The billable hour has been the ubiquitous billing model for litigation services in South Africa since anyone can remember.

The model is that lawyers charge their time out to their clients at a set rate per hour. This devoted time is itemized in increments (e.g.: 6 minutes or 15 minutes) and then tallied up and presented in a monthly account for work done.

We came across some intriguing articles recently on the billable hour, notably “An Obituary for the Billable Hour” by Tim Williams, The Atlantic’s article, “Is the Billable Hour Obsolete?”, and locally, David Lancaster’s article in Without Prejudice Magazine’s September 2016 issue.

The literature outlines the billable hour’s history as the gold standard of pricing legal services for the last hundred years as well as its main flaws and the challenges it brings to the relationship between lawyers and their clients.

The articles either conclude that the litigation market will soon produce an evolved value-based model to replace the billable hour, or, that the billable hour model is the best model available, and here to stay.

After speaking to a number of attorneys and counsel on the topic, the feeling is that in South Africa the billable hour is the only game in town. It’s entrenched in our legal system through legislation and has been used for decades.

CONFLICTS OF INTEREST

Still, there is a significant problem with the billable hour in that the client’s interests and lawyers interests are not aligned in two fundamental ways:

  • Firstly, the billable hour incentives lawyers to want to litigate the matter for as long as possible, while the client wants exactly the opposite; and
  • Secondly, the lawyers will be paid these fees regardless of the outcome of the case, win or lose.

Despite the conflicts, clients begrudgingly accept the model because it allows them to understand and scrutinise a bill on a rational basis. Clients like this kind of certainty.

The benefit to attorneys is that by converting their services into units gives their firm stock-in-trade that can be inventoried to determine productivity and projections. This directly measures and predicts profitability. No other pricing model can achieve this with any certainty or efficiency. It is the best model for the business of law.

Counsel is different. They are sole practitioners and not incorporated firms. There is no real benefit to having their profitability as measurable in working hours. Counsel only adopted the billable hour after pressure from attorneys who advocated that the client understood and preferred the billable hour billing system.

THE OLD MODEL

The question then is, what did the billable hour model replace?

The old model formulated a fee based on a number of factors such as the importance of the matter, claim value, time, volume in paper, complexity, and experience of the service provider litigating the matter.

We heard a story about a long-retired counsel who, in the 1990s, resented the pressure to change from the old model to the billable hour system. His argument against the change was that he could not quantify his best work in hours. He said that some of his greatest insights and arguments came to him in the shower or while shaving, after many hours of idly ruminating the matter; how was it possible to attribute hours to that kind of deliberation?

We appreciate his gripe. It is wrong to think of lawyers as machines who can clock in and clock out given the importance and complexity of their task. The best attorneys and counsel keep their matters as mistresses.

THE PERFECT MODEL

What is the perfect model?

The perfect model is a hybrid of an attorney charging a discounted hourly rate and/or a retainer, with a further fee paid on resolution of the matter.

That further fee would be based on the old model factors such as level of success, complexity, and efficiency. There should also be a kicker. For example, a bonus multiple linked to the time to settlement or judgement in the litigation which would multiply the value of the further fee by 1.5x – 3x. This would ensure that if the matter settled before trial then the legal representatives would potentially make more money than if the trial had to proceed.

Any alternative value based model would not be simple but it would be far more sensible and commercial than the billable hour. It has to appease both attorneys and clients.

That being said, lawyers are unlikely to move away from the comfort and cash-flow the billable hour brings to firms. The industry is also inherently slow to change.

THE REAL PROBLEM

That being said, the real villain in litigation is not the billable hour model, it is the unpredictable nature of litigation itself.

The billable hour is simply the scape goat to litigation’s inherent uncertain time frames and outcomes. If you could guarantee a client success, and the duration taken to achieve it, the billing model would be irrelevant.

No billing model will ever exist that can simultaneously and absolutely please both the lawyers and the clients. The billable hour model is preferred by attorneys, as the gatekeepers of the litigation claim and process, it is an elegant solution to the cash-flow issue that litigation’s unpredictability brings.

LITIGATION FUNDING SOLUTION

Despite the above, there is a real solution to litigation’s uncertain outcomes and time frames: Litigation Funding.

A litigation funder takes on the client’s transaction risk on the equivalent of a “no win no fee” basis; neither the client nor the attorney are prejudiced in the transaction as all fees are paid by the funder regardless of the result. Moreover, it arms the client’s claim with the best representatives available.

If the litigation is successful everyone wins, if it is unsuccessful then only the funder loses.

A funder is a pillar that provides comfort to all parties as it will support the matter regardless of its duration. Its presence also ensures that the lawyers are litigating the matter as efficiently as possible, with no wasted hours or processes being spent.

Interests are now squarely aligned. The lawyers and clients can now focus on the real goal of litigating the claim without the distraction that billable hours can bring.