Automation vs billable hours: Uber’s former Head of Legal Ops Ken Callander talks legal valuation

Here at Josef, we see a lot of firms that struggle at first to figure out exactly how automation can fit into their existing business model.

If automation makes legal work more efficient, won’t that affect the traditional model of billable hours? Won’t it hurt the bottom line?

What if we told you there was another way? When it comes to legal work, time is not necessarily of the essence – it’s value.

Value-based billing has been gaining momentum among law firms, largely because it’s what clients want. A recent survey of members of the Australian Corporate Lawyers Association revealed 96% of respondents were keen to explore alternatives to the billable hour.

To find out some more, we spoke to the former Head of Legal Operations at Uber, Ken Callander, about what it means to attribute the right value to legal work. He reflects on moving Uber’s outside counsel to value-based billing and how legaltech plays a role in this process.

“Hours don't equal value and they don't equal results.”
– Ken Callander, Managing Principal at Value Strategies LLC

Tell us about the work you do in the legal pricing space.

As the Head of Legal Operations at Uber, I had the idea of moving our work from hourly rates to value-based fee arrangements, and the General Counsel said, “Sure, let’s try it.”

In doing that, we saw a huge decrease in what we were spending at Uber. We eliminated invoice reviews for the attorneys – which was a big time suck for them – and it made the billing easier and saved us between 20-30% in spending on outside counsel.

After I left Uber, I took this with me and began to work with all sorts of companies to help them do the same thing by getting off hourly rates and moving to value-based fee arrangements.

Why is value-based billing the way to go?

It saves clients a significant amount of money by making firms more efficient. In the end, you are paying more for the deliverables, activities, tasks and results, and less for just how many hours were billed.

Hours don’t equal value and they don’t equal results. If you look at other professional services organisations out there, like accounting or management consulting, they stopped hourly rates decades ago. It’s really only lawyers that still charge by the hour.

Some attorneys can take five hours to do something while another attorney can take 10 hours to do the same thing. 

A lot of clients really don’t want to do that anymore – some of the New York and London rates are hitting $2,000 an hour. They just think, ‘Where does this end? At $5,000 an hour? Or $10,000 an hour?’

They already think it’s ridiculous and they want to find a different methodology to pay for the value that they get from the firms, and not have it based on the number of hours they spend. 

It’s necessary to look at it in the reverse too. Hours are not equal to value or results so I don’t focus on hours. Instead, I focus on tasks, deliverables, activities, and results, and tie pricing to those. 

Firms will eventually need to get away from billing based on hours and instead focus on the value delivered. If an attorney that bills at $800 per hour is able to save a client $15M in a 30 min phone call, what do they get paid? $400.

Are they really getting the value out of what they just did for their client? No. 

It works both ways. 

The other problem with law firms when they go by the hour is that there’s no incentive for the firm to be efficient. In fact, it incentivises them to be inefficient, because the more hours they bill, the more they get paid.

But the client doesn’t want them to do lots of hours – they want them to get the work done. So there’s a conflict between the client and the firm, and moving to value-based billing aligns incentives between the firm and the client.

You say clients just want the work done. How does legal technology and automation fit in with value-based billing?

There is an incentive for legal teams to be more efficient in the way they do things, so that they can show their clients that they are cutting edge.  Legaltech makes attorneys work more efficiently. They’re able to focus on giving legal advice, and give clients greater value.

If you are negotiating a contract that has a total risk of $5000, why would you spend $10K to negotiate it? Value-based pricing should be a fraction of the actual value of a matter. Using automation would certainly help in reducing the amount of touch time needed for low value matters.

Also, contract management is a real pain point for a lot of legal teams and they often have contracts all over the place. They don’t know what’s expired and it’s a mess. Trying to get that under control is a big job. But it’s something they have to do, and they can use legaltech tools to do it. 

In saying that, the interfaces have to be really intuitive, and simple. You can’t make it too complicated with attorneys or they’ll reject it. It’s hard for law firms to differentiate themselves from one another, so they look at technology as ways to gain competitive advantage over other firms. 

Also, besides needing a different structure to manage invoices on fixed fees and other non-hourly arrangements, you also need to track all proposals (e.g. litigation) for each matter and develop a benchmark value and price for each phase of litigation for a type of matter. This can only be done with tech. The whole matter evaluation process for each new matter could also benefit from a process automation tech.

Why does this matter to in-house counsel?

In-house teams deal with hourly billing from law firms. They get all the invoices that they have to review every month from all their firms with all the hours and all the descriptions, and look at all the minute details. They need to review these invoices and approve them in order for them to be paid.

That can take a lot of time, so if legal teams can move off of hourly rates onto some sort of flat fee, that will eliminate having them to review all those invoices.

Value-based billing frees up a lot of time for them to do legal work. In-house teams get a virtual headcount increase. If attorneys are spending 15% of the time reviewing and processing hourly-billed invoices, they can get that 15% back if it’s billed based on value. 

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