Writing obituary for billable hour (again)

Every couple of years this issue comes up: some new factor or method sounds the death knell for the billable hour and the six-minute unit.

It is like an eclipse without being as predictable; and every time, it turns out that – as with Mark Twain – rumours of its death have been greatly exaggerated.

This time, of course, it is AI that is being touted as the death of the billable hour.

It will, we are told, revolutionise the way we bill and end a system which is usually regarded as an albatross around the collective neck of the profession.

Before you delete the billing software, however, it might be worth considering a few things.

Has anyone asked the clients?

Criticism of the billable hour tends to focus on the burden of time-recording, how finicky it is and that it might inflate bills by attaching a cost to every minute of the day. This, the reasoning goes, leads to client frustration; but has anyone bothered to ask the clients what they want?

The billable hour/six-minute unit method has its drawbacks, but one thing it does is provide a detailed account of what you have done for the client. Clients tend to like certainty of price and to be able to actually see what you have done for them; the billable hour does exactly that. So before adopting a new method, it would be wise to ask your clients what they prefer.

Billable hour/time-costing systems are detailed and defensible

Clients generally have a right to an itemised bill, and an item-by-item print-out with the time claimed for each task is a great way to provide one. In addition, if the client challenges the bill it is much easier to justify an item if there is a detailed account of what was done and how long it took.

While it is true that some recent cases have taken law firms to task for things like charging six minutes for a 30-second phone call, many firms already don’t charge for short inconsequential calls or for reading formulaic emails – and six minute units and billable hours lend themselves to detailing this. It never hurts relations with a client for them to see ‘no charge’ beside an item or two, either.

The system monitors productivity very well

While it probably isn’t the aspect lawyers like to speak about, the fact is that six-minute units are a great way of tracking what lawyers are doing with their time. That also make it easy to see who is productive and how they are meeting their budgets.

At the end of the day, law firms are businesses and survival depends on knowing who is productive and who is not. An uncomfortable thought for some, no doubt, but if you can’t take care of your own business, you probably shouldn’t be taking care of anyone else’s.

However…

Despite all that, there is no question that the AI-powered tools law firms are – or soon will be – using will definitely change billing practices. That is largely because these tools will soon be doing certain tasks much more quickly than lawyers themselves can perform them, which means that what is billed for these tasks will change. Simply put, it would be difficult to justify charging a client $1000 for a will which used to take two hours to produce and now takes 25 minutes.

When adopting these technologies, firms will need to do so in a way that maximises output, maintains the quality of the work and delivers for clients. So it might be that a will produced with the assistance of AI will cost less, which will be balanced by the fact that a solicitor can do four of them in the time it used to take to produce one. It is worth keeping in mind that clients probably aren’t as concerned with how the work was done as they are with how much the work costs

In any event, firms must turn their minds to how they will bill when using AI, and it makes sense to talk to clients about it to ensure they understand what is going on. Solicitors will need to be able to explain to clients the value they are bringing to the work, even in a world where AI is heavily involved.

That will mean value pricing – explaining to the client the risk the firm takes on, the stakes involved and the outcome that the firm will deliver. The client will need to understand that is what they are paying for, and they will need to understand why the work is worth the price. The billable hour isn’t dead, but that does not mean things aren’t about to change.

To assist in this transition, QLS has many resources available to members to assist in these areas, such the Costs Advisory Service and many resources under the Ethics Centre tab on the website.