4 November, 2012
Lawyers in Asia are predicting that the billable hour will not survive in the 21st century. But others disagree saying there is no other option
In a recent Conventus Law poll, the majority of respondents felt that the traditional law firm hourly billing model will not survive in the 21st century.
54% of the 104 participants in the poll, which concluded on 31 August 2012, said that the billable hour model (under which clients are charged based on lawyers’ actual working time) did not have a future. Respondents to the poll included partners in private practice and in-house counsel based in the Asia Pacific region.
“When you have a long ongoing dispute, there is often little choice but to keep the clock running, so in some cases the billable hour model will continue,” said Andrew Keith, chief operating officer at Deacons.
This view was seconded by Helena Hu, independent legal consultant, Hong Kong.
But Hu has noticed a change in the way in-house counsel are billed by private practitioners over the past 10 years. She explained that there has been a “demystification” of billing. It used to be the case that when she received an invoice, there would be a “one line explanation of work done as if outside counsel had waved a magic wand and completed a project”. Now, the one line invoice is much less common and reasonable detail is given. She also finds that negotiating a fixed fee quote from the outset is also becoming more common and acceptable.
This is important, Hu continued, “because every in-house department has a budget and in lean times, spending is closely scrutinised by senior management, auditors and the board. In-house counsel are increasingly asked to justify their own existence and their outside counsel choices.”
Contrary to what many in-house counsel believe, the hourly billing model is not the favourite of every lawyer. Having a “good relationship with clients” allows the fee earners to openly discuss fees at the outset of a deal and agree a fee structure that is most appropriate to the client, Keith explained.
Timothy Bridges, partner at Harneys Hong Kong said that in some practice areas such as plain vanilla finance transactions, a fixed fee is usually agreed at the outset.
“You will have a clear idea as to what the terms of the transaction are, how many documents are involved and what is expected of you as counsel and can therefore agree a fixed fee based on market rates. This tends to promote efficiency in undertaking the work,” he said.
“On the other hand fixed fee arrangements can sometimes encourage inefficient practices by clients such as providing incomplete instructions because they believe they will get better pricing by making the job sound more straight forward than it really is,” Bridges continued. “Ultimately it can be a delicate balancing act between the interests of counsel and their client to ensure that everyone is working towards a successful outcome in an acceptable time frame for a reasonable price. Where there is a high degree of trust between client and counsel the issues of billing and pricing tend to become less fraught. Win-win may be a cliché, but it is the basis for the best enduring business relationships.”
The billable hour is not only a method of billing clients, according to Keith. For many firms it is also a way of measuring internal productivity. This is one reason why he considers the billable hour may not disappear altogether.
“It is culturally ingrained in lawyers to record time; that’s how it’s been for most of the profession’s history. There are many valuable things that people do in a law firm over and above billing hours. Performance measurement is becoming more sophisticated and I think the challenge for law firms is to see whether there are other ways of measuring performance.”
Ultimately, all law firms want to be profitable, so they want to bill their clients efficiently. Due to the current global economy, law firms are already using alternative billing structures where they can. But contrary to the results of the August poll, it does not seem we will ever see the demise of the billable hour.
For further information, please contact:
Scherzade Westwood, Conventus Law
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