Killing Time – How To End The Billable Hour + Liberate Legal Tech

A lot of people agree that the billable hour’s time is up. The problem is there doesn’t appear to be a clear path to reaching this outcome – and so we are stuck with ‘End of the Billable Hour Groundhog Day’, with the anachronistic approach to legal production always just about to come to an end, but never quite expiring.

This dilemma was perfectly illustrated at an excellent event in Belfast in January – AI in the Future of Law and Business – organised by Jane Holloway, Director of The Legal Innovation Centre, and also with support from the Ulster Business School. The subject of the infernal hour came up several times – and the consensus was as always – that its day had come. But then, of course, it also became equally clear during the day that there was no clear path forward.

Of course, just because something should change, and that many people want it to change, doesn’t mean it will any time soon. Many people also agree fossil fuels are an abomination – yet here we are – they’re still here and in fact coal use in some countries is increasing.

The legal sector has several of these ‘we all know it’s wrong – but it won’t change any time soon,’ scenarios. The billable hour is just one of the more egregious ones.

But, hard problems are worth trying to solve.

And it is a problem. There is no point trying to change the means of production with technology, better deployment of specialised labour and improved processes, if we are going to use an economic model for an artisanal market, i.e. a time-based system.

This is the thing: if we’re serious (and perhaps not everyone really is…) about changing how legal services and legal products are made and delivered, it would be naïve to think a pre-industrial economic system will continue to fit. We’ve moved beyond that and to truly liberate the potential of legal tech we must sacrifice the billable hour on the altar of positive progress.

And perhaps that’s at the heart of the problem. Lawyers have (in some cases, in some segments of the market) embraced tech, process and design, and think life will carry on as usual. It won’t.

Maybe some firms should rethink their commitment to change, as they may not like where this is leading. Do, or do not, as they say. You are either serious about real change or you’re just using legal tech for window dressing with an otherwise pre-industrial approach to professional services (which is where a lot of people want it to stay for the foreseeable future).

OK. Onwards. Here are Artificial Lawyer’s thoughts on how we can solve this systemic brake on real change in the legal market and the truly meaningful adoption of legal technology.

Ever get the feeling…

The Problem:

We all know what the problem with selling time is, (or if you don’t, please stop reading this and consult your nearest member of the 21st century). Right, let’s skip to the solution part.

The Solution:

If you are not going to sell products based on the time used up in the manufacturing process (and of course layered to reflect how many years each person involved has worked in the building), i.e. on an opaque and ‘fantasy price’ basis that Lewis Caroll would have been impressed with, then you will need a better – perhaps more modern – solution.

And there is an alternative to billable hours – and in fact, it’s not really ‘alternative’ at all. It’s actually surprisingly mundane and prosaic. Namely: you put a price on things.

Legal Things

If we drop the surreal extra dimension of ‘legal time’, and focus on the more static world of ‘real things’, or perhaps ‘legal things’, that you can point at, then identify, classify and then price, you need to have something to land on. I.e. there has to be a ‘there’ there. For example, you can’t price the idea of a table. You need a real table to enter the equation, at least to start with. Then perhaps you can theorise the price of imaginary tables, but first you need a real one to size up and estimate.

In the same way, you can’t price the idea of a piece of legal work, or the concept of a certain type of contract – you’ve got to say: this is what X legal output looks like, it turns into a thing, and this thing costs Y.

Of course, what should Y be? Now, that’s a good question, and it depends on if you’re a buyer or seller, and where in the market you are, and what your business strategy is.

The truth is: Y can be whatever you want it to be.

Why don’t Wall Street’s finest law firms sell all NDAs for $1 per unit no matter how supposedly complex, given that none are likely to be that novel and they’ll already have a template on the stocks? And why not charge with a sliding scale for advice on any corporate merger deal, starting at $10m, with the sky’s the limit depending on company valuation, whether that input takes one day or six months?

It’s a free market question. And the market will pay for whatever it has the desire and the stomach for.

I.e. making a client pay X~(time) for product Y is frankly insane, if you’ve made product Y before. It’s saying: ‘I know better now how to make something, and because of that I’ll charge you the same or more, and once again based on the time it took to do it. Even though I could in fact make it a lot faster because I now know how to do it.’ This is especially so for products that everyone else in your market segment is also making.

It’s a bizarre bonfire of efficiencies that clients and providers gather around to warm themselves.

But, back to intrinsic value. There is none.

Let me repeat that. There is no intrinsic value to legal services or legal products. That something can be made does not give it value in itself.

‘What?’ you say, ‘How can that be? It’s as if you are saying that legal work has no a priori monetary value? Our value is all just a figment of our clients’ (sometimes under-stimulated) imaginations?’

Exactly. That’s the point. Sorry to disappoint the Platonists. Value is in the eye of the beholder. It’s a market.

Selling by time is simply a metaphysical security blanket that lawyers hold onto for dear life when faced with the existential shock of realising that what they do has no particular God-given, innate value.

But, we are getting away from the central point. Change needs ‘legal things’.

Or, put it this way. As the Greek philosopher Zeno pointed out, once you leave the world of whole numbers then all kinds of strange things can happen. I.e. if you are going to sell ‘legal things’, e.g. NDAs, employment contracts, an M&A doc review exercise and its results, and more, then you need something regular and solid enough to be able to point at and give it a price. The more you equivocate, the more you say ‘it depends’, the more you find it impossible to compromise, or accept you live in a market, the more we are lost again. But it can be done.

And that is where the fun starts. Or the challenge.

It’s something that Angela Clist, Head of Allen & Overy’s Legal Services Centre in Belfast, pointed out during the event in January: if you want repeatable prices then you need specific products, but, as is often the case the clients don’t necessarily begin with an exact statement of what the ‘product’ ought to be that they want.

Clist gave the example of one client asking the team to examine documents for X number of data points, only to find that they needed something far more extensive – and they only knew that after they’d got well into the project. I.e. how do you price what is basically an adventure into legal data?

The answer is: it’s tricky – if it’s really the first time you’ve ever done that. But, very often it won’t be. Or there will be something analogous you can point at and say: ‘That thing is like the thing we are doing. Excellent. That’s the price of it.’

And that also means suppliers ‘eating’ certain losses in the name of gaining better client relationships that operate on fixed fees for ‘products’ with clear prices.

Standardise – We Must

The reality is that product standardisation is the only realistic route forward. Otherwise we will still be experiencing this Groundhog Day dilemma in another few decades. And people at conferences in the year 2050 will be saying: ‘The billable hour is over…well, at least soon.’

Clients need to have some predictable way of knowing what X will cost. The producers need to run a business and need to know the sale price in advance so they can stay in business and have some clear margins. It’s a balancing act, but one where the scales are clearly tilted to one side at the moment and that’s on the sellers’ side.

Clients and firms, perhaps in each market segment and legal jurisdiction, need to get their heads together and start ‘pointing at things and giving them prices’. This already exists in large parts of consumer level legal services. Taking this upmarket to more complex commercial work is just part of a continuum, not a step into another universe.

(And plenty of legal tech companies are trying to help with a variety of billing and cost prediction software and billing data analytics systems….if only the clients would actually use them as if they really meant it.)

And let’s be realistic. If the tyranny of time ever were overthrown, we would in all likelihood have to sift through the debris of the post-revolutionary world looking for billing data.

Starting off with pricing matters with a fixed fee based on the old regime time-price may be all some clients and firms can do. It’s not a perfect solution, but it’s a solution – and perhaps one that would evolve quickly.

E.g. once we have put out into the market some fixed prices for a range of legal goods (perhaps pegged to certain market segments, e.g. Wall Street Elite, Top 20 City of London, etc), then price competition can more easily take place.

As transparency and competition become normal, some firms would seek more radical pricing strategies, e.g. the $1 NDA and the take it or leave M&A fixed fee.

Once you liberate yourself from the tyranny of time, you can price your legal outputs at anything you want. Super high, super low. Bulk deals. Take it or leave it deals. Whatever works for you and whatever makes the client give you a call.

I.e. Even if those prices were formed out of time, they now get crystallised and become fixed. A signifier price, implicitly attached to a signified ‘legal product’. And those components can change, but without the chains of time.

Every other part of the economy has managed to reach a compromise with itself and price things, even when it was not a perfect fit. They just did it.

It just requires the will to do it. And efforts, such as that by SALI, are being made to move things in the right direction.

But, is there a will to do this?

Note: in conversations with firms about the issue, one point was raised re. anti-trust/competition. Clearly sellers are not meant to collude to harm buyers. But, it doesn’t look that way in this case. First, sellers are simply putting prices on things, like the local shop does, and the buyers soon learn from this. (Or they could check their receipts and see, and then perhaps share that pricing info with the rest of the world.)

Second, this is not secret collusion to hurt the market, it’s the exact opposite. This is about openness and transparency to help the buyers.

And third, does anyone think large commercial firms don’t know what their peers are charging (and adapting their prices accordingly)?

And if you really want to talk about anti-trust issues, how come when one law firm puts up its billable hour rates for a particular fee-earner class, all its peers make the same or similar price increases too? If that’s not collusion for the benefit of the seller then what is? .

So, let’s not give the competition argument much credence. It’s hard to imagine a judge castigating a group of law firms for price transparency and seeking to reduce costs to the market.

Who Wants To Start?

Artificial Lawyer put it to one of the panels in Belfast that if clients put their foot down today, especially the big banks, and banned all hourly-based bills, then by the end of the year the new approach would have spread around the world and the billable hour would be dead.

‘You have the power,’ Artificial Lawyer’s founder said, with a mix of statement of fact, and also pleading that the clients with the power to change things now and take the initiative.

And right on time, Lauren McCoy, Associate General Counsel at global bank Citi, replied that the issue was ‘who was going to go first?’

I.e. it may be a good idea, it may be ‘the right thing to do’, but to really do this and set the pace? Who wanted to be the one to lead on this publicly?

Now, in the past we have seen all-in-one deals from companies such as Tyco with firms like Eversheds Sutherland, which sought to avoid the billable hour for certain types of work – but, brave efforts aside, that did not change the world. Maybe Tyco just wasn’t influential enough? But, the top banks? If Citi, then Barclays, then Goldman Sachs, then…..etc…..all dropped the hour? What then?

Personally, it seems to be the big banks and largest corporates that will set the tone. Law firms, whether they like it or not, would have to play ball.

In fact, it would then start a price standardisation arms race, as law firms sought to win their clients’ good will. Of course, law firms would then explain that some work ‘had to be on the clock’, and perhaps clients would let that happen.

But, how about a target of 80% fixed fees for all billables, with the price declared nice and clear, up front, and described in such a way that the client can compare it easily to all the other offers if they’ve done an RFP?

Imagine a world where the clients just didn’t accept fluffiness on pricing. Where they said: ‘Look, it’s basically one of those pieces of work – we know it’s a bit different in some ways, but….well, you’ll just have to swallow it. You make that work profitable to you.’

And ….. hello legal tech….! That’s what it’s all there for. Surprise, it’s not just about making lawyers’ lives a little more convenient. Society doesn’t care if lawyers’ lives are a bit more convenient, society just wants the delivery of legal services in the most efficient and value transparent means possible so it can focus on sustaining its deeply human purpose.

Data Lakes – That No-One Swims In

How do we do this? We model. We model like lawyers have never modelled things before. Call it a Moon-shot, a massive undertaking that will reshape the legal world forever.

The data is there. We just need to look at it. Find patterns, find shapes, be reasonable about what we can call ‘similar’ and compromise on what looks ‘different’. Do what every other sector has done.

Conclusion:

It can be done. We can say goodbye to time and focus instead on legal things.

We have the data. We have the economic history on our side as well. We just need a sufficient number of influential market participants to go and do it now.

And….this is not just about lawyers. This is about all and any professional services that want to hang onto the comforting apron strings of their artisanal past. Those days are over. Or at least can be.

But, only those with the power to change things can make this real. And that may well be you.

Richard Tromans, Founder, Artificial Lawyer, Feb 2, 2020.

3 Comments

  1. Really good article thanks Richard. It nicely sums up both the archaic nature of the issue as well as the barriers to change. It is a reality that despite the fact that there are huge opportunities for change across the legal sector, it is only the clients and the market that will provide the motivation. Then the law firms will need to unpick the embedded metrics and mindset that manage the business using billable hours, regardless of it being fixed price!

  2. Perhaps the change will come from lower down tha value chain. As legal tech hoovers up the mundane and repeatable, customers may take those task in house. This would reduce the amount of work they would ask law firms to do – and make the work they ask for more specific and less open-ended. “We would like your opinion on these documents/this price/that court’s interpretation of this law based on these factors”.
    Well-informed customers who know what they want drive better deals. In fashion retail, physical shops are good for discovery. Once we know we want a specific pair of running shoes, the internet is hard to beat.

  3. Hi Richard. Great article. Cutting the billable hour umbilical cord is the mission of the team at PERSUIT. One of the reasons it’s been so hard in the past is the challenge around scoping work and delivering a level of certainty to law firms that they can sensibly price on a fixed or bases other than hourly rates. That’s the problem we’re attacking by delivering best-practice templates around scoping different kinds of matters – litigation, investigations, project finance etc. Add a spice of competition between law firms through our auto negotiator (ie reverse auction) functionality and voila – market driven AFAs!

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