My point is that when legal-market pundits complain about the standard billable hour charging model and its defects but fail to notice that there’s a lot more to the bargain than what shows up on the invoice, they just don’t get it.

I like cars and when I think about this subject, I can’t help but imagine myself as a kind of auto-racing impresario. You’re the client but if you have ordinary needs, then get ordinary solutions – you don’t need me. You need a fleet of Ford Tauruses, so get Ford to lease them to you, hire a fleet manager and that’s that. If you have more exotic requirements then I’m your man. You want to hire an auto racing operation? You need me to get you the whole apparatus – drivers, mechanics, cars, pit crews, transportation – several times over? OK. But you don’t want to invest; you want to rent the whole deal? It isn’t just a hobby though, right? Winning is very important to you. You get to decide when to press for a checkered flag and when to drop out of a race. The racing calendar (contrary to fact) is unpredictable so you and I never know in advance just how many teams will be working at any moment or how long any race or any series will last. If you don’t like the results or just on a whim, you can tell some or all of my teams to pack up and go away and you can go and hire someone else.

How do I charge you for this? Given the variables involved, I can’t risk charging you just for wins. We might arrange for a bonus scheme as a reward for winning but I can’t pay my expenses on that basis. With all the uncertainty and all the moving parts I can’t charge you an annual or even monthly lump sum. What if we need an extra car?

The answer is that, given the idiosyncratic nature of the deal, I charge you the cost of the inputs with a mark-up to cover my investment cost, to pay my management fee and to compensate me for the risks I bear that are inherent in the relationship. I can tinker at the edges of this model – bonuses, penalties and other risk-sharing arrangements in a small way – but I can’t come up with a better model for remuneration in these circumstances.

Admittedly the deal is not without risks for you, apart from the risk of losing races. I may be overstaffing to inflate my earnings or the staff I’ve hired for you may be shirking which costs you in expense and performance. As a check on this, your own experience tells you approximately what most tasks and projects ought to cost and you can engage in a certain amount of oversight and monitoring. My competitors are hanging around your door telling you stories about how they will get better results for less money. In the meantime, our interests are closely aligned. I want to keep you as a client and I want our teams to win races for both our sakes.

Let’s leave the race track and get back to lawyers and their clients. What is clear is that the standard billing model has been remarkably robust both over time and across different degrees of clients’ reliance on their legal service providers. That is because billing is just one part of a more extensive arrangement that is full of benefits for the clients and risks for the law firms – a deal that balances the interests of both.

Not by any means a Euclidean proof of the necessity of the billable hour but you see the point.

Richard Rapp

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