Lawyers are leaving money on the table
While I write this article, most of our readers are at the annual IBA conference in Seoul. Good chance that you will be reading this whilst waiting at the airport for your flight back home. I would like you to use this opportunity to reflect on the concept of time. Time is not just a continuum or the patchwork of time-zones around the world. Time is also today the very lifeblood of the business of law. For the past five decades the legal industry has charged fees based (directly or indirectly) on the amount of time spent.
Those of you familiar with my thinking will know that in my opinion time-based billing is a poor concept as time does not in any way reflect value. The Creation/Production Divide Concept clearly explains that by using time as a measurement, lawyers vastly undercharge for those aspects of their work that bring most value to their clients (creation), while ‘overcharging’ for elements that bring little or no added value to the client, such as reviewing and producing the documents (production). In case you haven’t read it, here is an article that explains in more detail.
In the next few years, the legal industry will have to make a transition from time-based-billing to value-based billing. However as long as lawyers and clients have not embraced value-based-billing, the existing agreement is still that the lawyer will charge for all increments of time spent on a client’s matter. And as long as the agreement is to bill for time, it is implied that time is registered accurately and correct. It is my experience that this is far from the case. Most lawyers (certainly outside the US and London) are lousy at tracking time. Contrary to popular belief, most lawyers undercharge. By not accurately keeping track of time, lawyers are leaving money on the table.
We all underestimate the amount of time
We humans are not especially good in estimating how much time something takes. That is why there is a whole cottage industry in time-management and planning. The common denominator is that we invariably under- rather than over-estimate the amount of time. That is why we are always late, and projects always run over time. Would you be able to say how much time you spent eating and/or drinking yesterday, accurate to 6 minutes? I’m pretty sure you will not be able to do that. I am also pretty sure that whatever number you come up with will be lower than the actual time spent eating and/or drinking yesterday. The same holds true as it comes to client matters. In retrospective we underestimate how much time we have spent.
The longer a lawyer waits with entering time into the system, the more 6-minute increments start to evaporate. The percentage of lawyers that has the discipline to keep time during the day is almost nil. The number of lawyers who enters and closes the timesheet at the end of every day is also disappointingly low. Some lawyers do not even complete all timesheets by the end of the week. Partners are no exception. I know several law firms that have turned to drastic measures to ‘force’ their partners to enter the timesheets at least every three days. It doesn’t help. Discipline is for losers it seems. Partners are ‘above the law’, which is stupid as this directly affects profitability.
The eroding effects of the lack of discipline and accuracy in keeping track of time are substantially amplified when a lawyer has been working on a number of smaller files. Retrospectively writing time is relatively easy if it has only been one large file that you have been working on. When working on smaller files the inaccuracies are multiplied by the number of files. If a lawyer has been working on 10 files and misses 12 minutes per file, that mounts to 2 hours over the course of a week. Multiply this with the number of lawyers and you have a substantial amount of profit evaporating every week (as there are no additional
costs, all extra revenue is profit).
Lack of time keeping discipline will easily cost you a million!
Besides lack of accuracy there is a second factor that is eroding revenue: 'modesty'. The present arrangement with clients is that the lawyer will charge for all time spent on the matter. The agreed hourly rate takes into account the level of experience and expertise each lawyer has. The more experienced, the higher the rate. This is fair because the more experienced lawyer will need less time to come to the same result. The lower rates for less experienced lawyers take into account that they will need more time to get to the same result.
The problem is that it happens quite frequently that junior lawyers feel ashamed about the amount of time it has taken them to prepare a document or part of a matter, so they artificially reduce the number of hours as they enter time into the system. This form of ‘private initiative’ should be strictly forbidden in any law firm. It is of utmost importance that the real time spend is accurately entered into the system. I would advise every firm to actively and regularly communicate this to each individual fee-earner from the day they start.
Should there be a legitimate ground to write off some of the hours, this decision can only be taken at the end once the matter is completed. Only at this stage there is a complete overview of all time spend and does it become apparent if someone has spent unreasonable amounts of time on an aspect of the matter.
As long as lawyers have an agreement with the client to charge for time spent, they are under a contractual obligation to keep accurate track of time. Lawyers who do not enter all hours worked on a matter correctly into the system are in fact stealing from the firm and should perhaps be fired. Perhaps something to think about during your long flight from Seoul back home. You might want to implement stricter policies as of Monday.