Legal Costs Part I: Padding and Other Problems
I’m not paying for a junior to learn the ropes.
If it ain’t broke, don’t fix it. This might well be the motto of many law firms when it comes to billing by the hour. But if recent reports are any guide, it’s getting increasingly difficult for firms to cling to the illusion that the hourly billing model ain’t broke.
According to Susan Hackett, GC at the Association of Corporate Counsel, there is something wrong with a system where “law firm newbies will make more in their first year than an associate justice of the U.S. Supreme Court.” Describing partner profits as “obscene“, she reckons the time has come for in-house counsel to draw a line on costs. It’s time to say “we’re not paying for this anymore.”
And she’s not the only one. The stats from a recent YouGov survey (conducted for The Lawyer magazine) are similarly ugly: 73 per cent of general counsel have been on the receiving end of padded bills, and 95 per cent of in-house counsel think that chargeable hours targets encourage padding. The preferred alternatives are project-based billing (68 per cent) or flat fees (20 per cent).
Unfortunately, partners are either not listening, or not hearing this message. In the same survey, only 39% of partners think that hourly rates are outdated.
No doubt one of the arguments used to fend off calls for fixed or project based fees is the old favorite: “how long is a piece of string?”
But, as one general counsel points out, this argument is not very persuasive:
“If a firm’s really good it will know how long the piece of string actually is, or at least how long it should be.”
In other words, if a firm doesn’t know how long the piece of string is, maybe the work should be going to one that does. Client’s don’t like paying big fees for juniors to learn the ropes.
As Susan Hackett concludes:
“Great legal service is expensive, but someone needs to remind the managing partners of the prestigious firms that it should never cost more than it’s worth.”