One of the most common complaints about lawyers and their billing practices is the unpredictability of their fees. Nobody wants to be nervous about the lawyer’s bill coming in the mail and having to wonder what the “damage” is for the month. The traditional law firm model of billing by the hour creates this uncertainty. The question from the client, “How long do you think it will take?” is really a question of “How much will this cost?” From the attorney’s perspective, the answer to that question is, “As long as is necessary.”
That response is not comforting to the client because there appears to be no limit as to what the final cost might be. The client has no way to budget for the expense or to judge ahead of time as to whether the service the attorney is to provide will be worth the total fees that will be billed.
The billable hour method also creates a perverse dynamic. The attorney is actually incentivized to be as inefficient as possible. On the other hand, the client attempts to “over-correct” by insisting upon a “rush job,” which when dealing with complex legal issues leads to mistakes that can have dire consequences. While simple yet complete solutions are desirable, cutting corners is never a good idea in the legal profession.
Another aspect of the billable hour method that does not make sense is the arbitrary value placed on an hour of the attorney’s time. Some attorneys bill under $300 an hour while other attorneys bill in excess of $700 an hour depending upon the experience of the attorney, the practice area, and the particular community. These variable hourly rates undermine the notion that billing by the number of hours spent on a project creates an objective standard of value given to the client.
Finally, the concept that clients buy time from attorneys is misguided. If an attorney at an hourly rate of $400 spends three hours trying to develop a solution to a client’s problem but falls short, is the value of that project really $1,200? Imagine the attorney saying to the client: “Well, I spent three hours trying to find the solution to your problem but couldn’t figure anything out so you’re back to square one. But, you owe me $1,200.” If the client is just purchasing time, then that makes sense. However, if the client is purchasing a solution, then the client does not owe the attorney anything. Similarly, if the attorney found a solution that was worth $1,200, it shouldn’t matter whether it took the attorney three hours, one hour, or six hours!
Another aspect of the billable hour that is frustrating for both clients and attorneys is the need to track time. Most law firms bill in six-minute increments: 0.1 represents six minutes; 0.2 represents twelve minutes; 0.3 represents eighteen minutes, and so on. It actually takes a lot of time for attorneys to have to track their days in six-minute increments! Furthermore, it feels to the client like the attorney is nickel and diming them when their bill has a series of entries such as: “0.1 – Clicked open email; 0.1 – Listened to voicemail message . . .”
Because of these problems with the traditional billable hour, there has been a trend over the past several years for law firms to move toward a flat fee, “value-based” method of billing.
First, flat fees allow there to be a certainty of cost for the client. There are no surprises or worries about how much the next bill will be.
Second, flat fees allow for a collaborative approach between the client and the attorney. Both parties can relax about how much time they are spending and can devote their efforts to the work at hand. If the attorney feels that some extra steps should be taken or that there should be additional meetings or phone calls, the client is not wondering whether the attorney is just trying to “run-up” the meter.
Third, the attorney is able to spend as long as is necessary on a particular project, but is also incentivized to create efficiencies and to help the client in a timely manner.
Fourth, the attorney is likely to be motivated to demonstrate value in each step of every project so that the client can feel that the fee charged is worth the service provided.
Fifth, the focus of a flat fee billing arrangement allows both the client and the attorney to focus on the value of the services provided rather than the time spent.
Finally, the attorney does not have to spend unnecessary time and effort on tracking each day in six-minute increments and the client doesn’t have to be bombarded with monthly bills listing every microscopic expenditure of energy on the client’s project.
Flat fee billing does not work in every scenario, but it should be employed more often. The vast majority of the time, both the client and the attorney appreciate the benefits of flat fee billing and much prefer it to the traditional billable hour.
KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California and Kyle may be reached at 831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not establish an attorney-client relationship. Before acting on any of the information presented in this article, you should consult with a competent attorney who is licensed to practice law in your community.