I always get so much mileage from the great data and charts in the annual Report on the State of the Legal Market from The Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Legal Executive Institute. This year is no different. All praise to them. But, first, a minor quibble (it is my nature).

The headlines upon the Report’s release were clear on the main takeaway:

Billable hour pricing is effectively dead because of budget caps, report says

Death of billable hour kills of traditional law firm franchise

The billable hour is effectively dead

The Billable Hour Isn’t Dying – It’s Already Dead

The headlines were consistent with the text of the Report:

Death of Traditional Billable Hour Pricing. One of the most potentially significant, though rarely acknowledged, changes of the past decade has been the effective death of the traditional billable hour pricing model in most law firms. This isn’t to suggest that most firms have done away with billing based on hours worked; indeed the majority of matters at most firms are still billed on an “hourly basis.” But focus on that fact alone misses a fundamental shift that has occurred in the market.

This change has been overlooked principally because of a definitional problem. In much of the writing on this subject, the focus has been on so-called alternative fee arrangements or “AFAs,” pricing strategies that are based on fixed-price or cost-plus models that make no reference to billable hours in the calculation of fees. Since other pricing models typically incorporate some reference to billable hours, it has often been assumed that only AFAs are genuine non billable hour alternatives and every other approach is simply business as usual. That conclusion, however, overlooks a major shift that has occurred over the past decade: the widespread client insistence on budgets (with caps) for both transactional and litigation matters….

Although today AFAs probably account for only 15 to 20 percent of all law firm revenues, budget-based pricing is much more prevalent. Indeed, in many firms, these two methods combined may well account for 80 or 90 percent of all revenues.

Quick, someone go find Jeff Carr and tell him that Don Quixote has vanquished the windmill! I would love to interrogate this data and find it to be righteous. But it is so contrary to my personal experience that, absent more compelling evidence, I just can’t accept it despite the credibility of the source. That skepticism probably comes, in part, because of how many times I’ve read about the death of the billable hour (for fun, I rounded up 20+ instances at the bottom of the post).

I encounter a number of clients with written requirements that all matters must have a budget. I see fewer who actually enforce such requirements in any meaningful way. And it is passing few that seem to impose discipline around the budget number to the point where it functions as a cap. This is not to say that such clients do not exist—some absolutely do—it is to say that I haven’t found enough of them for that 80 to 90 percent number to be automatically assimilated into my mental models of how the world works.

That said, I’ve had reason (NBA, MLB, POTUS, NFL) to call into question my mental models. So I come at this from a place of epistemic humility.

Everything else in the Report is as fantastic as ever. I’ve already updated my slide decks with the charts on demand and realizations. The former remains flat, the latter continues to fall. But I’m sure we can square both trends with increased profits and then paint a picture of long-term sustainability, right?

It’s not that I am skeptical that we are in for some sort of reckoning. I just don’t think it will be an abrupt end, let alone that it has arrived in a final, categorical form like the death of the billable hour. For an actually balanced and nuanced parsing of the report, I recommend Mark Cohen. And for his eternally amusing (and always brilliant) foretelling of the apocalypse, I must share Ken Grady. Myself, I actually have a different TR report I want to dig into next post.

As promised, the many deaths of the billable hour (it’s like a terrible version of John Wick but with a few awesome cameos):

As AI Portends the Death of the Billable Hour, Law Firms Face New Reality (2017)

Companies want lawyers to kill the billable hour (2017)
Alternative Fee Arrangements’ Challenge to the Billable Hour (2017)
Legal industry moves away from billable hour to alternative fee arrangements (2017)

Curbing those long, lucrative hours (2010)
Alternative Arrangement (2010)
Forever in Flat Fees (2010)
Law firms react to tight budgets, offer alternatives to billable hours (2010)
Billable Hours Giving Ground at Law Firms (2009)
In Corporate Counsel’s ‘Who Represents Whom’ Survey, GCs Say They’re Serious About Alternate Billing (2009)
Has the Billable Hour Met Its Tipping Point? (2008)
Kill the Billable Hour (2008)
Lawyers Ditch Billable Hour Structure (2008)
The Scourge of the Billable Hour (2008)
Killable Hour (2008)
How to kill the law firm billable hour (2008)
The Billable Hour Must Die (2007)
The Tyranny of the Billable Hour (2005)
ABA Commission on Billable Hours Report (2002)
Hourly Billing is Outdated (1994)

….Beyond the Billable Hour (1989)

And some counter programming:

The Billable Hour Just Won’t Die, Report Finds (2016)
The unkillable billable hour (2015)
Billable Hour’s Death Greatly Exaggerated (2015)
In Defense of the Billable Hour (2014)
In Defense of the Billable Hour (2014)
In Defense of the Billable Hour (2013)
Despite Stagnant Economy, Movement Toward Alternative Fees Still at a Crawl (2012)
The Billable Hour Endures (2010)
Surprise! The Billable Hour is Not Dead (2009)

_______________________________________
D. Casey Flaherty is a legal operations consultant and the founder of Procertas. He serves on the advisory board of Nextlaw Labs. He is the primary author of Unless You Ask: A Guide for Law Departments to Get More from External Relationships, written and published in partnership with the ACC Legal Operations Section. Find more of his writing here. Connect with Casey on Twitter and LinkedIn. Or email casey@procertas.com.

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Photo of Casey Flaherty Casey Flaherty

Casey has many opinions. And even more words. He is a former Biglaw associate and corporate counsel who moved into legal operations consulting for law departments and law firms. He nerds out on systems thinking, strategic sourcing, process re-engineering, KPIs, and the practical application of technology to the legal dimensions of business problems. His sweet spot is the mesh point between law departments and law firms where he promotes structured dialogue to foster deep supplier relationships (you can read about that here and here). Casey’s utilizes supply-chain management techniques like site visits to weave continuous improvement into the fabric of the law department/firm relationship. It was sites visits that prompted his ‘revelation’ that legal professionals generally make poor use of the core technology tools of their trade (Word, PDF, Excel). This low-hanging fruit for improving productivity and satisfaction engendered Casey’s passion project, the Legal Tech Assessment, a competence-based learning platform used by law schools, law firms, law departments, government, non-profits, and state bars (i.e., for CLE). You can demo his LTA here.

  • Insightful as always Casey.

    My 2 cents – With a few twists and bends, one way you might declare some sort of death is to view the issue from another angle. How much work done by firms is performed without pressure on rates or hours?

    In the past when people have asked me how much work is done under "AFAs", I respond with that question. The answer to this question highlights a dramatic shift in the market.

    But otherwise I agree – the death of hourly billing is highly over-rated.

  • The only way I can realistically see the billable hour going away, is if firms can calculate the cost, in time and disbursements, of a matter to a reasonable degree of accuracy. Right now, this calculation is extremely error-prone, and firms effectively shift this risk and uncertainty on-to the client by using the billable hour. I believe technology can solve this problem, by calculating the length and complexity of a matter automatically based on similar priors. I have not seen an effective tool for this yet, but they are certainly in the works.