How Widespread Is Unethical Billing?

Bill Padding

The extent to which attorneys reported personal knowledge of bill padding remained strikingly similar among the three surveys. In all three surveys, approximately two-thirds of the attorneys said they knew of at least some instances of billing padding, but the percentage of attorneys who said they knew many such instances was low in all three surveys, ranging from 6.3% in 1991 to 7.6% in 2007.

Attorneys in the 2007 survey, however, seemed more inclined than those in the 1995 survey to believe that minor padding is common but less inclined to believe that major padding is common. In 2007, 32% of the attorneys expressed the opinion that less than 5% of all time billed by attorneys in the United States consists of 'padding for work not actually performed,' compared with 47% in 1995. Meanwhile, the percentage of attorneys who believed that more than 25% of time is padded fell from 16% in 1995 to 12% in 2007.

Churning

Although bill padding is a problem in the profession, a greater abuse of hourly billing may be the tendency of some attorneys to perform work beyond the point of diminishing returns because more work results in higher fees. Time-based billing creates an inherent conflict of interest between the client's interest in efficient disposition of its business and an attorney's interest in generating fees. Even attorneys who generally are honest will sometimes allow their own self-interest to blind themselves to the real needs of their clients. The most recent survey suggests that this problem may be growing.

There was a notable increase between the 1995 and 2007 surveys in the percentage of attorneys who reported that the prospect of billing additional time had influenced their decision to proceed with work that they otherwise would not have performed. Only 44% of the attorneys in the 2007 survey stated that this prospect never had influenced them, compared with 60% in 1995. The percent who said that opportunity to bill more hours frequently encouraged them to do work that they otherwise would not have done increased from 2% in 1996 to 4% in 2007. These differences may reflect the fact that the earlier survey included many more practitioners at large firms, although one would expect that attorneys at larger firms would actually have more of an incentive to perform unnecessary work since larger clients seem more likely to be able to pay for work that has questionable utility.

In the most recent survey, however, there was a decrease in the proportion of attorneys who expressed a belief that the prospect of billing more time had influenced other attorneys to proceed with unnecessary or questionable work. In the 2007 survey, 43% of the attorneys expressed their belief that at least 10% of work performed by attorneys in the United States 'is influenced more by the prospect of billing additional hours than serving the needs of the client,' a decrease from 50% in the 1995 survey. Perhaps more significantly, the percentage who believed that more than 25% of attorney work is so influenced declined from 25.5% in 1995 to 11.6% in 2007. Even with these decreases, however, the most recent survey confirms that a very large proportion of attorneys believe that a very large proportion of work that attorneys perform for clients is unnecessary or has little or no marginal utility.

Although the use of billing quotas often has been blamed for the artificial inflation of hours, 61% of the attorneys who responded to the 2007 survey reported that compensation for associates in their firm was not connected to the number of hours they bill.

Double Billing

The most disturbing aspect of the 2007 survey was that the percentage of attorneys who admitted to 'double billing' or condoned this practice increased substantially between 1995 and 2007. Double billing is the practice of billing two clients for work performed at the same time. The classic example is billing Client A for drafting a document on an airplane while billing Client B for the travel time. The American Bar Association's 1993 opinion on the ethics of time-based billing, ABA Formal Op. 93-379, strongly condemns this practice, arguing that an attorney in such a situation has not actually earned a double fee and that he has an obligation to pass along to his clients the benefits of any economies that result from the fortuities of his schedule. Although most commentators agree with the ABA Opinion, and clients often regard double billing as the poster child for billing fraud, some legal scholars and commentators contend that a lawyer is ethically entitled to obtain fees for services provided at the same time, provided that he or she has provided utility to both.

The percentage of attorneys who said that they never had billed two clients for work performed at the same time fell from 77% in 1995 to 64% in 2007. In both surveys, only 1% of the attorneys said that they often double billed. Similarly, the percentage of attorneys who believed that double billing is always an unethical practice fell from 65% in 1995 to 52% in 2007. Approximately one-quarter of the attorneys in 2007 expressed their belief that double billing is ethical if the client is informed of the practice, while 23% thought that it is ethical even if the client is not informed of it. In 1995, only 15% said that it is ethical even if the client is not informed of it.

The condonation of double billing increased between 1995 and 2007 even though a larger proportion of attorneys in 2007 said that they were familiar with ABA's 1993 opinion on billing ethics. The percentage of attorneys who reported that they had heard about this opinion increased from 43% in 1995 to 49% in 2007, and the percent who said that they had read it increased from 7% to 18%. It is not clear whether the differences between the two surveys reflect the fact that more respondents to the earlier survey worked at large firms.

Billing for Recycled Work

Along with double billing, another practice that many clients, courts, and commentators condemn is billing for recycled work. The 2007 survey indicates little change since 1995 in attitudes toward the ethical implications of billing clients by the hour for unaltered work that originally was generated for another client. The 1993 ABA Opinion flatly condemned this practice, explaining that 'a lawyer who is able to reuse old work product has not re-earned the hours previously billed and compensated when the work product was first generated,' and the Opinion suggests that the lawyer is reaping a windfall from 'the luck of being asked the same question twice.' Courts and scholars generally concur with the ABA Opinion.

One-third of the attorneys in 2007 contended that it is never ethical to bill for such recycled work, and nearly half said that it is ethical only if a standard other than time is used in calculating the fee. In 1995, about one-quarter of the attorneys believed that recycling of work was never ethical, and slightly more than half regarded it as ethical only when the fee was calculated on the basis of something other than time. Eight percent of the attorneys in 2007 and 7% in 1995 expressed the opinion that billing by the hour for recycled work is ethical if the client is informed of the practice. Twelve percent of the attorneys in 2007, compared with 9% in 1995, believed that time-based billing for recycled work is ethical even if the client is not informed that the work is recycled; although this is a disturbing trend, the increase is so small that it may not be significant. In any event, the percentage of attorneys who condone time-based billing for recycled work without the client's knowledge appears to have fallen significantly since the 1991 survey, in which one-fifth of the attorneys expressed the opinion that this was ethical.

Marking Up Overhead Costs

Lawyers also may be increasingly opposed to marking up overhead costs billed to clients. Such markups, which were common during the 1980s, appear to have become less frequent since clients have complained about them. The 1993 ABA Opinion vigorously denounced such markups, urging that attorneys should pass overhead expenses along to clients at cost rather than making them a profit center. As the Opinion observed, 'the lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time, or messenger services.'

Some 42% of attorneys in 2007, compared with 36% in 1995, expressed their opinion that attorneys should never mark up a fee. In the 2007 survey, 23%, compared with 30% in 1996, believed that a markup was appropriate if the client was informed of it. The proportion of attorneys who contended that an attorney could mark up a fee without informing a client fell from 12.5% in 1995 to 7.6% in 2007. Again, it is not clear whether this change is related to the fact that fewer attorneys from large firms responded to the 2007 survey.

Attorneys who responded to the surveys seemed to agree that at least some work for which lawyers bill their clients could be performed by secretaries who don't bill their time, or by paralegals, whose rates are lower than those of attorneys. These lawyers, however, disagreed about how much work could be performed by paraprofessionals or support staff. In both the 1995 and 2007 surveys, 37% believed that more than 10% of attorney work could be performed by support staff, which presumably would result in a substantial savings to clients.

Do Billing Guidelines Work?

Attorneys seem pessimistic that billing guidelines can control legal costs. Of the 55% of lawyers in 2007 who reported that at least some of their clients had billing guidelines for attorneys, more than half reported that these guidelines provided little or no help in controlling legal costs. And one-eighth contended that the guidelines actually tended to increase legal costs. Only one-eighth expressed the opinion that guidelines significantly helped to control costs. These results are consistent with anecdotal evidence that many attorneys and clients believe that mutual trust and effective communication between clients and lawyers are more effective than formal guidelines in controlling legal costs. Similarly, many lawyers and clients seem to believe that ethical lawyers do not need guidelines and that unethical lawyers will find a way to evade even the most specific rules.

Reluctance to Replace Hourly Billing with Alternative Billing Methods

One of the most significant revelations of the surveys is that attorneys remain largely convinced that time-based billing serves the needs of clients and promotes the competent and efficient delivery of legal services. Slightly more than half of
the attorneys in both 2007 and 1995 contended that time-based billing, compared with other forms of billing, has no impact on the quality of legal work, and approximately one-quarter of the attorneys in both surveys contended that time-based billing tends to improve the quality of work. Only 21% of the attorneys in 2007 (and 15% in 1995) believed that hourly billing tends to diminish the quality of work.

Similarly, attorneys in all three surveys generally seemed unconvinced that the replacement of time-based billing with other types of fees would reduce the size of legal fees. In the 2007 survey, 42% of the attorneys said that they thought that there would be virtually no impact, compared with 33% in 1995 and 42% in 1991. And 22% in 2007 contended that alternative fee systems would actually increase the size of bills (compared with 14% in 1996 and 27% in 1991). Only 12% of the attorneys in 2007 believed that replacement of hourly billing would reduce client fees by more than 10%, a result almost identical to the 1995 survey.

Likewise, most attorneys do not seem to believe that the use of alternative forms of billing would substantially affect the amount of time that attorneys would spend on their work. In both the 1995 and 2007 surveys, approximately one-third of the attorneys believed that alternative forms of billing would not change the amount of time that attorneys spend on their work, and 10% in 2007 and 7% in 1995 believed that alternative billing arrangements would actually increase it. Only 16% of attorneys in 1995 and 22% in 2007 thought that alternative forms of billing would enable attorneys to decrease their working hours by at least 10%.

The large majority of attorneys in all three surveys also expressed a belief that time-based billing does not discourage pro bono activities or other forms of community service. Approximately two-thirds of the attorneys in the 2007 and 1995 surveys (and three-quarters in 1991) said that replacement of time-based billing with other forms of billing would have no substantial impact. In each of the three surveys, only about 20% contended that the use of alternative forms of billing would actually increase community service.

The moderate increase in pessimism about the benefits of alternative fee systems during the past decade, as suggested by the survey, helps to explain why time-based billing has remained the standard form of billing in most law firms, despite widespread predictions of its demise. The growing skepticism about the benefits of replacement of hourly billing with other methods also may reflect recent experimentation with other forms of billing, which may have convinced some attorneys that hourly billing, despite its flaws, is still the most economical form of billing for clients. In particular, many attorneys and clients may believe that flat fees may encourage an attorney to do little work for a client and to cut corners in order to earn his or her fee as soon as possible.

Conclusions

While pronouncements about trends are not well supported by survey series with uncontrollable variables, a few conclusions seem merited. A positive note is that lawyers seem increasingly to have received the message that they should not nickel-and-dime clients by treating overhead charges as profit centers. Given the steady rise in lawyer billing rates, which already reflect overhead, such surcharges also seem embarrassingly ridiculous ' like the old joke about charging extra for Roquefort dressing at a $1000-a-plate dinner.

Unfortunately, and more significantly, many lawyers have not received the message that it's unprofessional to run up client bills by doing work of questionable marginal utility. Even the completely indefensible practice of outright bill padding has not been eradicated.

Billing for recycled work and double billing for concurrent work remain contentious issues in the hourly billing system. Since clients do get value in those situations, billing for them seems easier to rationalize despite the ABA's clear opposition to them. In keeping with the growing popular recognition that transparency reduces corruption in business and government, however, even defenders of such billing seem increasingly to recognize that client consent is necessary.

Finally, a clear conclusion is that this survey shouldn't be the last. Despite extensive and ongoing experimentation with alternative billing arrangements, law firms are unlikely to abandon hourly billing anytime soon.

As most consumers of legal services are well aware, time-based legal bills present many opportunities for inefficient, careless, and dishonest lawyers to inflate legal fees. Clients, judges, legal scholars, and even many lawyers have assailed hourly billing for providing lawyers with an incentive to work beyond the point of marginal utility and for generating fraud. Indeed, the padding of legal bills is practically the 'perfect crime' because it usually is almost impossible to detect. The high number of hours that many law firms demand of their attorneys is widely believed to have encouraged billing abuses. In order to promote better accountability, clients have increasingly scrutinized legal bills, often with the assistance of legal auditing agencies, and are often requiring lawyers to abide by guidelines that prescribe detailed procedures for billing practices.

Aside from a few sensational disbarments and criminal prosecutions for overbilling, most evidence of billing irregularities is anecdotal. In order to provide a more precise assessment of the scope of the abuse of time-based billing by attorneys, I conducted nationwide surveys of outside counsel in 1991, 1995, and 2007. The large majority of respondents to all three surveys ' 82% in the most recent survey ' indicated that time-based billing was their dominant method of billing. Respondents to all three surveys had a wide range of seniority and types of practices. The first two surveys were returned by attorneys from the full spectrum of firm sizes. Although the third survey was directed at lawyers in all sizes of firms, nearly all of the 251 respondents reported that there were 25 or fewer lawyers in their firms. While the 2007 survey therefore is based almost entirely on attorneys in relatively small firms, the results of the most recent survey are generally very similar to those of the first two surveys.

Although the results of all three surveys do not support the view of clients and commentators who have alleged that billing abuse is rampant, the surveys do indicate that questionable billing practices are all too common.

Bill Padding

The extent to which attorneys reported personal knowledge of bill padding remained strikingly similar among the three surveys. In all three surveys, approximately two-thirds of the attorneys said they knew of at least some instances of billing padding, but the percentage of attorneys who said they knew many such instances was low in all three surveys, ranging from 6.3% in 1991 to 7.6% in 2007.

Attorneys in the 2007 survey, however, seemed more inclined than those in the 1995 survey to believe that minor padding is common but less inclined to believe that major padding is common. In 2007, 32% of the attorneys expressed the opinion that less than 5% of all time billed by attorneys in the United States consists of 'padding for work not actually performed,' compared with 47% in 1995. Meanwhile, the percentage of attorneys who believed that more than 25% of time is padded fell from 16% in 1995 to 12% in 2007.

Churning

Although bill padding is a problem in the profession, a greater abuse of hourly billing may be the tendency of some attorneys to perform work beyond the point of diminishing returns because more work results in higher fees. Time-based billing creates an inherent conflict of interest between the client's interest in efficient disposition of its business and an attorney's interest in generating fees. Even attorneys who generally are honest will sometimes allow their own self-interest to blind themselves to the real needs of their clients. The most recent survey suggests that this problem may be growing.

There was a notable increase between the 1995 and 2007 surveys in the percentage of attorneys who reported that the prospect of billing additional time had influenced their decision to proceed with work that they otherwise would not have performed. Only 44% of the attorneys in the 2007 survey stated that this prospect never had influenced them, compared with 60% in 1995. The percent who said that opportunity to bill more hours frequently encouraged them to do work that they otherwise would not have done increased from 2% in 1996 to 4% in 2007. These differences may reflect the fact that the earlier survey included many more practitioners at large firms, although one would expect that attorneys at larger firms would actually have more of an incentive to perform unnecessary work since larger clients seem more likely to be able to pay for work that has questionable utility.

In the most recent survey, however, there was a decrease in the proportion of attorneys who expressed a belief that the prospect of billing more time had influenced other attorneys to proceed with unnecessary or questionable work. In the 2007 survey, 43% of the attorneys expressed their belief that at least 10% of work performed by attorneys in the United States 'is influenced more by the prospect of billing additional hours than serving the needs of the client,' a decrease from 50% in the 1995 survey. Perhaps more significantly, the percentage who believed that more than 25% of attorney work is so influenced declined from 25.5% in 1995 to 11.6% in 2007. Even with these decreases, however, the most recent survey confirms that a very large proportion of attorneys believe that a very large proportion of work that attorneys perform for clients is unnecessary or has little or no marginal utility.

Although the use of billing quotas often has been blamed for the artificial inflation of hours, 61% of the attorneys who responded to the 2007 survey reported that compensation for associates in their firm was not connected to the number of hours they bill.

Double Billing

The most disturbing aspect of the 2007 survey was that the percentage of attorneys who admitted to 'double billing' or condoned this practice increased substantially between 1995 and 2007. Double billing is the practice of billing two clients for work performed at the same time. The classic example is billing Client A for drafting a document on an airplane while billing Client B for the travel time. The American Bar Association's 1993 opinion on the ethics of time-based billing, ABA Formal Op. 93-379, strongly condemns this practice, arguing that an attorney in such a situation has not actually earned a double fee and that he has an obligation to pass along to his clients the benefits of any economies that result from the fortuities of his schedule. Although most commentators agree with the ABA Opinion, and clients often regard double billing as the poster child for billing fraud, some legal scholars and commentators contend that a lawyer is ethically entitled to obtain fees for services provided at the same time, provided that he or she has provided utility to both.

The percentage of attorneys who said that they never had billed two clients for work performed at the same time fell from 77% in 1995 to 64% in 2007. In both surveys, only 1% of the attorneys said that they often double billed. Similarly, the percentage of attorneys who believed that double billing is always an unethical practice fell from 65% in 1995 to 52% in 2007. Approximately one-quarter of the attorneys in 2007 expressed their belief that double billing is ethical if the client is informed of the practice, while 23% thought that it is ethical even if the client is not informed of it. In 1995, only 15% said that it is ethical even if the client is not informed of it.

The condonation of double billing increased between 1995 and 2007 even though a larger proportion of attorneys in 2007 said that they were familiar with ABA's 1993 opinion on billing ethics. The percentage of attorneys who reported that they had heard about this opinion increased from 43% in 1995 to 49% in 2007, and the percent who said that they had read it increased from 7% to 18%. It is not clear whether the differences between the two surveys reflect the fact that more respondents to the earlier survey worked at large firms.

Billing for Recycled Work

Along with double billing, another practice that many clients, courts, and commentators condemn is billing for recycled work. The 2007 survey indicates little change since 1995 in attitudes toward the ethical implications of billing clients by the hour for unaltered work that originally was generated for another client. The 1993 ABA Opinion flatly condemned this practice, explaining that 'a lawyer who is able to reuse old work product has not re-earned the hours previously billed and compensated when the work product was first generated,' and the Opinion suggests that the lawyer is reaping a windfall from 'the luck of being asked the same question twice.' Courts and scholars generally concur with the ABA Opinion.

One-third of the attorneys in 2007 contended that it is never ethical to bill for such recycled work, and nearly half said that it is ethical only if a standard other than time is used in calculating the fee. In 1995, about one-quarter of the attorneys believed that recycling of work was never ethical, and slightly more than half regarded it as ethical only when the fee was calculated on the basis of something other than time. Eight percent of the attorneys in 2007 and 7% in 1995 expressed the opinion that billing by the hour for recycled work is ethical if the client is informed of the practice. Twelve percent of the attorneys in 2007, compared with 9% in 1995, believed that time-based billing for recycled work is ethical even if the client is not informed that the work is recycled; although this is a disturbing trend, the increase is so small that it may not be significant. In any event, the percentage of attorneys who condone time-based billing for recycled work without the client's knowledge appears to have fallen significantly since the 1991 survey, in which one-fifth of the attorneys expressed the opinion that this was ethical.

Marking Up Overhead Costs

Lawyers also may be increasingly opposed to marking up overhead costs billed to clients. Such markups, which were common during the 1980s, appear to have become less frequent since clients have complained about them. The 1993 ABA Opinion vigorously denounced such markups, urging that attorneys should pass overhead expenses along to clients at cost rather than making them a profit center. As the Opinion observed, 'the lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time, or messenger services.'

Some 42% of attorneys in 2007, compared with 36% in 1995, expressed their opinion that attorneys should never mark up a fee. In the 2007 survey, 23%, compared with 30% in 1996, believed that a markup was appropriate if the client was informed of it. The proportion of attorneys who contended that an attorney could mark up a fee without informing a client fell from 12.5% in 1995 to 7.6% in 2007. Again, it is not clear whether this change is related to the fact that fewer attorneys from large firms responded to the 2007 survey.

Attorneys who responded to the surveys seemed to agree that at least some work for which lawyers bill their clients could be performed by secretaries who don't bill their time, or by paralegals, whose rates are lower than those of attorneys. These lawyers, however, disagreed about how much work could be performed by paraprofessionals or support staff. In both the 1995 and 2007 surveys, 37% believed that more than 10% of attorney work could be performed by support staff, which presumably would result in a substantial savings to clients.

Do Billing Guidelines Work?

Attorneys seem pessimistic that billing guidelines can control legal costs. Of the 55% of lawyers in 2007 who reported that at least some of their clients had billing guidelines for attorneys, more than half reported that these guidelines provided little or no help in controlling legal costs. And one-eighth contended that the guidelines actually tended to increase legal costs. Only one-eighth expressed the opinion that guidelines significantly helped to control costs. These results are consistent with anecdotal evidence that many attorneys and clients believe that mutual trust and effective communication between clients and lawyers are more effective than formal guidelines in controlling legal costs. Similarly, many lawyers and clients seem to believe that ethical lawyers do not need guidelines and that unethical lawyers will find a way to evade even the most specific rules.

Reluctance to Replace Hourly Billing with Alternative Billing Methods

One of the most significant revelations of the surveys is that attorneys remain largely convinced that time-based billing serves the needs of clients and promotes the competent and efficient delivery of legal services. Slightly more than half of
the attorneys in both 2007 and 1995 contended that time-based billing, compared with other forms of billing, has no impact on the quality of legal work, and approximately one-quarter of the attorneys in both surveys contended that time-based billing tends to improve the quality of work. Only 21% of the attorneys in 2007 (and 15% in 1995) believed that hourly billing tends to diminish the quality of work.

Similarly, attorneys in all three surveys generally seemed unconvinced that the replacement of time-based billing with other types of fees would reduce the size of legal fees. In the 2007 survey, 42% of the attorneys said that they thought that there would be virtually no impact, compared with 33% in 1995 and 42% in 1991. And 22% in 2007 contended that alternative fee systems would actually increase the size of bills (compared with 14% in 1996 and 27% in 1991). Only 12% of the attorneys in 2007 believed that replacement of hourly billing would reduce client fees by more than 10%, a result almost identical to the 1995 survey.

Likewise, most attorneys do not seem to believe that the use of alternative forms of billing would substantially affect the amount of time that attorneys would spend on their work. In both the 1995 and 2007 surveys, approximately one-third of the attorneys believed that alternative forms of billing would not change the amount of time that attorneys spend on their work, and 10% in 2007 and 7% in 1995 believed that alternative billing arrangements would actually increase it. Only 16% of attorneys in 1995 and 22% in 2007 thought that alternative forms of billing would enable attorneys to decrease their working hours by at least 10%.

The large majority of attorneys in all three surveys also expressed a belief that time-based billing does not discourage pro bono activities or other forms of community service. Approximately two-thirds of the attorneys in the 2007 and 1995 surveys (and three-quarters in 1991) said that replacement of time-based billing with other forms of billing would have no substantial impact. In each of the three surveys, only about 20% contended that the use of alternative forms of billing would actually increase community service.

The moderate increase in pessimism about the benefits of alternative fee systems during the past decade, as suggested by the survey, helps to explain why time-based billing has remained the standard form of billing in most law firms, despite widespread predictions of its demise. The growing skepticism about the benefits of replacement of hourly billing with other methods also may reflect recent experimentation with other forms of billing, which may have convinced some attorneys that hourly billing, despite its flaws, is still the most economical form of billing for clients. In particular, many attorneys and clients may believe that flat fees may encourage an attorney to do little work for a client and to cut corners in order to earn his or her fee as soon as possible.

Conclusions

While pronouncements about trends are not well supported by survey series with uncontrollable variables, a few conclusions seem merited. A positive note is that lawyers seem increasingly to have received the message that they should not nickel-and-dime clients by treating overhead charges as profit centers. Given the steady rise in lawyer billing rates, which already reflect overhead, such surcharges also seem embarrassingly ridiculous ' like the old joke about charging extra for Roquefort dressing at a $1000-a-plate dinner.

Unfortunately, and more significantly, many lawyers have not received the message that it's unprofessional to run up client bills by doing work of questionable marginal utility. Even the completely indefensible practice of outright bill padding has not been eradicated.

Billing for recycled work and double billing for concurrent work remain contentious issues in the hourly billing system. Since clients do get value in those situations, billing for them seems easier to rationalize despite the ABA's clear opposition to them. In keeping with the growing popular recognition that transparency reduces corruption in business and government, however, even defenders of such billing seem increasingly to recognize that client consent is necessary.

Finally, a clear conclusion is that this survey shouldn't be the last. Despite extensive and ongoing experimentation with alternative billing arrangements, law firms are unlikely to abandon hourly billing anytime soon.