CBA Record July_August 2016

50 / 60

50 JULY/AUGUST 2016
LEGAL ETHICS
BY JOHN LEVIN
The Billable Hour: Its Heyday May Be
Ending
T he last edition of the CBA Record
(April/May 2016) contained an
article by Chicago Bar Foundation
Executive Director Bob Glaves entitled
“The Billable Hour Needs to Go.” The
article was written in the context of pro-
viding access to justice to the low and
moderate income individual or business
who has been priced out of the market for
legal services. The article also contains a
reference to a “Pricing Toolkit” to educate
attorneys on how to provide services to
low and moderate income clients and to
develop methods of billing alternative to
the traditional hourly rate.
Over the years the problem of access
to justice has been addressed in countless
forums, including many of these columns.
As an unsolicited endorsement, I recom-
mend the Pricing Toolkit to any lawyer
interested in investigating alternative bill-
ing methods. It is a clear presentation of
many of the possible methods, and can be
downloaded from: chicagobarfoundation.
org/pricing-toolkit.pdf.
The purpose of this column, however,
is to put into historical context the billable
hour as applied to corporate clients and
suggest that its heyday may be ending.
Simplicity to Specificity
The first legal bills I ever saw (in the late
1960’s) simply stated “For legal services
John Levin is the retired Assis-
tant General Counsel of GATX
Corporation and a member of
the CBARecord Editorial Board.
John Levin’s Ethics columns,
which are published in each
CBA Record, are now in-
dexed and available online.
For more, go to
legalethics/.
rendered in connection with… “ followed
by a dollar amount. Both the lawyer and
client knew what the services were worth
(like buying a car), and if the client thought
the bill was too high, the client would ask
for a reduction or never use that lawyer
again. That was how the market worked.
Then in the 1970’s, the simple invoice
came with pages of time sheets based on
fifteen (and then six) minute increments.
My belief then was that someone in cor-
porate management or accounting had
questioned the legal bills and demanded
some sort of backup. Quantifying the
time spent seemed to be a good basis of
valuation. The secret was that the law
department approved the bills on the old
method–what was the fair market value of
the service rendered, and paid little atten-
tion to the time spent.
The following is my personal opinion
and not based on any independent inves-
tigation. The legal profession forgot that
the time sheets were mere validation of the
fair market value of the services rendered,
and began to believe that the value of the
services was based on the time spent on
the matter–a questionable concept. This
was followed by an explosive growth in
the size of law firms and legal fees (the
more lawyers - the more hours to bill). The
concept that time spent equated to value
of service also spread from the corporate
world to services provided to low, moderate
and middle income clients, where it really
was not applicable.
Reigning In
Corporate pushback came over time. Cor-
porate law departments took on more and
more of the work once directed to outside
counsel, who were pricing themselves out
of the market. There were many other
techniques for mitigating the effect of the
unrestricted hourly rate. I personally used
techniques such as limited scope repre-
sentation, in which the outside counsel’s
responsibilities were limited to certain
functions; project budgeting in which
specified tasks were costed at specified rates;
limiting use of associates on a matter; and
adjusting the fee through caps, discounts
to the hourly rate, or blended fees. These
techniques, as well as others, are referenced
in the Pricing Toolkit.
Risks of Being Wrong
Getting rid of the hourly rate entirely,
however, has proven difficult. In my private
conversations with partners of large firms,
we acknowledged that we could agree on
a fixed price for a number of types of mat-
ters. However, the risk of being wrong
was too great to try the concept except in
limited instances. My (very unscientific)
survey has shown that this is still the case.
Nevertheless, the heyday of the hourly rate
is ending, and I predict that its unqualified
use in the future will become more and
more limited.
WHAT’S YOUR OPINION?
Send your views to the CBA Record, 321
South Plymouth Court, Chicago, IL 60604, or
zine reserves
the right to edit letters prior to publishing.