Billable Hour Surprises: How Lawyers are like Auto Mechanics
Why should any lawyer be surprised that clients don't like the uncertainty of hourly billing? Have you ever taken a car into the shop and been surprised by how much a repair cost?
Let me start by making it clear that I like my auto mechanic. I've taken my cars to the same neighborhood shop for a number of years and have always been pleased and satisfied with the quality of the work and the level of customer service. And even though my car has been in the shop for more than a week now, I'm still satisfied that I've taken it to the right place.
Until this past week, however, I never realized how much auto mechanics are like billable hour lawyers. My ordeal started with steam billowing out from under my hood as I pulled up in front of my house. Like many legal clients, I didn't know exactly what was wrong, but I knew I had a problem.
With a few prayers (and some less than complete stops at stop signs), I made it to the auto repair shop. Here's a synopsis of my subsequent conversation with the mechanic:
Mechanic: "Well, Pete, you've got a broken thingamawhatsit hose, but we have to take the engine block apart to get to it."
Me: "Can you fix it?
Mechanic: "Sure, but we won't know if we need to fix anything else until we get the engine block apart and order the part. Call back on Thursday."
Me: "Thursday? Wow, that seems like a long time--about how much will this cost?"
Mechanic: "Well, that depends. This is a labor-intensive job--probably about 5 hours of labor, plus parts, but there's a lot we don't know yet."
Starting to sound familiar? It's now been 8 days since I took the car in, and the "investigation" alone has taken more than 5 hours, not to mention the total amount of time it will eventually take to fix the problem. And there's not a thing I can do about it because they have my car in the shop, with it's hood open and engine parts disassembled. I just have to see it through to the end and hope the bill isn't too large.
That's the experience most legal clients have when they pay by the hour. Like I said, I like my mechanic, but I'm becoming more and more convinced that there is a better way to bill my clients.
UPDATE (3/2/10): I Picked up my car last night. It runs great, but the $1500 bill was about twice what I expected from my initial conversation with the mechanic. To be fair, he kept me apprised of everything they had to do, so I knew the bill was creeping up, but it was still a shock. The lesson: even the best customer service in a pure billable hour situation can be very frustrating.
Pete Salsich III is an occasionally accomplished illustrator and relatively weak guitar player whose secret identity is that of an
Geoff Gerber keeps waiting for his superpowers to materialize. In the meantime, he uses his lawyer-powers to litigate intellectual property
David B. Groce is a lawyer with 25 years of experience representing clients in North America, Europe, and Asia in
Michael A. Kahn concentrates his practice in copyright, trademark, First Amendment and media law (libel, privacy rights). He is
Reminds me of one of my first impressions in the Billable Hour game at a law firm. The managing partner (at a former firm) explained that lawyers ARE like mechanics . . . you dont wait until you get all of your tools arranged on the bench to start billing your time.
Riiiiiight. I should have known right then that there is a better way to go about this profession.
That's so true. At least mechanics have tools, though. Lawyers are trained to bill for all the time spent figuring out what tools are needed, testing the tools, deciding which tools not to use, etc., etc.
So true, and so frustrating. And just like with your car, how can a business possibly make a cost-benefit decision on a legal knowledge purchase if they can't accurately estimate the cost to implement a legal strategy?
And billable hour lawyers sure don't help the cost-benefit equation when they continually rack up gigantic billable hour invoices for projects that are of small value to the business. No wonder lawyers get such a bad reputation as terrible businesspersons when we so frequently create uncommunicated (and unprojected) overhead!
Pete,
First of all, great blog. Its one of the very few IP lit blogs I follow.
Your post points to an interesting conceptual problem that I have run into in pricing legal services in a non-hourly, non-mechanic structure- how does one think creatively about a process that has become second nature. The mechanic analogy is helpful in giving perspective to the problem and helping illustrate the incentives gone awry. I practice in an alternate fee IP lit firm, and we use the mechanic analogy with prospects to help them see that there is a problem with the system.
The next step is also of interest to me. Once we have illustrated the problem inherent in billable hour practices, how to we illustrate an alternative solution?
Fred Bartlet, on Legal OnRamp, legalonramp.com, once analogized a flat fee lit firm as to a far less complex version of building an oil drilling platform. I think he is on to something, but recently I wonder if a more apt analogy to working with a flat fee IP lit firm is working with an architect. Defend or monetize your IP, you have the outlines of your project defined, like a house or office building that you know needs X office, and X bathrooms etc. Then you sit with your architect who sketches out a way to obtain your goal, and runs that to an engineer to create a budget. If the money does not work out, you may remove non-essential features, but soon you reach agreement on a price for materials and labor and sign a contract. Then its up to the contractor and architect to get the project done under budget, and you do not make payments until it has passed inspection. And I think that is a better way to bill.
Keep up the good work.
Thanks for the kind words, Michael. I'm a big fan of what you guys are doing, too. I like your architect/construction analogy -- we have used that as well. It helps people understand the potential for a "change order" -- the process that allows the parties to adjust the fee or the scope of the matter if and when something truly unforeseen is uncovered during the litigation.
Managing litigation uncertainty seems to be the biggest challenge, both educationally and operationally. I think your approach to really working up the case prior to getting the engagement must go a long way towards giving you and your clients some confidence (and hopefully minimizing surprises along the way). It's a costly (and risky?) investment on your part, but I think it's the only way.
Although we are IP litigators by training and prior experience, we are doing more and more non-(or pre-) litigation IP counseling -- helping new companies get their IP-related contracts and structure in order at the outset. That work lends itself to fixed fee arrangements a little easier than litigation, but I'm a firm believer (like you, Jay Shepherd, Patick Lamb and others) that litigation can (and should) be done on a fixed fee basis.
I look forward to continuing the dialogue.