TEN THINGS YOU NEED TO KNOW ABOUT LAW FIRM BILLING
- There are no rules on how law firms bill their clients.
That’s right: there are no federal or state laws regulating the specific manner in which lawyers record or account for their billable time. So when clients don’t enforce their own billing rules, law firms simply bill how they please. That’s why nine out of ten corporate clients end up being block-billed, which means that the lawyer only records the total daily time spent working on a case, rather than itemizing the actual time expended on each specific task. Which makes it impossible for a client to determine when they’ve been billed an hour for two five-minute phone calls. Source: Harolds Stores, Inc. v. Dillard Dep’t. Stores, Inc., 82 F.3d 1533, 1554 n. 15 (10th Cir. 1996).
- Most clients are overbilled 10-30 percent… or more.
So why is block billing a problem? Well, according to the Ninth Circuit Court of Appeals, the California State Bar, and the vast majority of state and federal courts, when lawyers block bill time, they inflate the number of hours worked by ten to thirty percent (though many courts believe billable hour inflation is actually far worse, and will cut block-billed time in half). This means that every time a client is billed ten hours, that client is paying for up to three hours of work that never happened, simply because of the law firm's accounting method. Source: California State Bar Committee on Mandatory Fee Arbitration, Detecting Attorney Bill Padding (Jan. 29, 2003); Welch v. Metro. Life Ins. Co., 480 F.3d 942, 948 (9th Cir. 2007).
- The average “big firm” lawyer overbills his or her clients $150-400K each and every year.
As of 2012, the average nationwide rate for a partner or senior counsel is $661 per hour. But because most of these lawyers are block-billing – and therefore charging clients for work that never happened – just one senior lawyer will bill between $150,000 and $400,000 in unearned fees in a single year. Source: Mary Smith Judd, ALM Daily Report (March 5, 2012).
- Most lawyers don’t record billable time accurately.
You’d think that people who live their lives a tenth of an hour at a time would have a pretty good idea how they actually spend that time. They don’t. Studies show that more than two-thirds of lawyers have errors in their daily time entries, and consistently overestimate the amount of time spent on client tasks. Source: McEwen & Stanton, Adam Smith Esq. “Billable Hours” (2012).
- Two-thirds of lawyers admit that their firms defraud clients.
Just in case the questionable accounting and timekeeping practices at law firms weren’t bad enough, more than two-thirds of lawyers admit that they have “specific knowledge” of deliberate billing fraud at their law firms. Source: Professor William G. Ross, Attorney Billing Ethics Survey (2006-2007).
- More than half of lawyers do unnecessary billable work.
Even if a lawyer’s timekeeping is accurate, an perfect record of useless work is still overbilling. More than half of lawyers admit that they undertake billable work that provides no benefit to the client, but is merely intended to help the lawyer meet his or her billable hour quota. Source: Professor William G. Ross, Attorney Billing Ethics Survey (2006-2007).
- Law firms love to charge clients for office overhead.
Law firms aren’t supposed to charge clients for non-billable office expenses like database searching (i.e. Westlaw or Lexis), calendaring, filing, secretarial work, or similar activities. But law firms do it anyway… and sometimes they even try to charge clients for air conditioning! Source: American Booksellers Ass'n., Inc. v. Hudnut, 650 F.Supp. 324, 330 (S.D. Ind. 1986); Keith v. Volpe, 644 F.Supp. 1312, 1323 (C.D. Cal. 1986); BD v. Buono, 177 F.Supp.2d 201 (S.D.N.Y. 2001).
- The most expensive lawyers are often the worst overbillers.
Lawyers should never bill clients in time increments larger than one-tenth of an hour. But too many lawyers persist with using quarter-hour increments, which inflates the typical invoice by at least 20 percent. (The “.25” and “.75” entries on the monthly invoice are a dead giveaway for this type of overbilling). But some lawyers go even further – ironically, it’s usually the most expensive lawyers, the ones with their name on the door – and bill their clients in half-hour or even one hour increments, which means that a thirty second phone call costs the same as sixty minute appellate argument. Source: Welch v. Metropolitan Life Ins. Co., 480 F.3d 942 (9th Cir. 2007).
- Outside counsel guidelines significantly reduce overbilling.
With law firm overbilling so widespread (and profitable) it’s no wonder that it’s been called “the perfect crime.” So what’s a client to do? The best way to eliminate billable hour inflation is to prevent your lawyers from charging those hours in the first place. That’s why clients who deal with law firms the most – insurance companies and Fortune 100 corporations – all require outside counsel to follow guidelines that prohibit block billing, excessive incremental billing, and all the other questionable practices that inevitably result in inflated legal bills. Shouldn’t your company do the same?
- Litigation Limited stops billable hour inflation.
We help you take proactive steps that enhance the attorney-client relationship by setting unambiguous expectations for your outside counsel. For less than the cost of a few vaguely-worded, block-billed time entries from your lawyers, Litigation Limited will craft and implement procedures and guidelines that are tailored to your company’s specific needs, and we’ll also monitor your law firms’ billings to evaluate compliance and overall efficiency, on either a short-term or ongoing basis. There’s no charge for an initial consultation, and we’ll even conduct an analysis of your recent billing statements and report back to you, all at no cost.
CLICK HERE to learn more about how Litigation Limited helps its clients eliminate law firm overbilling and control billable hour inflation.