Should We Stop Billing by the Hour?

chinese-physician.png

An old Chinese story goes like this:

The emperor called on his advisors to summon the greatest doctor in China. His advisors all agreed that the most famous physician in the land was Dzang-gung. So Master Dzang came before the emperor, who asked him whether he was in fact the greatest doctor in China.

“No,” replied Master Dzang. “I am merely the most famous. I see people when they are about to die, when sickness has taken over their bodies. And sometimes I can heal them. So my fame is known throughout the world, and I have grown very wealthy.

“But my older brother is greater. He sees illness before it takes hold, and cures people before they are at death’s door. So although he saves many more lives than I do, his fame does not go beyond our village.

“Our father, however, is greater still. He sees illness before it happens. He prevents it from happening before people even become ill. He has saved thousands more than his sons, but his fame does not spread beyond our house.”

Or there’s this (embedded with permission):

Dilbert.com

We find ourselves in a similar dilemma to the old Chinese physician and the efficient lawyer in the funny pages. Our hourly rate is pretty darn high. But we tend to resolve things too fast for that hourly rate to add up to much.

So we’re considering a switch from the hourly rate to a flat fee, charging basically the value of the service to be performed. We know that lots of defense attorneys bill this way, but it would be a big shift for us.

In our practice, we’ve been selling our time and labor, no different from a plumber or an electrician. Someone has a problem to be fixed, and needs someone with specialized skills to take care of it. There’s no inventory to mark up for a profit, the only thing being traded is time and effort.

But that’s not really true, is it. There’s another thing being provided — the result.

Now lawyers used to charge flat fees for everything. You wanted a contract? Fifty bucks. You wanted a will? Twenty-five bucks. Whatever you wanted, there was a fixed price, and you paid it. You were buying the completed job. Fees were often fixed by bar associations, and lawyers could get in trouble for charging less. (Ah, the law has ever been a cartel. That ain’t changing any time soon.)

But back during the Eisenhower years, the billing standard did change. And it wasn’t lawyers who did it — it was the clients. Clients said “wait a second, how come you’re charging me two hundred bucks for a document you spend ten minutes on? You just used something you’ve already written before, and just changed the names. I’m not paying two hundred bucks for ten minutes of work.”

Lawyers tend not to be stupid. It was easy enough to switch to the billable hour, as demanded by their clients. And it was just as easy to use that billable hour to the fullest. The financial incentive switched from getting the client the result they wanted (which usually meant as soon as practicable), to providing an interminable series of sorta-kinda necessary services, all billed in 6-minute increments. By the 1970s, this was the norm.

The law stopped being a profession, to some extent, and became instead just another business. A “profession,” for those who misuse the phrase routinely, is not a job, but a calling — one in which the professional has a unique relationship with the buyer, a relationship of trust. The professional is trusted to act only in the client’s interest, never his own. The professional has an ethical duty to put that client’s interests ahead of his own. Traditionally, there have only ever been three professions: the law, medicine, and the clergy.

The professional’s job is not — absolutely, categorically, one hundred percent NOT — to maximize profits. It is to take care of the client, patient or parishioner. To see that their needs are met. Of course, one should be compensated for the service, but that’s not the point of doing it.

But that doesn’t mean billing by the hour is wrong. It isn’t. It gives the client some level of assurance that he’s paying for work, that something has been done in exchange for that dollar he just paid. And most attorneys bill honorably and honestly.

Still, it overcompensates the lawyer who enhances his bill with perhaps unnecessary tasks and expenses. And it woefully undercompensates the lawyer who gets the client a satisfactory result swiftly and efficiently.

So we are seriously considering switching to a flat fee for our services. It’s fairly common in the criminal defense bar, and at least one major law firm is famous for charging a single fee for its services. We’d be in good company.

There are of course issues to be hammered out, such as how much of a discount should be given if the representation ends before the case does — probably depending on what stage the case is at. Or how to best calculate the appropriate fee for a given case (thank goodness finance and economics are among our strong suits).

But those are minor details, which can easily be thought through. Overall, yes, the idea does sound more and more attractive. It reminds us of one last story:

There was an engineer who worked at the company for many years, earning an excellent reputation. He eventually retired. But several years later, the company had a problem with one of their super-expensive, super-complex machines. They had thrown all of their best engineers at the problem, to no avail. They had brought in consultants and specialists, but the problem could not be fixed.

In desperation, they called the engineer back out of retirement. He didn’t want to, but they begged and pleaded, and he eventually gave in.

The next day he showed up, and just stood there looking at the machine. Didn’t say anything, didn’t do anything. Just looked at it. A long time passed. Then he walked around the machine a couple times, took a piece of chalk out of his pocket, and marked a small “X” on one of the gizmos, a ten-cent piece of hardware. “There’s the problem,” he said, and went home.

The company replaced the ten-cent part, and suddenly the machine worked like a dream.

A week later, the company received a bill for $50,000 from the engineer. They were incensed! The engineer received an angry letter demanding that he present an itemized invoice, accounting for his time, labor, expenses and other charges justifying this outrageous bill.

The engineer replied with the following itemized bill:

One (1) chalk mark: $1

Knowing where to put it: $49,999

The company paid it in full.

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3 Comments

  1. bicycle accident lawyer, July 27, 2009:

    Very nice information. Thanks for this.

  2. john martin, August 4, 2009:

    I really liked your blog!

  3. Legal Dodo, December 13, 2010:

    Although the billable hour does not seem to be dead as yet, its days are definitely numbered. Clients are increasingly demanding reduced legal costs, forcing the law firms to innovate. One solution to the high legal fees problem is legal outsourcing.

    With the advent of legal process outsourcing, legal work is now being done at a fraction of the cost in countries like India, without compromising in quality. Legal outsourcing providers are helping buyers of legal services in the U.S. reduce costs dramatically by providing cost effective legal solutions.

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