Letter to the DM Register:　

The Register’s September 11, 2011 review of outside attorneys fees provided an excellent overview of the cost of legal services. It reveals an hourly rate spectrum from $70 to $375. The public has a right to be concerned about how their money is spent. Likewise, the government has a duty to spend it wisely. Two questions emerge: Was it necessary to engage outside lawyers when the state already employs several hundred lawyers and are the outside lawyer fees reasonable. While I offer no comment on the decision to engage outside counsel, I do have a view on the reasonableness of the fees charged. 　

The concept of the hourly fee came into Iowa’s legal culture in the mid 1960s. It was highly controversial then as it is now. Then, as now, we question whether the value of a lawyer’s advice and service should be measured by the click of a clock and, if so, what the proper measure should be.

In 2005, while the president of the Iowa State Bar Association, I commissioned a study of the hourly fee. In 1968 the bar association published an advisory schedule of minimum fees. The suggested minimum hourly fee for consultation and office work was $25 per hour. In today’s dollars, it is about $162; an increase of about 551%. But a simply inflation adjustment did not take into consideration the economic impact that other factors would have on the cost of producing and delivering legal services.  

We wanted to know how much per hour a private practice lawyer needed to charge to take home $125,000 per year and enjoy the same level of benefits one would have if employed as a non-lawyer in business or industry. Our parameters were that the individual worked an eight hour day, received sick leave and a two week paid vacation and was entitled to the usual insurance and retirement benefits.

It was not a simple arithmetic problem. One could not simply divide the salary by the number of working hours. While it was easy to quantify the number of hours in the nine to five business day and multiply by five days a week, in the consultant’s world not all hours are billable and not all billed hours get paid. We had to take into account hours spent during the business day for office management, staff training, required education and a myriad of other activities that were not billable. Our research indicated that during the typical nine to five business day a consultant could reasonably be expected to bill 4.5 billable hours. For the purpose of the study we assumed that all billed hours would be promptly paid.

Once paid there was the cost of overhead and fixed expenses necessary to produce the legal service. Overheads run between 50 – 75%. For the purpose of our analysis, we chose the smaller percentage.

The conclusion: A lawyer must charge $250 per hour to have the functional equivalent of a $125,000 salaried employee in business and industry.   

We noted that the $250 per hour was in excess of the inflation adjusted number. Inflation adjustment only affected the hourly rate number, it did not take into consideration the increased cost of producing the legal service. In 1968 typical office overheads were 25-33%. They are now 50-75%. At that time the cost of lawyer education was a fraction of what it is now. Today’s typical JD candidate has incurred between $150,000 to $200,000 in student loan debt. It is not unusual for monthly student loan payments to be between $1300-1600. This has a direct impact salary costs of new clerks and lawyers. Add to the calculation the greatly increased cost of health insurance and legal malpractice coverage and the overall cost of producing the legal product rises sharply.   

It is understandable that the wage earner will be concerned and even shocked to learn that lawyers bill the state between $80 or even $250 per hour.   But when put into perspective those hourly rates translate into $19 and $60 per hour in wage earner terms.

The hourly fee considers all legal services to be of equal value. This is a fallacy. Regardless of whether the lawyer is writing an e-mail, analyzing a case, or performing a brilliant and case winning cross examination the hourly fee values them all the same. Furthermore, time based billing is often criticized for rewarding inefficiency while penalizing the efficiency that comes with expertise. But there is a better way.

Lawyers and bar associations have recently turned to alternative, non hourly based, fee arrangements. They are usually based upon a flat fee or monthly retainer fee for all services regardless of time, or set fee for each increment of the legal service. While alternative fee forms require the lawyer to assume the risk of an unexpected increase in their time investment, they provide the client with the certainty that is necessary to perform a meaningful cost benefit analysis concerning their legal matter. These forms of billing were common prior to 1960. They need to be revisited. The government would be well advised to abandon its insistence on the hourly fee and negotiate for other, more reasonable, forms of professional compensation.