hourly billing for years, for many of the reasons you cite. Two additional reasons, however, are these:
A. Hourly billing prevents a client from accurately budgeting, or even forecasting, what it is going to spend on legal services during a given year. I found that out my chagrin this year; just as I was literally preparing to submit my annual budget for approval, I got a ___ from ___ that forced me to seriously alter my anticipated costs for outside counsel. When I’m being held accountable for adhering to my budget, anything that is not predictable is bad; and
B. Hourly billing creates an inherent conflict of interest between attorney and client. The client wants outstanding legal services at the lowest price possible, i.e., in the least amount of time. However, a lawyer billing by the hour has no incentive to be efficient, and in fact has the incentive to be inefficient, i.e., take up as much time as possible. I think that might be one of the reasons for the “scorched earth” letters that often come from counsel, looking at every possible nuance of a given question.
C. One more thing: I was at a conference of the defense bar about ten years ago in Chicago, and was part of a panel that talked about changes in the legal practice over time. One of the senior attorneys, who started practicing before I was born, said that back in the day, lawyers would handle a case, try it to verdict, then send the client a bill at the end of the case for services. This was widely accepted, but resulted in a lot of variation in fees. It was the insurance companies that began to insist on hourly billing, both as a means of spreading the cost of defense over time and as a way to ensure that they were paying known amounts.
Ironically, it is the insurance companies who have been responsible for the huge assault on hourly rates, and who also stand in the way of reasonable fees for services. Of course, it’s also ironic that the insurance companies, by insisting on making lawyers slaves to the time sheet and billable hour, have essentially created a large causation factor in lawyer dissatisfaction, with accompanying increased rates of alcoholism and substance abuse, depression, and disability, all of which increase the indemnity payments these same insurance companies are forced to pay.
Posted by JD Hull at April 7, 2006 06:35 PM