Graeme Johnston / 3 March 2023
This is the fourth in a series of five posts about time recording and billing in legal work. The first three outlined the history, current status, benefits and problems of that system in England & Wales, and in the United States.
This one discusses the forces which may tend to disrupt or sustain that system in the coming years.
Disrupting forces
Seven factors with potential to disrupt granular (i.e. by the minute / hour) time-recording and its related phenomena (e.g. time-based billing, billable time-based bonuses) are, in no particular order:
1. Significant legal system change. After my third post, a reader sent me a message observing that “Civil code lawyers in societies where legal work commands lower prices seem to manage pretty easily with fixed pricing for deals and litigation.” The system matters. A couple of observations about this in the English context:
- In English litigation, the reforms of recent decades appear to have largely failed to achieve the objective set in the 1990s of tackling the ‘twin scourges’ of cost and delay. The factors driving those are deeply embedded and haven’t been tackled at root. In recent years there have been proposals to introduce fixed budgets in litigation – these have faced heavy resistance but some have proceeded and the next round of experimentation is due to start soon. My suspicion is that, without serious procedural reform restricting the really expensive elements of English litigation (e.g. disclosure, witness examination), it will be hard to make further progress down the fixed cost route in that context: there are some genuine trade-offs (e.g. restraining disclosure or cross-examination can reduce a court’s ability to find the reality of what happened), but also some strong conflicts of interest (cutting in various directions) among those who care most about the topic.
- There have also been significant regulatory liberalisations following reforms of the early 1990s and, more recently the Legal Services Act 2007. There are some signs of progress, but the systemic factors which make matters unpredictable, and hence tend to support time-based billing, are deeper than can be addressed simply by new forms of business organisation and modernised conduct regulation (attractive though these are in various ways).
2. Broader cultural impact of such reform. I can’t prove it, but my impression is that the detail-focused common law approach to litigation (which you might call ‘thorough and forensic’ if in favour or ‘pedantic and bloated’ if not) is a material cause of the similar approach which lawyers in those systems have adopted for transactional work. Reining in litigation a bit, if possible, might encourage some simplification and predictability in relevant legal areas.
3. Weaker demand resulting from weaker economic growth, lower transactional volume, lower legal complexity, lower enforcement, etc. If those things in fact occur.
4. Fewer people willing to accept traditional legal careers and their established accoutrements, such as time-recording, time-based billing and long hours. For example, if we see more constraints on working hours – for whatever reason – such as putting more focus on individual health and diversity so as to attract and retain more people – this will also tend to incentivise greater efficiency and more intentional approaches to process and ways of working. If a regulator were to impose a billable hour cap on lawyers, as was recently proposed by a committee of the New York State Bar Association, this could have interesting implications.
5. The desire for predictability and lower fees by clients. The big question is how far this will translate into real change. There has been a lot of moaning for decades now, and some efforts to change things, but the system largely still stands. A long-standing consultant-to-law-firms conclusion on this topic, based on interviews etc, is that the desire of in-house lawyers, other budget-holders and procurement functions is more about pricing predictability than level. But even that has proved hard to satisfy other than in ‘commodified’ (highly repeatable, less complex) portfolios of work.
6. Procurement / panel approaches. Lots of emphasis has been given to this by some organisations in recent decades, but it is unclear whether the feasible gains have now largely been realised.
7. Software. In so far as software can replace lawyers, that’s obviously a disruptive effect. But the likely impact of this is highly debateable. In so far as the more important impact continues to come from the more historically familiar source, namely a combination of humans and software working together, the impacts on time-recording and time-based billing are more complex (I pick up this point again below).
Sustaining forces
I’ve identified nine main types of sustaining force. I’ll use letters instead of numbers to distinguish them from the list above.
A. Supplier economic interest. Time-based approaches can be highly profitable and unlikely to be be dropped voluntarily. Instead, the tendency will be to mutate them in ways which preserve the substance while adding superficial changes (e.g. carefully limited fee caps).
B. Lack of relevant legal system and cultural change. The opposite of points 1 and 2 above.
C. Network effects. Related to point B, it’s hard to escape from a culture of “whatever it takes” in legal work which involves counterparties prepared to spend whatever it takes. Work can easily expand to fill the available budget in such circumstances, even if it’s poor value for money. Another network effect results from the transparency of profits-per-partner and salary data.
D. Market fragmentation. Also related to points B and C, I think it is important to remember that legal services businesses are mostly small and medium, and those which are larger tend to stop at a few thousand lawyers and a few billion in revenues. This is for important reasons which I believe are likely to persist (various diseconomies of scale in complex legal work), but won’t go into here. A highly fragmented market, in short. When I was speaking with a retired entrepreneur recently who built a legal recruitment business over decades, he emphasised that it was this fragmentation plus the availability of data on lawyer salaries and average profits per partner which allowed him and his contemporaries to get the lateral hire market moving in the 1990s and later, with the effect of driving up remuneration for everyone. You can readily find such observations elsewhere, though sometimes in more coded form. Irrespective of the history, the reality seems to be that people in a firm get used to a certain level of remuneration relative to the rest of the market. Doing something which changes that – e.g. accepting lower profitability for some years with a view to transitioning to a more sustainable model – is really difficult in a fragmented market in which people can move easily. Given the profitability of time-based approaches, it’s therefore really hard to move away from them once you’re in them. Classic innovator’s dilemma territory, but with limited market power on either side (talent or clients) to cushion you and, typically, a governance system in which radical change is hard.
E. Strong demand. The opposite of point 3 above. This could result from economic factors, increased legal complexity – more laws, more enforcement, more cross-border legal interactions – or both. Lots of complexity here including possibilities of greater legal complexity in certain contexts even if economic activity is reduced by the same change – i.e. in some scenarios legal work could become a larger share of spending.
F. Technology which generates more information of legal relevance. This includes general technology (e.g. generating more emails, messages etc) and also technology focused on legal use cases e.g. assembling over-complicated contracts from templates, imposing less predictable negotiation costs. This is already a major problem and growing, whether or not generative AI adds to it in future.
G. Technology which sustains older approaches without addressing deeper causes. Ediscovery and ebilling software are two major examples in my opinion. Their 1990s origins are revealed by the prepended ‘e’ – the precise implementations have changed a lot since then, including natural language processing elements. But the core concepts remain similar: coping with problem D. Remember from my first post how the unpredictability of US litigation was a major reason for time-based billing becoming a thing in the first place. These days, ediscovery software has helped to sustain the discovery / disclosure system (attempts to challenge it in England are still in their early days). Ebilling software has helped to sustain the time-based billing system by putting the focus on its details (e.g. hourly rates, shadow billing) rather than on process improvement. ‘Passive’ time recording (i.e. automatic monitoring of people’s accounts and devices to suggest time recording entries) is a more recent example of how technology can reinforce the status quo.
H. Lower transaction costs. As noted in my third post, time-based approaches are simple to apply. Assessing ‘value’ for a complex matter is not.
I. Agency issues. While this is contested, some people argue that in-house legal functions play a part in sustaining these approaches in reality, despite often complaining about them. It will be interesting to see if changes such as putting people who have never been lawyers in charge of legal functions will make an impact.
J. Information asymmetry. Obstacles in understanding things like how effective a lawyer or law firm is, what they’re doing, and how their prices compare, are certainly a challenge. The legal regulators in England & Wales have taken some steps to encourage price transparency by requiring publication on websites: there is no restriction on pricing structure, but it does at least allow people to see if others are charging a fixed fee for the same service and, as such, may over time increase the prevalence of such fees, assuming that people value the certainty.
Forces which may disrupt and sustain
Here are two factors which I think may cut both ways. As shorthand, I’ll use ‘complex’ to refer to work which requires significant skilled human discretion and judgement, recognising that this is in itself shifting territory with developing approaches to automation and data.
(i) Systems and services that replace time-recording professionals for less complex work. Human and software (separately or combined) services that enables people to understand and apply the law and handle documents, topics or matters (in part or whole) have obvious potential to reduce reliance on paying lawyers or similar professionals (e.g. accountants) by time spent. Although slower than some hoped, there have already been significant developments in such services (legal processing outsourcing / managed legal services / new law) over the last twenty years and this seems likely to be ongoing, no doubt with increasing elements of automation. This potentially reinforces time recording in a couple of ways though. The first is that, for the more automated and less complex types of work, there may be a tendency to monitor the time and outputs of the humans involved. This is long familiar in ‘blue collar’ jobs – it has been common since the 19th century and is increasingly automated (with some criticisms of inhumanity) in the 21st. Such techniques are now being applied to some knowledge workers as well e.g. in IT and other outsourcing companies. There are some important issues of trust and transaction here. The second way that time-recording may be reinforced is for people who continue to do more complex work in more traditional ways – with the scope of time-recording being narrower, it may be more sustainable. Experienced professionals genuinely adding value to complex problems as opposed to newly-qualified lawyers grinding through high volumes of documentation and charging for time spent inefficiently at high hourly rates so as to feed a highly leveraged model.
(ii) Improved ways of handling more complex work. Better approaches to process improvement, project management, work collaboration – topics with complex technological, process, data and system aspects. Real progress with this is potentially disruptive of time recording and time-based billing for some work, but also potentially supports it by making its use more focused.
How will these forces play out?
So, eighteen forces in total, with broadly three types of effect (disrupting, sustaining or both). Perhaps I’ve missed some. And perhaps you would divide them differently between the three categories. Let me know.
It’s clear that there is huge complexity here and it’s impossible to predict exactly how things will play out.
And there’s no single ‘legal market’ – the position in England and Wales is now very different from the United States in material ways, for example. In some sub-markets, real change has occurred and is continuing.
In the fifth and final post in this series, I plan to work through some scenarios for how I think this could realistically play out in the coming years, so far as time recording and time-based billing are concerned.
Notes:
- Picture: JMW Turner, Snow storm – Steam-boat off a Harbour’s Mouth (c 1842). Public domain. Source.
- Title of article inspired by Macbeth’s time soliloquy
