The first thing to note: the hourly rate is not the real cost.
In an hourly billing scenario (and I’m thinking here primarily of lawyers working contracts), the real definition of legal costs is hourly rate x
- number of hours,
- rework costs,
- unnecessary management time,
- unnecessary customer friction,
- and the downstream costs of things going wrong.
To give a practical example. Assume your lawyer adds a fancy indemnification clause which a) the other side will not easily accept, and b) in the real world doesn’t add anything much to the contract. The extra costs incurred, which you bear, are:
- lawyer’s time cost of adding the extra clause,
- lawyer’s time costs of trying to persuade the other side’s lawyer that the clause is acceptable,
- management cost while all this happens,
- increased customer friction,
- and increased time to cash (because the contract signing is pushed back).
As a lawyer, it’s very easy and very profitable (because you are on a meter) to do work that doesn’t add any real value.
It’s not that lawyers are malicious or greedier than most – if someone else is picking up the tab at a restaurant, it’s just human nature to eat more and drink better wine.
More on this next week.