Before the Billable Hour
Mary Welch | March 27, 2015
It was the mid-1960s and associates at Alston, Miller & Gaines were upset about a rumor floating around their tony offices that a clerk was adding up the hours each attorney worked—a new concept called "billable hours." "Philip Alston asked some of the associates to meet with him at his home for a general morale building sort of thing," recalls attorney Michael Trotter, now at Taylor English. "Several attorneys had gotten wind of this individual billing thing and objected. Not only did Philip explain about billable hours, but he said the firm had established a rule that they would not look at the hours of individual attorneys."
And they didn't. Trotter, who was head of the corporate department, received a monthly list of his department's billable hours with no names attached. "I could pretty much figure out who billed 100 hours and who did 200. But that was still
going on in 1977 when I left. It's so very different from this world of law today and profits." In a time where "alternative fee arrangements" are the norm, and law firms are trying to eke out profits while corporate counsel's mantra is controlling legal spending, it's a good lesson to go back to the original legal fee arrangements and review how it came to the mishmash of legal billing that is the norm today.
John Wallace, who headed King & Spalding’s trust and estate department for 45 years before starting Wallace Morrison & Casteel in 2001, remembers when a lawyer would suggest a fee to the client after the case was closed. "Most of the time the client accepted the bill," he says. "The senior lawyers would go back through their files and get a good recollection of what was done, how complicated the matter was or whether you had to work after 6 p.m. A lot of times you didn't do yourself a favor because you may not remember how much time you actually spent on the case."
Thomas A. Player, who retired from Morris Manning & Martin and is now a sculptor, was an in-house attorney before he opened Neely & Player in 1975. "Everything we did was on a project basis, and it wasn't difficult to bill after the fact," Player says. "Everyone sort of figured it out in their heads—how many hours, how many lawyers, did you have to work on weekends? Did you get the desired result? The bill would come out of that. No one would know how much time you put in on the deal." The bill was submitted on a single piece of paper. Many attorneys used local bar associations' medium fee schedules as a guide for routine matters. Those went out the window in the 1970s, when the U.S. Supreme Court ruled them illegal under the Sherman Act.
Prior to billable hours, most of the work was done on a retainer basis. "The retainers were modest by today's standards," says Trotter. "The thought was that you were hiring the best lawyers available and you expected a good result and you expected to pay for it." The more efficiently the lawyers resolved the case, the quicker they could move on to the next job and the more money they earned. But in the 1970s things changed. More deals were popping up, so firms pumped up their staffs with more associates, lateral hires and firm mergers. Billable hours went from being a billing aid to a measure of the value of the work performed, says Trotter. "As firms grew in size and the supply of available lawyers increased—especially young and inexperienced [ones],—the incentive to complete a project economically diminished, while the ability and the incentive to invests larger amounts of time increased," he wrote in a paper called "Fixing the Billable Hour System." Wallace recalls that at King & Spalding, "you got your retainer no matter what, and after expenses were met, it was all profit. It was pretty good."
"But somehow it started getting turned around and in order to not cheat yourself, it went to billable hours and that's all clients paid for," he adds. "Lawyers charged a fee based on hours rather then expertise, speed in which you solved the problem and the outcome. There is a certain level of illogic to that."
Many firms confused selling legal services with selling time and billed solely on the hours invested rather than quality, efficiency and results, Trotter says. It also, admittedly, led to sloppy timekeeping and padded bills, discouraged tight management of projects and charged for work that may not have been necessary or was done by lawyers with a higher billable rate than was necessary.
The relationship between value and costs to the client became less important. Clients, Trotter says, "insisted on eliminating quality, efficiency and results from the process of determining the legal fees they had to pay." Wallace, for his part, thinks value and cost still are aligned. "If someone wants to do something on the cheap, go get another lawyer and you'll find that you get what you pay for." Dr. Silvia Hodges Silverstein, executive director of the Buying Legal Council, an association of procurement and operations professionals tasked with outsourcing legal services, says that the problem of hourly rates is the "risk is on the client. It's like hiring a plumber—how much will it cost and how fast can you work? The corporate mandate is, to some extent, [to] reduce legal spend, which in the last decade has gotten out of hand. Clients need more predictability and transparency. But at the same time, clients and firms have to have some risk and be on the same page and align interests." Having to live on an hourly billing schedule is a "stressful life," says Silverstein. "It's not the life anyone would like and most attorneys honestly dislike it. Despite people not liking the system, the fac — Read more.