A previous post presented a recent study’s findings on hourly billing’s strengths (See my post of Nov.11, 2007.). The same study, by Commerce & Industry (C&I) and BDO Stoy Hayward, gathered from 171 UK law departments their views on the drawbacks of hourly billing by law firms. Here are their views with the percentage of respondents who selected them:
“There is no certainty over the final cost.” (94%)
“There is no incentive for the firm to be quick or efficient.” (82%)
“It encourages padding.” (74%)
“I cannot measure the value-add.” (54%)
“It is hard to assess the quality of the work.” (46%)
“I am subsidising the high salaries paid to junior staff.” (43%)
As to the most common complaint, uncertainty of cost, legal departments can often cap the amount they will pay a firm. In return, the firm may insist on a premium (See my posts of May 21, 2007 about three ways to cap fees; and Nov. 22, 2006 on possible premiums by firms.). As for measuring the value-add, no form of billing helps a law department figure out how much it got for its money. The same point applies to assessment of the quality of the work; a fixed fee, for example, does not make it easier to judge how well the law firm performed, because the outcome – regardless of the economic terms – may not have a direct cause-and-effect relationship to what the firm did. Finally, the fact that junior staff are paid high salaries will inevitably ripple through any billing arrangement so long as partners try to maintain their profit margins.