Billable Hours Under Attack

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Is the billable hours system of calculating fees and assessing associate performance undermining the quality of both legal service and attorney lifestyle?

American Bar Association President Robert Hirshon thinks so. The Commission on Billable Hours that Hirshon created last August is currently in the process of surveying law firms and corporate counsel to formulate alternative billing practices models that may help alleviate those concerns.

Speaking at the ABA Board of Governors Retreat in August, Hirshon said law school graduates frequently sign on with firms requiring 2,400 or 2,500 billable hours a year. "If you bill those hours, you don't have time for pro bono, you don't have time for the bar association, you don't have time for life," he said. "And that is what is happening."

Anastasia Kelly, senior vice president and general counsel for Sears, Roebuck and Co., is co-chair of the commission with Jeffrey Liss of Piper Marbury Rudnick. While Kelly shares Hirshon's concern over quality of legal service, she said the billable hours system is just plain not working.

"While I think the question of quality in the profession is very important, I think it is equally as important that with all the focus at law firms on realization rates, salary rates going up, and pressure by CEOs to cut costs, it's coming to the point where something has to happen," Kelly said. "The traditional way of doing business with law firms is not going to provide either firms or their people with a good answer."

Katy Englehart, presidential initiative manager for the ABA President's Office, said the commission has developed electronic questionnaires for corporate counsel and law firm attorneys and a Web bulletin board - at www.abanet.org/careercounsel/billable.html - to serve as a forum for idea and experience exchanges. Law students are encouraged to contribute to the dialog.

A full report -including model law firm metrics, policy and evaluation processes, best and worst practices and models for alternative methods of bidding work - will be released at or just before the ABA's annual meeting in August 2002.

The report will also include a model diet for associates, breaking down the number of hours associates should be required to work and what percentage should be actual client billable work.

Kelly said the inclusion of corporate counsel in this survey is a critical difference in previous attempts to address the billable hours dilemma.

"One of the reasons this discussion wasn't successful when it first came up 15 years or so ago was that it didn't involve inside counsel," Kelly said. "We [inside counsel] are the client - there should be an understanding that CFOs need to be involved."

Kelly said that in her capacity as corporate counsel, she has had numerous discussions with law firms regarding an alternative to the billable hours system and she believes they are listening.

"All of the law firms I talk to are very willing to do alternative billing arrangements - they're absolutely willing to try," said Kelly. "Technology makes these things possible. I can define my project, put it on an RFP in e-mail, send it to my 10 or 15 favorite firms, and then find out what each one will do it for."

Kelly said that while there are a variety of alternative fee methods - flat fee, contingency fee with a success premium, monthly retainers and others - the real measure of value is the quality of the work.

"We should do it the old-fashioned way - by quality of work," she said. "Any law firm that uses the billable hour as the measure of the quality of work is doing it wrong. You could use it [to determine] a bonus, I suppose, but it should be the quality of work first and foremost."

The system is not only hard on associates, but can also create major client problems for the firm.

"If you've got an associate spending 100 hours on a product your client thinks is only worth 25, you've got a problem," Kelly said.

This story appeared in the March 2002 edition of The National Jurist, www.nationaljurist.com.

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