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The billable hour is back in the spotlight. Several years ago there was loud muttering about the ineffectiveness of the billable hour, the most common way to charge for legal services in North America, and perhaps the world. That muttering has now turned to a roar, at least in the U.S. where a major “kill the billable” movement is being spearheaded by the Association of Corporate Counsel (ACC).

What erupts south of the border generally spills over into Canada, albeit more slowly. Here there appears to be consensus that the topic is a hot one, but there is no agreement as to whether it is time to play Taps for the billable hour. The Canadian legal profession is divided on the both its value and longevity.

At one end of the spectrum are those who feel the time has come to bury the billable hour. At the other are those who see no other realistic options. Most, however, agree that the billable hour is on very precarious ground.

“I think it’s archaic and something that needs to be changed,” said Warren Bongard, vice-president of ZSA Legal Recruitment in Toronto.

“But law firms aren’t on top of changing it anytime soon,” he added, “and not for lack of wanting to. It’s so innate to the way lawyers today are trained to practice.”

Saying ciao not only poses psychological problems, it raises significant practical issues for lawyers in private practice. “There is a growing consensus — on both sides — that the billable hour is not working,” noted Andrew Fleming, a senior partner with Ogilvy Renault LLP in Toronto.

However, he pointed out, “we as lawyers in law firms judge ourselves on the hour. If the billable hour goes with a client, does it go internally?”

There are no easy answers to the question. But there is one critical driver. Indeed, many lawyers contend it’s the driver — and not the billable hour itself — that is actually behind the growing controversy. “This is less an issue about the billable hour than the escalating cost of legal costs,” said Richard Stock, a partner with Catalyst Consulting in Toronto.

“The unit cost of legal services certainly continues to cost you more each year — five to eight percent more each year,” he added. “The people doing the buying are trying to reduce costs.”

Many are not convinced they can do that with the status quo. “The economic model based on the billable hour is a model that is broken,” said Brian Armstrong, executive vice-president and general counsel for Bruce Power in Tiverton, Ont.

“Fundamentally, I don’t believe that the number of hours that are docketed to a file is an acceptable representation of the value delivered to the client in many cases and probably most cases,” he added.

“The question of whether they work the hours is irrelevant to the client. What matters is the value to the client.”

Concern over value for money — in part fueled by an economic downturn come recession — has propelled the ACC to launch an anti-billable hour initiative called the ACC Value Challenge. The goal is to “reconnect value to costs for legal services.” According to the ACC, the aim of the national initiative launched last fall is “to provide networks, tools, and dialog for both in-house and outside counsel to help us all better manage our clients’ legal affairs.”

Those tools include a draft covenant between law firms and clients that lists provisions to select from based on what works best for their particular needs. And there are choices, noted Michel Brunet, chair and CEO of Fraser Milner Casgrain LLP in Montreal. “Clients are looking for efficiencies. Firms are embracing this very freely. It’s challenging, but interesting.”

The challenges, he noted, can be met in a number of ways. This includes using a flat fee for services, charging a contingency fee, outsourcing, putting a retainer in place and developing a blended payment method, “which you will see more and more,” Brunet believes.

Clients are looking for value and that needs to be built into pricing, noted Stock. “You need to design efficiency incentives into the payment scheme.”

Coming up with the optimal payment option is not an either/or situation. Both lawyer and client are in this together, said Armstrong. “Have a discussion at the outset about the value of the work and the costs. Agree on those costs.

“Your costs at this point,” he noted, “are known and fixed. This is a model used by many professionals.

“Lawyers are among the last to charge by the hour.”

Professionals like Steven Polisuk, senior manager with valuation and litigation services at Deloitte & Touche LLP in Toronto, are very comfortable with models that do not require charging by the hour but that still rely on an underlying hourly rate to assess value.

“Normally,” he noted, “we provide a fee quote that provides a range for the total cost of our service of say $10,000 to $15,000, and we then apply our hours to the range and hopefully cover our time.”
The impetus for change is being driven by clients, but clients need to step up to the plate, said Stock. All too often, he noted, they sit on the sidelines.

“The client needs to be much better and explicit in their instructions and requesting and commenting on detailed legal budgets. The vast majority don’t do that.”

From the firm’s perspective, said Brunet, addressing cost concerns is a measure of customer service.
“A lot of legal services are very sophisticated and [firms] will give due cost consideration to make sure there is an ongoing relationship.”

“In a perfect world,” sad Bongard, “the law firms would be driving this because it’s linked to customer service.”

There is also the possibility of enhanced profits, he noted. “There is an opportunity for firms to become more lucrative. They are actually leaving money on the table.”