Here is an interesting article from BizSense about the "death" of the billable hour as the main billing structure for law firms.
[For those of you wondering why the heck I'm writing about billable hours and law firms on a supposedly real estate-related blog, I used to be a Big Firm Lawyer. And so I find this stuff interesting. And it's my blog. So there. [;)]
Long and the short is UVA Law School did a survey of 10,500 graduates. Of the General Counsel of corporations that responded, people responsible for hiring Big Law Firms, 55% indicated they want to move away from the billable hour.
If that happened, there might be a sigh of relief across the nation. Billable hours are the bane of the Big Firm associates' existence. Let's think about it for a minute. For bigger and bigger law firms, with more and more overhead, the only way to continue to drive profits - in the absence of new business - is (1) to increase rates; and/or (2) to increase the number of billable hours generated. Raising rates is only sustainable for so long. At a certain point you hit insanity - like the NYC lawyer on the Land America case who bills out at $995 AN HOUR. [As one of my dear friends would say, "that's just CRAZY talk!"]
On the increasing the number of billable hours side, law firms run up against a certain law of physics, as much as they would like to ignore it. Last time I checked, there are only so many hours in a day, and only so many hours you can require out of your people until you start approaching the realm of ridiculousness.
Let's look at it this way. Most big firms require a certain number of billable hours out of each associate, the baby lawyers at the bottom of the ladder, trying to work their way up the law firm pyramid. The standard requirement for Big Firms in this area is 2,000 billable hours. Typically it takes eight years of hitting these billable hour targets before an associate is even considered for partner. So we need 8 years of averaging 2,000 billable hour years. At the BARE MINIMUM. Okay, now we get into the basic math.
There are 24 hours in each day. Let's ASSUME 12 of them will be unavailable due to basic human needs, such as eating, sleeping, stretching, bathroom breaks, perhaps an hour or two of face time with friends or family. That leaves 12 potentially billable hours each day. If you are required to bill 2,000 hours each year, that ends up being 40 billable hours a week, 50 weeks a year [I'm giving my associates 4 weeks off, between holidays and vacations]. Now, that's 8 hours a day, 5 days a week, which doesn't sound too dreadful, right? HOWEVER, that assumes 100% efficiency - meaning I would walk into the office at the stroke of 8 a.m., work until noon (4 billable hours), take an hour for lunch, and bill, bill bill until 5 p.m. (4 more billable hours), then go home, take the dog out, go for a run, have dinner with friends and family, and generally have a lovely life.
WRONG. No one works at 100% efficiency. It's just not possible. Lawyers have to do all kinds of non-billable stuff - pro bono work, continuing legal education, travel to or from client meetings, time keeping - I could go on and on and on. So let's face the reality that to achieve 8 billable hours in a day, you really have to be there for 10-12 hours, in my humble opinion, if you're being honest. All of a sudden your 8 a.m.-5 p.m. job went to 8 a.m.-7 p.m., or 8 a.m.-9 p.m. And that's JUST to achieve the bare minimum of 2,000 billable hours. Lots of people making partner are doing 2,200 billable hours a year, or 2,400, or 2,600...
I've even heard (apocryphal?) stories of people billing 3,000 hours in a year, but I just don't understand how it's humanly possible. That would be an AVERAGE of 60 billable hours a week for 50 weeks a year. That's 12 hour days at 100% efficiency. At 75% efficiency - which I think is much more reasonable - that would mean a lawyer would need to put in 16 hours 5 days a week for 50 weeks. That's 16 out of the 24 hours that EXIST. Unless someone has found a way to warp the time/space continuum that I am unaware of, I just do not see how people could be physically capable of it. I'd spontaneously combust from stress and/or exhaustion. [Which is part of the reason why I'm not a Big Firm Lawyer any more. [:)].
So why do law firms resist the movement away from the billable hour? That will be the topic for another post another day. I know you can't wait....
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