Review on the billable hour
Billable time has for generations been the means by which law firms bill clients, and measure lawyers’ performance. However, buyers of legal services are increasingly demanding alternatives such as fixed fees. On the other hand, billable hours are also criticised as ineffective and bad enticements for lawyers. In a recent report named Calling time on the billable hour, LexisNexis explores whether billable hours will disappear. Georgia Dawson, senior partner at global law firm Freshfields Bruckhaus Deringer, the UK’s sixth largest firm by revenue, said: ‘The billable hour has been a fundamental aspect of how businesses of professional services have been structured for such a long period that any pivot that deviates from it will naturally take time’. She further added: ‘Having said that, over the last 10 years there has certainly been more of a pivot towards alternative fee arrangements (AFAs) and other structures, where clients seek greater certainty of cost.’ In addition to managing client’s cost expectations with AFAs, knowing how to access your firm’s online resources (like your network or cloud storage) is essential to maintain your firm’s online integrity and productivity. Some 85% of law firms audited for the LexisNexis report declared they use alternative fee arrangements (AFAs) by reason of client demand. Flat-fees were the most in demand, a Bloomberg survey manifest, ensued by flat fees per matter, volume discounts and mixed rates. In general, Bloomberg’s 2022 Legal Operations Survey showed that external legal spending through AFAs raised 25% from the prior year. Yet 73% of lawyers stated they still functioned with billable hours. Why are clients demanding AFAs? 81% of in-house legal teams said they request AFAs to save costs; 65% said they ask for AFAs for cost certainty; 49% gave general efficiency as a reason to request AFAs. Other reasons given by law firms for using AFAs include: Offering AFAs is positive for marketing, it places a law firm in a much better position when competing for new work. Bob Mignanelli, chief operating officer for legal at FTSE 100 consumer healthcare business Haleon, said, ’I would be hesitant to move forward with a firm that wouldn’t at least engage in the conversation to see if a fixed fee is appropriate for a matter.’ AFAs provide revenue certainty. Legal tech can help law firms provide more accurate estimates of how much a matter will cost and determine accurate AFAs. Fixed rates offer certainty. AFAs can improve efficiency. Alex Hamilton, CEO and founder of Radiant Law said, ‘You’ve got to kick the habit of the timesheet as well as the billable hour, because as long as you keep telling people that more hours is a good thing, you’re going to get more hours, and that’s not good for the client, the lawyer, or the firm if they are trying to figure out how to add more value more efficiently.’ In some instances, AFAs can save costs. Sometimes a solution can be achieved quickly, and the client is happy to pay a fixed fee based on value to the client. In such cases, there is no need to clock up the billable hours. The solution is quick and the client is happy to pay a fixed fee; the lawyer can move on to a different matter, and the cost to the law firm is reduced. Research reveals that clients have three principal critiques of lawyers: lawyers do not explain clearly, they do not empathise, and they are too expensive. These three problems are originated by a law firm culture of billable timesheets and hours. ‘There is a massive value gap’, said Alex Hamilton, the firm’s founder and CEO. ‘Legal services are way too expensive, and if you have worked in the sausage factory like I have as a partner at a big law firm, there are a huge amount of activities that are not really adding value that are being charged to clients at huge rates.’ What are billable hours ? Hourly billing is the usual way for service-related businesses, such as lawyers, to bill for their work. To assist the process of determining how much time a client pays for work furnished, many companies prefer to charge by the hour. This signifies they charge clients based on how many hours they put into their projects during one billing period or month, rather than using other common billing methods, such as an annual retainer or flat fee. These companies usually have clear policies on how to bill a customer on time. What work counts as a billable activity? The hours billed reflect the duration of work a professional has provided for a client. Here are some ordinary tasks generally considered as billable activities: working towards completing a task planning processes conducting any research communicating with clients amending any completed work holding meetings with clients drafting, reviewing and filing documents The billable hour system is when a lawyer notes how they spend every minute of their working day to assess how they bill the client. It is the most habitual method of invoicing a client for the work of a lawyer. Different groups of lawyers at different firms charge different amounts. Clients pay by the hour for a lawyer’s advice and additional work on their deal or case. What doesn’t count as a billable activity? While it varies from one company to another, there are some classes of work that aren’t normally billable. Companies little contemplate time spent on administrative tasks like sending out invoices, and tasks that don’t directly profit clients or team members as billable activities. Here are some more examples of frequent company activities that aren’t ordinarily billable: travel time commuting to work or to a meeting lunch breaks internal meetings unrelated to a client phone calls that don’t contribute to the completion of a task or project professional training Why will the billable hour never die? Even if consumers of legal services are more and more requesting alternative fee structures and a greater number of law firms are providing them. The LexisNexis report delivered that the



