image of man looking at watch

A timely reminder on the value of time, from my carpenter.

Large firm lawyers spend a lot of time debating the pros and cons of so-called “alternative fee arrangements,” but hourly billing is still their sweet spot.  It is much nicer to focus on the legal work than to worry about being efficient or pursuing only the most likely winning arguments.

Although I have long been an advocate for fixed fees, I recently had a personal experience that confirmed my criticisms of the hourly model. My wife and I had a master carpenter do a number of minor projects on our home, and because the list of projects seemed to grow by the day, the carpenter suggested he just bill us by the hour.  We trusted the carpenter so we readily agreed.

It was uncomfortable to question whether every interruption was costing us more money.  I am generally friendly with the people who work on our home.  On Mondays, I ask them about their weekends.  When I know their family situations, I ask whether their children are home from college or where they are working or going to school.  If they have small children, I ask how they are dealing with the COVID shutdowns at home.

The hourly billing arrangement, however, turned me into a different person.  I was concerned that routine interpersonal “chit chat” was costing me money.  Was the carpenter charging me when I asked him about his granddaughter’s high school graduation?  Did it cost me more when I asked about his son’s decision to move to South Carolina?  Did the clock stop when I asked him whether he liked exercising on a rowing machine?

My fiscal conservatism (my family would say “cheap”) caused me to question whether over a weekend I could spend some time doing some “prep work” on the carpenter’s projects for the coming week in order to reduce the time that the carpenter would need to spend.  I grew up in Western Pennsylvania where there was a longstanding tradition that an adult man would never hire someone to do a project that he or a brother-in-law was capable of doing.  Although I am now a grandfather, I still feel guilty having someone do home projects that I know how to do.  The guilt is far worse during the COVID shutdown while I sit at a desk in my home doing “knowledge work,” the tradesperson has traveled to my house to work under my roof.

I could not help but think back to my decades of practicing law when hourly billing was the norm.  When I asked clients on Mondays about their weekends, were they wondering whether I was charging them for the length of their answers?  When I asked clients about their families, did they think that it was better to just say that it was none of my business?  How about when I was with clients working on deals through lunch and dinner?  When the relaxed meal conversations turned to sports teams, did the clients think that I was charging them for my Super Bowl prediction?

Lawyers—like carpenters—do not carry stopwatches so these are all fair questions for the customer who is paying the bill.

Before embarking on a late-career teaching job a few years ago, I spent several decades as a partner at a global law firm.  For the last 15 years of my Big Law life, I was the firmwide managing partner of operations, which involved almost daily discussions about specific fee proposals for litigation, transactional and other work.  I cannot begin to count the number of times that I heard a partner say “we have no idea” when asked for an estimate of what an engagement would cost.  I would usually respond to the partner that it seemed awkward to pitch to a client that we have more direct experience with a type of project than any other firm in the US, but then tell the client that we cannot predict even a range of what the project would cost.

When encouraging a partner to propose a fixed fee to a client, I would encourage the partner to think about their projects on a portfolio basis, rather than as individual cases.  I told them not to worry about an individual “write off” when they blew through a fixed fee, but rather to look at all of their cases together to see how they were doing relative to their fixed bids.

It is inconceivable that I would ask a contractor to start a major project on my home without knowing what it was going to cost.  Depending on the cost, I might decide to scale back the project or abandon it completely.  Legal clients view work in the same way.  Particularly in litigation, it is easy for clients to want a television-style litigator who will “rip out the lungs” of the opposing party.  However, their animal instincts dissipate when they face the reality of spending more on legal fees than the amount at issue in the case.

There is an inherent conflict in judging hourly billing from the opposing viewpoints of seller and buyer. One point that works from both viewpoints, however, is that relationships matter. I like being able to trust my carpenter, and I suspect that my former recurring clients liked being able to trust me. Trust is not negotiated but results from showing that you care about your client, not only the client’s bottom line but all of those little things that friends discuss.

Now that I am giving away my time every day in a pro bono legal clinic, see Post 145 (discussing Penn State Law Entrepreneur Assistance Clinic), I am still asking clients about their personal lives and encouraging my students to do the same. Physicians are the same as lawyers in this respect. When a friend mentions that a particular physician is a great doctor, I usually ask why. The response is never science-based, but rather that the physician takes the time to ask questions and cares about the answers.

It would be very unfortunate for professions generally if our drive towards efficiency also drove out relationship building—and in my waning days in Big Law, I often worried that was the case, at least for clients that were viewed as the most desirable and prestigious.

Like many situations in business and personal life, it is wise to put yourself in the shoes of the other party.  There is no doubt that I reaped the benefits of being a partner at a firm that billed predominantly by the hour.  But having to pay hours-based bills now drives home to me why clients want an alternative.  Interacting with my hours-based carpenter confirmed my view that if I were a general counsel, I would use fixed fees for almost all outside-counsel engagements, but even more important, I would use the lawyers with whom I developed trusting relationships.

How to make that trust scalable—so more can afford it—is a topic for another day.