Tuesday, May 01, 2007

Have You Padded Your Bills Today?

WSJ Law blog reports that according to a study by Stanford Law School, more than 50% of lawyers surveyed reported padding their bills. This may include charging for unnecessary work or recording more time than was actually devoted to a task.

But isn't this true in any business that bills for time? Maybe the bigger issue is whether a lawyer charges an appropriate amount for the work he or she has performed for a client (somewhat independent of the amount of time spent.) Doesn't the free market take care of this problem?

For years, there has been talk of value billing in the legal industry. This would remove the over-billing issue from table. Personally, I think everyone would be a lot happier if most legal services were performed on a flat fee basis (with benchmarks for adding fees when matters get more complicated than expected.) But we are part of a conservative profession that doesn't like change. So maybe in another decade or so, it will catch on.

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posted by Stephen Seckler, Esq. at 3:48 PM

3 Comments:

Anonymous Charles H. Green said...

I am staggered. Astonished. 50% of lawyers pad their bills?

You suggest this might be "true in any business that bills for time." No. Not in management consulting or accounting, at least in my experience.

I spent 20 years in large company general management consulting. I don't recall one instance of anyone--not just me,but anyone--padding their bills.

Undercharging? You bet. Putting in way more hours than were charged? You bet. But overcharging? I'm sure there must have been a few, but I'm darned if I can recall anyone, ever. Ever.

I also consulted to the several of the Big 4 accounting firms for several years. I can assure you that in the accounting parts of those businesses, undercharging was endemic. They didn't have the courage to charge you what time they did spend, much less overcharge! Padding the bill just didn't happen.

So, I am astonished at this reported fact. My possible conclusions are:

a. I've been living in an ivory tower all my life

b. things have really changed in the less than ten years that I've been involved in big-comnpany consulting;

c. there's something about lawyers.

I'm happy to be apprised of a fourth choice, I just don't know what itis.

When 50% of a professional service industry's providers are lying, I think it's a bit much to expect that the market is going to take care of it. The law is a black art to most clients. Add to that a whole lot of tacit complicity in fraud, and it's a lot to expect a market to overcome.

I'm agnostic about value billing. It's very nice to have certain commodity services priced at a flat rate. But whenever things are more complicated, a client can easily feel manipulated by the inability to stay on top of a moving definition of value. The standard practice of rate billing has the great virtue of a simple measurement that we all understand--money.

That is, unless some chunk of people have their thumb on the scale.

2:29 PM  
Blogger Stephen Seckler, Esq. said...

Thanks for your comment Charles. I should clarify that personally, I think it shows a lack of integrity to "pad" your bill when you are billing by the hour (or fraction of the hour.) I was only trying to point out that maybe it is not as dishonest as it may appear. I know many lawyers who actually cut their hours when, for example, an associate has spent too much time on a matter and the fee is not justified. If a brilliant lawyer comes up with a great solution for a client and in reality, that idea occurred during a 5 minute shower, I'm not so sure that billing the client for 5 minutes (minus the time that the lawyer was actually showering)is a fair result either.

I guess I just don't like time billing in general.

Furthermore, while I have no empirical evidence to support the following assertion, I find it highly improbable that lawyers are any worse than any other professionals who charge for their time.

Again, to me the most important thing is that lawyers charge something reasonable for their services and do not try to gouge their clients. IMHO, the amount of time one spends on a matter is only a partial reflection of the value added.

6:17 PM  
Anonymous Charles H. Green said...

For what it's worth, I agree with a lot of what Steven says. Time-based billing can cause a lot of problems, and by definition it can get out of sync with value. Value-billing has another set of issues, but that's another story.

However, one generally has to represent to a client which system they're using. If one represents that one's using a time-billing system, then by definition the "value" rationalization is just that--a rationalization. It doesn't excuse the thumb on the scale. Appealing to value doesn't resolve the ethical issue if you're representing your billing system as being time-based.

I think the larger issue is transparency, and I agree to some extent with Steven, that's not an issue unique to the law. Financial planners struggle with whether to use commission or fee structures, all the while forgetting that the easiest in best solution in all cases is simply to be clear with the client the choices you face with respect to billing, and the choice you have made.

Informed client consent makes all the difference in the world, and it's here that lawyers--and, to be fair, other professions--fall down. A little transparency goes a long way toward ethical behavior.

I learned early on my (consulting) career to ask three questions about billing:
a. would you be OK with it if it appeared on the front page of the Times:
b. would your client be OK with it if they knew the whole story;
c. would your other clients be OK with it if they knew the whole story.

If you could answer yes to all those questions, then you were probably in great shape.

11:11 AM  

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