Six-Minute Madness

This article looks at how the stakeholders – owners/partners, employee solicitors and clients – feel about the six-minute regime, and suggests an alternative to it. 

If there is one complaint I hear more frequently than any other, it is the lawyer’s loathing for the tyranny of the six-minute, time costing regime. I can remember the heady days of the 70’s and early 80’s when time recording was unheard of, as were budgets – either for the revenue you were expected to generate or the expenses that you might incur generating that revenue.

So what changed? For a start, profit margins were wide enough in those early days to permit what could only be described as slack financial management. Then of course, there were no computers until the late 80’s and even when they did arrive, they were for typing and accounts, not for monitoring work production.

As the ‘good times’ came to an end and costs soared along with interest rates, law firms were forced to look more carefully at their top and middle lines. Clients also began to be far more critical and started to demand more accurate analysis of where their money was going.

Whilst there are a few firms who hold out against the six-minute regime, it is now all but universal. What accounts for its popularity and at the same time, its poor reputation?

 Let’s look at the issues from the perspective of the three key stakeholders involved:

1   The owner/partners.

2   The employee solicitors.

3   The clients.

The Owner

The owners, we must assume, introduced and continue to support the regime. They are often heard to claim, ‘time is all we have to sell’ so not surprisingly, that is what is measured and sold! It also allows an excellent means of monitoring every fee earner in the firm on a minute-by-minute basis and why would you want to give that up if you are an owner!  

The work in progress (‘WIP’) is usually the biggest financial asset of most professional service firms and the common way to value that is by reference to the time record that has accumulated with respect to that work. As many firms also borrow against that asset, it becomes even more significant. Bank lending is secured against WIP. 

And why six minutes? I have never been provided with a satisfactory answer for that. Most clocks are divided into five-minute increments and five divides into 60 just as well as six does. The assumption, I presume, is that most lawyers multi-task, that is, they hop from one file to another and a six-minute increment better fits the average time they spend on a file. There is absolutely no evidence to support that contention and from experience, somewhere around the 15-minute mark would be more accurate.

Alternatively, the actual time spent could be recorded. More of that in a moment. 

The real impact of the choice of time increment comes, when on careful reading of many firm’s cost agreement letters, it appears they reserve the right to ‘round up’ the time spent on a client’s matter from say three minutes to the magic six-minute mark. It is theoretically possible therefore, for a solicitor answering say, ten two-minute phone calls (for different matters – a total of 20 minutes), to log up 60 minutes (ten multiplied by six), thus effectively tripling the underlying hourly rate. 

This, of course, may explain the owner’s/partner’s preference for this approach – if the time increment were made longer, then the potential for such abuse would be much worse. 

The Employee

The employees usually don’t particularly like the system of course, because it forces them to account for almost every minute of the day. They rapidly become aware, however, of how to exploit the system to meet their budgets. In short, it leads them into bad/unethical habits very quickly unless there is plenty of work around, which makes it easy for them to meet those budgets. The difficulties arise when the work begins to tail off; the temptation to overcharge becomes substantial and partner supervision is insufficient. 

They also soon discover that it does have the potential to allow them to claim and justify larger salaries. Many firms calculate their employees’ salaries by dividing the revenue they generate by a multiple – it used to be three but this is now more often four. If revenue is the test, then what better tool than time costing to enable the highest possible figure to be generated?

The Client

Clients originally sought to have the lawyers provide more transparency in their costings. They are now often provided with reams of paper which reflect the six-minute approach – allegedly in the interests of transparency but more often, one suspects, to dissuade further enquiry.  

Most clients of substance resort to having their own in-house counsel oversee the situation. They will try and get some common understanding of what is fair, or resort to a tender process to set a fee or range of fees. For those not so well resourced, the situation is more difficult. 

Other Shortcomings

So other than the more obvious shortcomings, what are some of the more subtle side effects? 

The ‘value’ of the six-minute unit is tied to the fee-earner’s hourly rate. When all is said and done, that rate is calculated on a no more sophisticated basis than a ‘cost plus margin’ approach. That is, what are the wages plus the other overheads that have to be covered and then how much profit do we, the partners, want to earn on top of that? This in no way encourages a sensible dialogue with the client about the value of the work to the client nor encourages any speedy processing of the work by the solicitor, quite the contrary. What is worse, in many cases, the calculation does not even reflect an accurate estimate of the firm’s cost base – more often than not, it simply reflects ‘the going rate’. 

So, the negatives are quite pronounced:

1   Poor appreciation of the actual cost base and how it is comprised.

2   Poor estimation of time and personnel it might take to perform the work.

3   Inability/unwillingness to agree costs with clients on a mutually satisfactory basis.

4   No incentive to improve efficiency in way the firm works.

5   No encouragement to review the profitability of the work the firm is doing from the perspective of work type or client type.

Of course, this has a detrimental effect internally within the law firm. Because of the lack of understanding of their cost base and what factors lead to profitability, the levers that are pulled most frequently to restore/increase profit are:

1   Increase the hourly rate.

2   Increase the number of billable hours expected of all personnel.

This provides for an extremely high pressure environment in which rounding up is rife, files tend to get ‘overworked’ and there is an increasing amount of client resistance to the increasing charges.

The Alternative

The most desirable set up is one where:

1   The clients usually get their work performed for a pre-agreed price.

2   The work is done by the most efficient means by the solicitor.

3   Legal staff do not feel unreasonable pressure.

4   The hourly rates reflect a fair mark up upon the firm’s cost base.

Let us look at each of these in more detail.

The clients get their work performed for a pre-agreed price

For clients and practitioners alike, the repeated need to work out a realistic and binding quote on specific matters would produce much better estimates as well as provide clients with far better protection. From the solicitors’ perspective, it would also assist them to better understand what sort of work is profitable and why. Time would still be recorded but it would be used to gauge the accuracy of the initial estimate, improve estimates in the future and assist in management of delegated work etc. 

The rounding problem can be overcome by recording the actual time spent on the work rather than to work in six-minute multiples. Most time recording packages have this capability and no additional cost in either calculation or reporting to the client would be required. 

The work is done by the most efficient means by the solicitor

The time costing approach should encourage a close examination of processes and time spent on legal work. For reasons I have indicated, it is often not a reliable indicator and encourages more time being logged on matters than would otherwise be the case. If the present close nexus is broken between time costing and billing, this might well change. Once the time record can reasonably be relied on, meaningful examination of efficiencies of all of the process in completing files could be undertaken. This would result in:

1   Improved accuracy in quoting and tendering.

2   Better allocation of staff – professional and otherwise.

3   Better assessment of profitable clients and work type.

4   Better budget processes both for revenue and expenses.

Legal staff do not feel unreasonable pressure

Pressure will and should still exist to meet deadlines and partner and client expectations.

Practitioners would be encouraged to focus on:

1   Completing the work properly and efficiently.

2   Seeking additional work rather than overworking current files.

3   Having wages based on a broader set of indicators than mere time-based revenue.

4   Entering actual time rather than ‘rounded up time’.

The hourly rates reflect a fair mark up upon the firm’s cost base

From the firm’s point of view, it is important that it does not simply raise prices to maintain its profit. That approach masks much about how efficiently a firm performs its work. Perhaps of even greater importance is that it masks what the true level of profitability is amongst the range of work it performs. So often, I see firms being guided in their strategic decisions by no more than ‘gut’ feeling about the level of profitability of the work they do. Other firms have become very informed, however, about their cost base and margins, and this enables them to quote competitively to perform work at well below what is thought to be the ‘going rate’. The greater the distortions built into the firm’s time costing mechanisms, the harder it will be to learn these lessons.

Conclusion

There is nothing wrong with the concept of time recording per se. It has the potential to provide a very rich source of data which can lead to dramatic improvements in the way a firm works, what work it does, its profitability and its ability to learn how to deliver real value to its clients. 

Too often its outputs are used in an imprecise way to gauge everything from an employee’s entitlement to a wage rise through to accepting the record as being an entirely accurate basis upon which to charge clients. This is not only dangerous and potentially unprofessional, it deters firms from developing vital competitive skills. 

Finally I do not believe most solicitors object to time recording per se – the real dilemma comes with the uses the data is put to. These days, far more sophisticated appraisal systems are available to assess solicitor performance and to award wage increases and progression. Certainly, productivity must be a part of that appraisal but it should never be the sole arbiter as is so often the case.

Duncan S Hart
Duncan Hart Consulting
E-mail: dh@duncanhartconsulting.com