By Michael Legg and Catrina Chen -
Snapshot
- Time-based billing is the main form of fee arrangement employed by lawyers. However, various forms of alternative fee arrangements, especially fixed fees, are increasingly being adopted.
- One recent survey found that the relative usage of time-based billing compared to alternative fee arrangements is roughly 60:40.
- Another survey identified that changing billing models will be a key challenge for lawyers over the next two years.
Legal costs or fees have been singled out as ‘the lifeblood of the legal profession, crucial to the livelihood of the majority of lawyers’ (G E Dal Pont, Law of Costs, LexisNexis, 4th ed 2018, 1-2). Lawyers cannot serve their clients and community unless their businesses are profitable. Equally, lawyers are members of a profession and are subject to ethical and professional requirements, including the regulation of legal costs. Costs must be ‘fair and reasonable in all the circumstances’ under the Uniform Law. Furthermore, overcharging is professional misconduct.
Still, these requirements permit a range of methods of charging. Legal fees have historically been charged in a number of ways, including scales or schedules of fees, and annual retainers. But for at least the past 40 years, time-based billing, or the billable hour, has been the dominant form of fee arrangement in many areas of practice. Time recording of work became a common costing mechanism for management in the 1950s and rose to prominence as the primary billing method in NSW following the deregulation of statutory fee scales in 1994.
However, time-based billing has attracted criticism for rewarding inefficiency and dilatory practices, discouraging innovation, and for a focus on the time taken to perform legal services and not on the production of value to the client. It also causes young solicitors to work unacceptably long hours to meet billing targets, leaving them no time for family life and other leisure activities.
Objections mounted by corporate clients truly placed time-based billing under challenge, with clients seeking to cut costs including spending on legal services. In 2005, a survey by the Australian Corporate Lawyers’ Association showed that almost 60 per cent of companies were seeking alternatives to hourly billing from their legal advisers. The Global Financial Crisis saw further pressure for fee reductions. Price pressure has also impacted many smaller law firms as alternative legal service providers (‘ALSPs’) and legal publishers entered the market for more high volume, standardised legal services.
