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The law profession tends to hold onto traditional ways of working. For decades the billable hour was an integral part of the tradition. Clients were billed based on billable hours, lawyers were judged on billable hours, and law firms competed on how many billable hours they achieved per month. 

However, in the words of Bob Dylan, "The times they are A-Changin". 

More and more clients (and some lawyers) are calling for a departure from billable hours. Billable hours encourage inefficiency. A recent ½Û×ÓÊÓƵ report gives excellent insight into why clients are moving away from billable hours and the repercussions for law firms reluctant to change.

Billable hours encourage inefficiency

"The billable hour model is out of date and creates negative incentives," said a senior lawyer in the UK who has worked in both private practice and in-house. "People who work more efficiently are unduly penalised because they bill less than someone who maybe took twice as long to do the same piece of work. We should be rewarding people for efficiency, not penalising them."

Radiant Law says it has disposed of timesheets; its priority is team performance rather than how individuals perform. "You've got to kick the habit of the timesheet as well as the billable hour, because as long as you keep telling people that more hours is a good thing, you're going to get more hours—and that's not good for the client, the lawyer or the firm if they are trying to figure out how to add more value more efficiently," said Alex Hamilton, the firm's founder and CEO.

These days, clients don't want billable hours; they want value

Clients don't care how long you spend on the issue; they want a solution. And they are willing to pay for a solution they are happy with.

"A lot of lawyers are still stuck in the mindset that this is a high-touch profession and that what the client wants is face time," said Andrew Cooke, general counsel at TravelPerk. "I don't want high-touch outreach, I want a solution. We're looking for value, not cost. Fundamentally the questions around the billable hour come down to a failure to express value. It's almost like you end up taking it back to a cost question, simply because there can't be a value conversation. So that ends up with the billable hour being a proxy for lots of other problems that ultimately relate back to the problem of expressing value."

Cooke added that while he hasn't seen a significant difference in the level of service provided when work is being carried out on a fixed-fee basis compared to hourly billing, he has noticed that working on a fixed-fee model tends to sharpen the mind and reduces the number of unnecessary phone calls and interactions.

"A law firm typically sees an AFA as a way to do better than an hourly rate, or at least as well as hourly, whereas clients are often really focused on how do I get the same services for less money," said Alan Guy, managing director of underwriting and value optimisation at top 200 US law firm Kobre & Kim, and who is responsible for negotiating AFAs on litigation matters. "The really productive conversations come when, rather than thinking of it as a discussion about price, you think of it as a discussion about risk and value. Because for a client, they may think it's worth $100,000 or $1 million to have a problem solved, and they are happy to pay that, even if it worked out more expensive than paying by the hour."

Billable hours focus on input; clients want to focus on output

So, while billable hours focus on cost and input, clients want the focus on value and output.

Staying in business is about addressing clients' needs and keeping clients happy. It is no different in the legal profession. Law firms must change their mindset from focusing on billable hours to getting better client solutions. Switching the focus from hours billed to value delivered can improve client relationships and result in more work, according to several in-house lawyers interviewed.

Clients want efficient, value-for-money service. And they will go to law firms that are prepared to provide what they want.

"It would be ideal for the industry if we can start to move towards more of a focus on outputs and the value that is being delivered by lawyers," said Georgia Dawson, senior partner at global law firm Freshfields Bruckhaus Derringer, the UK's sixth largest firm by revenue. "That supports a drive towards efficiency, a drive towards the use of technology, and it can help to support a better focus on mental health, wellbeing and diversity in the profession as well."

"Sometimes the things that matter a lot are intangibles—not necessarily bringing in the business, but running the business in such a way that the client is happy and satisfied and wants to bring in more business," said Nicole Nehama Auerbach, vice president and founding partner of ElevateNext. "Even if they're not billing the most hours, that's super important."

Shifting the focus from input to output has the added benefit of addressing another serious repercussion of the billable hours model. It will look after your human capital.

"If you focus on outputs rather than the inputs, then people are able to manage their work in a way where they're completely focused on the quality and the value of the output for the client," said Dawson. "That means hopefully the profession is more attractive to a broader set of people than it might seem at the moment where the public perception is about a slavish hours-driven culture, which for many people, myself included, is not attractive." 

The recent ½Û×ÓÊÓƵ report clearly shows that clients are pushing back on billable hours. Major clients expect their law firms to provide alternatives to the billable hour. "Vodafone does most of its work on fixed rates since that gives budget certainty and allows a comparison of costs from firms when responding to an RFP," said Kerry Phillip, legal director at the telecommunications giant. 

Bob Mignanelli, chief operating officer for legal at FTSE 100 consumer healthcare business Haleon, said: "I would be hesitant to move forward with a firm that wouldn't at least engage in the conversation to see if a fixed fee is appropriate for a matter."

Clearly, clients want value and price certainty. If you are not prepared to consider alternative fee arrangements, billable hours will cost you your clients.