@taxgirl on twitter “If I read one more piece about "demise of the billable hour," I’ll scream. BigLaw is reactionary, sure, but I don’t expect dramatic shift.”

That tweet the other day made me smile as I’ve been thinking of doing a post on “billable hour”, I mean it’s a written rule for a legal blog right? But I couldn’t quite get my thoughts straight on it, something didn’t quite fit. I mean are the clients of law firms really crying out for fixed fee’s or do they just want lower fees? Or are they even crying out at all? And if they aren’t then why would a business radically change a model that has generated it lots of money?

Also it’s not that new, some work has already shifted to fixed fee or pre-packaged work. Firms like Optima Legal have business models built like this. But will biglaw step into this arena in a big way or just leave it to the niche production line firms?

I’m going out on a limb and guessing nothings going to change anytime soon and the billable hour model is here to stay for the majority of medium and large firms.

I know this goes against a lot of legal bloggers, but it was an example I was trying to pull together for an argument for abolishing the billable hour that drew me to this opposing conclusion. Let me give you the example, I was thinking of when you service your car (or any garage visit).

Say you’ve a VW Passat standard model nothing fancy. There are thousands of this model on the road. It’s a 40,000 mile service and the garage you are taking it to has done this service hundreds of times, and if it’s a VW dealer then most likely on this very model. The cost is estimated at about £170. But it’ll depend on what needs doing.

At 5pm you pick up the car and get the bill:-

• 67GDHS67- Oil Filter x 1 – £40
• 888GH28 – Aero wiper blades – £10
• 89897DH – Duckhams Hypergrade – £35
• Replace oil filter (1hr) – £20
• Replace wiper blades (.5hr) – £5
• Oil replacement (2hr) – £40
• Check brake fluid – £20
• Check timing belt – £25
• Miscellaneous service labour (2hr) – £40
• Total service cost – £235

The next day someone else will take their Passat into the same garage and will get charged just £170 for the service as it didn’t need any extra work.

As a client of the garage do I want them to charge me a flat rate? Do I want to know exactly how much it will cost?

My immediate answer is yes of course, but then I think about it more and start to change my mind. In fact I conclude, no not really. I started to think that for the garage to charge a flat rate they’d have to manage the service a bit like a project, they’d break it down into components, estimate risks of extra work and add float for these possible risks. Basically if I was the guy who paid £170, I would probably pay a flat fee of £190 to ensure that everyone’s bill was also £190 (the garage moving some of the costs of the possible extra work around).

As the other guy, having had years of experiencing how the garage used to charge, I wouldn’t be too happy with this new model. In that I’d effectively paying for all the other people’s extra work.

There’s always the “project tensions” to consider when working to fixed price. When you try to bundle up a piece of work (or project) it requires you to manage the three tensions: Time, Cost and Quality. Time in most cases would be critical to ensure customer service and to manage the throughput of work in the garage, therefore if the flat fee is fixed and too low to cover the work then naturally your quality will drop. Customers aren’t going to be too happy about this.

So after some thought on this example, I thought “you know, if I was a law firm client I think I would want to see the full breakdown and I think I’d accept sometimes I’d pay that bit extra on difficult jobs to get my work on time and of a consistent high quality.”

So if the client isn’t too concerned about changing the model, what about from a lawyers perspective? The recent AmLaw 100 stats show that although the PPP (Profits per Partner) has dropped in this recession the average is still over $1m. So is the crunch so bad that radical changes will be in order? I don’t think so.

And that draws me to my conclusion stated earlier, the billable hour is here to stay!

BUT, what I do think will change is that law firms will look at the hours billed and see how internally they can gain more profit from each task on a case. Are there tasks that can be done more cheaply? Using junior members of the team, outsourcing some work, using technology better etc? Can they ensure that all the time is billed and not missed.

Also from a clients perspective. If I think back to the garage example, I too would be looking at the hours billed and thinking. Why can’t that be sourced cheaper, why is that dealer charging X for labour and this one charging Y. In the legal world the client relationship should mean the client can start to encourage better/cheaper ways.

But all this requires the visibility of a breakdown of the bill, not an overall flat fee!