Hourly billing 'incentivises inefficiency', says Neuberger

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Readers' comments (25)

  • It is absolutely ridiculous for the judiciary to be interfering with how firms operate their own commercial business. The hourly rate may not always be appropriate but sometimes it can be a more cost efficient way of billing the client, sometimes they want it to remain that way. It's their choice and bureaucrat's shouldn't be interfering with over bearing legislation.

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  • @Anonymous | 16-May-2012 3:50 pm
    I absolutely agree. The legal market is competitive enough if clients think they are getting screwed over by hourly billing then they have the choice to change to another firm. Similarly, if one firm switches over to value-based fees and clients flock to them then other firms will have to follow if they are losing work. It is a commercial choice not a judicial one.
    Also, while hourly billing perhaps "leads to inefficient practices, at worst it rewards and incentivises inefficiency" fixed fee work can be just as perverse, incentivising cutting-corners - but then again I don't think the MR has been on an all-inclusive holiday before...
    The only thing I would add to this is that in the PI and Criminal Law context there is more of a justification, as typically clients only need their lawyers once and having a clear "it will cost £x" could be quite beneficial for making comparisons.

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  • @Anonymous | 16-May-2012 3:50 pm
    I take the point about 'forcing' firms to drop hourly bills. But, perhaps instead the courts and/or Government, and/or SRA, should make it mandatory that all clients are offered the 'option' of fixed fees should they want to be billed that way.
    One could argue that it is a key part of UK consumer rights for a client to be allowed to be billed the way they wish for professional services, and that billing systems should not be dictated by law firms as this distorts the market, hurts freedom of choice and as everyone now agrees is rarely in the interests of the client.

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  • Agree with all the above. It does not incentivise anything. It is a way of charging for services. How did Neuberger charge for his services ? Oh sorry, forgot, he got that cockney barrow boy in the clerks room to do that grubby work for him. You're a bright fellow Neuberger, but stick to the finer points of landlord and tenant in your Ivory Tower. And then back to the mansion paid for with over-sized brief fees.

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  • @Mr Clementi | 16-May-2012 4:30 pm
    What utter tosh. In what other commercial enterprise are clients/customers given a choice (as a matter of course) as to how they pay their bills. Very few. Why should law firms be any different?
    As some posters above have pointed out, there are plenty of firms to choose from and if you don’t like how one firm bills then move to one that you find works for you.

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  • Don't you just love it when the judiciary (mostly ex barristers) criticize hourly rates when their careers at the bar earned them huge fees based on grotesquely high, guess what, hourly rates!

    As a mere litigation solicitor, I'm supposed to be able to either guess how much a case is going to cost at the outset and offer a fixed fee (the risk being all mine) or have to work under some contingency arrangement again at my risk.

    Yet the silence on the withdrawal of legal aid that pays solicitors, often at less than 50% of their expense of time, and after a lengthy delay, by the same judiciary is silent. I think I'll look for a different job. "Was that a Big Mac and regular fries, sir?"

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  • So what is the threat from ABSs? For example the accounting profession is still largely hourly rate based. If you are saying hourly rate based is out then you are saying that ABS with accountants are out as their business model would change.

    Fair fees are about fair splitting of risk and reward on a project whose scope and outcome is uncertain. In some cases there is scope for outcome based alternatives. In others hourly based, possibly with a volume discount, is appropriate. Fixed fee only works where there is certainty on the project scope at the outset.

    Oh I'm an accountant. Same issues. Different profession.

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  • @ultimate warrior | 16-May-2012 5:22 pm

    Thanks for that forthright opinion Mr Warrior....let me make sure I never use your law firm.

    And the profession wonders why clients are increasingly dubious about the way they are treated.

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  • Sorry, why is this news? This story was in The Telegraph over a week ago.

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  • This story is juxtaposed next to one which discusses Mr. Grabiner's '3K an hour fee'. Oh, the irony!

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  • The logic of Lord N's argument must be that the greater the hourly fee the greater the incentive. So one might assume Lord Grabiner should be the least efficient lawyer around. Something I don't think he'd take kindly to.

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  • By incentivising slow work and bad practices my opinion is that you are putting the most talented and capable lawyers at a disadvantage in a law firm whith regards to remuneration and progression. very demoralising!!! Law firms should wake up and reduce the number of talented lawyers they lose.

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  • Interesting responses. But the profession (and I use that word in its loosest sense) only has itself to blame. If we remember our duties to our clients in dealing with cases (not just litigation cases) and give full transparency as to what we are doing for them, and why and what it will cost then then there should be no need for such comments from the judiciary and if there are comments they would be the exception rather than perceived as the rule. Law firms are being seen as an easy target because theyhave set themselves up as such for what has gone on in the past. There is no problem in law firms arguing that they have a business to run but at the same time they must remember that they serve the client (and until I retire I will never think of a client as a customer). How this is resolved only time will tell but perhaps it might help if law firms were seen to be less interested in publicising profits per partner so that everyone can go back to slating fat cat bankers!!

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  • Interesting views already. From a clients’ perspective, after spending 10 years previously working for a number of law firms, there is a constant requirement to be able to demonstrate value versus cost. There are already a number of invoicing solutions available to clients, be it fixed, conditional, abortive, hourly or menu/scale pricing etc. The article is best looked at as a challenge to law firms to show that there is a place for hourly charging, but, perhaps, law firms need to articulate or demonstrate more clearly to their clients the advantages of such a model, as in some cases applying an hourly model does offer better value, control and visibility.
    Form a clients side, been able to compare options on pricing against competing legal providers can only usually be achieved by looking at Fixed Fee offerings (to keep Procurement happy). The danger of comparing Partner headline rates is evident in the delivery of transactions, as a Law firm offering 20% lower Partner rates, may cost more if the transaction is delivered 90% by Partners. Pricing comparisons can be made by producing leverage by grade by transaction type, but this relies on finding a sample source of similar transactions and assumptions across providers, and is heavily compromised.
    This discussion will run on, I’m sure, personally, when deciding on which legal provider to use, it is a case that panels are set up to provide a ‘best in class’ provision for a variety of legal needs varying from volume low risk to high risk M&A activity, where using the same provider is not an option.

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  • Utter stuff and nonsense from Neuberger MR - the true cost pressure comes from the clients anyway, not from the judiciary.
    Firms are under enormous pressure to deliver more for less at the moment, supported by big write-offs, discounted hourly rates and stringent staged fee caps.
    Quite frankly it is reaching a situation where solicitors are hamstrung from researching or reviewing documents as much as they would like to, and are having to work harder than ever to maintain quality without breaching fee estimates.
    More proof (as if any were needed) that the judiciary is out of touch with the realities of modern practice.

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  • @ Mr Clementi - I don't want to put words into warrior's mouth but I think that is precisely the point he was making - you have the choice to use a different law firm if you don't like what his offers. Why should all firms be forced to offer fixed fee? Let the market decide!

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  • Solicitors love hourly billing but clients hate it. Unless a fee cap is in place, the fees are totally unpredictable and the solicitors are positively incentivised to be as inefficient as possible.
    I do wonder how long hourly rates will remain the norm. Other professional service providers such as accountants have long abandoned hourly rateas for much of their work. I think it is only a matter of time. As solicitors we may not like what Lord Neuberger says, but he is right.
    I would like to see greater use of fixed fees. With a fee cap, the lawyer takes risk but the client will still benefit if the matter is smaller than expected. With a fixed fee, the client and lawyer share the risks either way.

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  • What other topics are there for the keynote speaker at the Association of Costs Lawyers conference? Oh, there are none...

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  • Hourly rates do serve a useful purpose in focussing the client's mind on using their lawyer's time efficiently and commercially. Unless the solicitor concerned is able to decline to act, hourly charging helps dissuade those litigants who are pursuing vexatious claims/defending the indefensible ones. This is mentioned with the proviso that the solicitors are provding appropriate costs information at all times. If this latter point is what truly concerns Lord Neuberger, then attacking hourly charges in isolation is going to miss the point.

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  • There's no doubt that the billable hour and other typical law firm performance measures can be counter-productive. But for all the noise, many clients still prefer it over other options because it is easy to compare and implement.
    Value being a very difficult thing to judge (in advance) for a fixed cost business like a law firm, almost all alternative fee options are based on an hourly rate anyway. The ability to offer a cap or fix presupposes that their is enough certainty in the case to perform such calculations - an easily defined scope, understood variables, no unforeseen glitches etc. And in a contentious situation that is a very difficult situation to reach.

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  • Many other types of business have hourly costs but do not charge hourly rates.

    There is no real reason why lawyers can't make greater use of fixed fees, conditional fee arrangements and (when the regulation allows) contingency fees.

    Fixed fees are fundamentally different to capped fees because under a capped fee arrangement the lawyer takes all the risk; under a fixed fee arrangement the client shares the risk.

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  • By the time you transfer from one solicitor to another the bill has been hiked up already.
    Client should be given a choice of the way they should be billed. After all solicitors live off their clients. That is their bread & butter.
    It is a known fact how solicitors hike up their bill into thousands of pounds.
    I think only those solicitors are objecting to Lord Neuberger because they are the ones who are milking the clients.
    Clients need protection against those solicitors who exploit the system.

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  • I see Neuberger's point but there is clearly a distinction to be drawn between litigation costs (particularly where the other side pays) and say, corporate costs.
    Having (briefly) worked in a “no win, no fee” sweat shop, I regularly witnessed senior colleagues engage in long, meandering debates over peripheral issues; spend an age on the telephone to clients harping on about often superfluous information, and taking forever to dictate or type often far too convoluted letters, with all the time recorded and later charged. I was once interrogated by a partner for my comparatively low time recorded on a settled matter, and I was forced to negotiate a higher costs figure with the other side based on time which had never been spent.
    Now I work in a corporate department which is plainly in stark contrast to the PI world. The client pays and the “something for nothing” culture is rife with most clients driving a hard bargain at the outset and later haggling over/complaining about the final bill. Having said that, I have some sympathy, as initial estimates are regularly exceeded. If you went to a mechanic for a new cam belt for your car, and received a quote for £400, but then ended up getting asked to pay £800, you’d be furious. Even as a lawyer, if I ever need and have to pay for legal advice, there’s no way I’ll agree to paying anything other than a fixed fee made clear at the outset.
    The hourly bill creates an obsession with time and pulls solicitors in two totally different directions – on the one hand trying to keep your time as low as possible for the client, on the other hand trying to keep your overall time recording figures high to hit your firm’s targets. A fixed pricing structure is practically inevitable, where firms take the rough with the smooth and quoting has to be improved. It will reduce stress levels for solicitors and will foster stronger client relations. If clients demand a crazily low fee at the outset, then good luck to them in finding somebody else stupid enough to do the work. Other professions manage to do it profitably, and so should the legal profession, otherwise outside influences in the new ABS world will find a way.

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  • A talented Lawyer/Solicitor neighbour of mine, working for a large ahd 'respoected' national firm is thinking of leaving the profession after just 7 years of practice as she is fed up with being challenged to produce 13 hours of 'billed time' during a 9 hour woking day!

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  • I meet up with my £240/hour lawyer
    I am in desparate need
    I talk.
    I'm not that efficient - not my fault, I just was born that was, just like every other Joe Public.
    I am under stress: Every 15 seconds I talk runs up £1.00
    I try to dexterily convey the concerns - 60 seconds pass, that's now cost me £4.00
    And the lawyer hasn't yet advised me.
    In a 5 minute chat where I do all the talking, and he's not said a word, I've spent £20.
    What have I received for my £20? Nothing - because I've done all the talking, he's said nothing.
    So I cut my story short - I don't give the full picture. And therefore his advise cannot be according to my situation.
    I believe that everyone should have access to legal help: yet the reality is not the case. Even in the UK with the Legal Aid Board, I've personally been stung where a lawyer at the Citizen's Advice Bureau explained this wouldn't cost me anything, and it's an easy case. My bill was £10,000, increasing at 8% (statutory interest rate) and is now a charge on my property. How can this be right? I never agree to this, and I never saw it coming.
    "Hourly rates incentivises inefficiencies" - I am easily persuaded towards this argument; I'd struggle to see it any other way.
    I have personal experience, and this is fundamentally wrong.

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