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China Lawyer Hourly Billing and Value Billing Practice

I have been having an ethics debate with another attorney. Our discussion revolves around this:

1.      I assert that it would be unethical for an attorney billing hourly
to bill (for example) three hours instead of one (when the time spent was one hour), on a project, when the time spent re-using (for example) a motion which was previously drafted for another client was one actual hour.
2.      Other attorney asserts that it is ethical to bill three hours for
that one hour of actual work because an earlier client paid for three hours to create the original motion, and it would be unethical to charge a later client less because an earlier client paid more.
a.       My response is that this is essentially double-billing, and that we
have an ethical obligation to use any usual means to reduce client billable hours, including using earlier motions, pleadings, and parts of briefs (appropriately reviewed and updated, of course) when possible.

I distinguish this from flat or "value" based fees and contingency fees, and look only at the case where the client is contracted on an hourly basis.

Another colleague responded:


Let me pass these examples by you: If, in 1980, I drafted a motion by hand, with edits, etcetera and then typed it up on my typewriter in three hours and now I wish to use the same motion today (yes, it's that good a motion) and it will only take me one hour to make edits (e.g., names of the parties, dates) and type it into my word processor, can I bill the original three hours?

What if last week it took me an hour on a typewriter to fill in the blanks of a form; but I bought a computer last weekend and now it takes me only twelve minutes.  Can I charge the client for an hours' worth of time?

Automation has increased productivity; if automation allows one person to complete the work previously done by four people in the same eight hour workday then can the one person bill clients 24 hours of time for the eight hours of work performed?

A third lawyer in our office replied:


In an ideal world, we all get better at what we do over time.  We develop a body of work we can refer to.  We learn shortcuts and efficiencies.  We learn nuance.  Our work, and the time spent doing it, increases in value, and that is typically reflected in increasing fees.

Ultimately, your dispute is not one of ethics so much as a question of contract law.

If your colleague agreed to bill the client hourly for work performed, he may only bill for actual time spent.  In the former case, it was three hours.  In this case, it was one.  You cannot bill an hourly client for time you did not spend.

That is the incentive behind value billing.  If you come to learn that a client will gladly pay [$3x, where x is your normal hourly rate] for a document, you set the price of that document at $3x.

However, if your agreement is to bill hourly, you must be able to document the time actually spent for which you are billing.  If he submits a bill stating that he spent three hours preparing that document for that client, it is not merely an ethical gray area, it is fraud.

The fourth attorney said:


Personally (& professionally I guess) I'm NOT a big fan of hourly billing, and I won't go into a whole song & dance about it. (There's a joke in there somewhere I'm sure.)

I'm trying to move away from it and just wondering about others' thoughts & experiences with this.

For those that do more of a value billing thing, how long have you been using that?  How do clients like it? How has it worked for you? How did you determine what to charge for certain kinds of cases?

Caveat: I DON"T THINK this is a violation of any kind because I am NOT asking WHAT or HOW MUCH people charge. Only asking how they made that determination, i.e. formula based on hourly rate, difficulty of case and estimated or average time for those kinds of cases or ...what?

If there is a violation in here somewhere, I apologize.  As I said though, I think what I'm asking is permissible.

A fifth lawyer reverted:


I think the most difficult thing I do in law is balancing the value of my work to the client vs the cost to me -- my time, my overhead, all the stuff I have done over the past 28 years that go into what I am doing today for this client.

I think about auto mechanics and plumbers who give you a quote and then that is what you pay. Why can't we as lawyers do the same? For one thing, because we have to deal with clients. People don't sit with the plumber or mechanic and ask what or why he/she is doing something and argue with the choice of what/how to do it. But lawyers have to factor that into how long it will take you to get anything done.

I still bill hourly for most things, but I have been doing this long enough to have a good general  idea of how long it will take. So I give estimates, usually rounding up from whatever I think it will take me, because it always takes longer, but always keeping in mind the value to this particular client. And the client's ability to pay. And my willingness to work for this client at a discount if necessary.

If I realize I am going to go over the estimate, I let the client know and explain the reason. This gives them the opportunity to tell me not to do it. Of course, this doesn't work all the time, sometimes you are too far into something by the time you realize just how badly you underestimated.
When that happens, I usually end up working for free. So maybe my method isn't so good after all . . . .

The sixth lawyer said:


We do a decent amount of value billing here.

I think the biggest problem with value billing is when you try to apply it in a commodity type niche. In theory, value billing should allow you to charge MORE than an hourly rate would be, because you are charging based on how much your services are actually worth to the client. Under this idea, an hour of your time could produce a $100,000 benefit to the client, and a fair fee should be, say, $10,000.

But it's not often that solos are getting those kinds of queries, or have expertise in that kind of niche. More often, it's "value billing" in residential real estate closings, which really means flat fees with a race to the bottom.

But, if you can identify an area of your practice where you can deliver value above and beyond what you would charge by the hour; AND you can get a hold of potential clients and convince them of the value of your services, then value billing is a great thing. If you can't do both of those things, value billing is probably a bad idea, because it probably just results in you taking a greater risk or less money. Or both.

A small example of "value billing" that we have done. My partner does a lot of foreclosure defense work. There are often many months that go by without him having to do anything on a particular case. But often the mere fact that he appears in a case results in the bank's attorney putting that particular file on the bottom of their to-do list. The delay in the case is a value for the clients, even if he doesn't have to do anything that month. He charges a fixed monthly fee for the engagement.

As an experienced China lawyer, I think all above responses are very interesting, informative and helpful. One of the problems I've seen, though I've never experienced it personally, is that some people believe that hourly billing encourages practitioners to take longer than they need to or than the work requires....or perhaps to overestimate the time it would take.  I also wonder about the idea of billing more for a service because it may take longer initially than the ame or similar would after you've done it 40,0000 times. One thing I never do is charge for "learning curve" time or for anything I think took me longer than it should have or something I think I should have known.  One of my problems, though, I a tendency at times to think I should know ....everything...

 
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