The recent DLA Piper overbilling scandal highlights the invitation to abuse that hourly billing represents. As usual, it was emails exhorting people to bill bogus hours that let the cat out of the bag: "I hear we are already 200K over our estimate — that's Team DLA Piper!" and “churn that bill, baby.”
I bill almost all my clients hourly, so how do I justify that? Why not switch to flat-fee billing? There is definitely a case to be made for this in basic situations: the client is happy with a standard configuration, no special security groups, ethical walls, multiple profile groups, and so on.
For larger clients, where you have had the opportunity to track their needs over six months or so, you can estimate with reasonable accuracy how many hours a month they are going to need and provide a monthly flat fee for standard work (not counting new projects). Alternatively, some consultants offer pre-paid “packages” at a discount. So if you buy 50 hours up front, you get (say) a 10% discount.
Here is where the issue gets complicated. A number of years ago I was renovating an old house in Cambridge by tearing out a wall and combining two small rooms. I got the walls torn out and went to put in new flooring, etc. Whoops!! The old 2x4's where actually 2" by 4", not the current “nominal” 2x4's which are actually 1 ½" x 3 ½". So nothing fit right and everything had to be custom cut. In addition, the walls had side braces in them so that you could not run electrical wire through the walls between the studs without entirely tearing out the lathing (real plaster and lathing, not sheetrock). Needless to say, the project had suddenly become vastly more complicated.
Analogous issues can come up: the client wants many too many profile groups (I once turned down a job to rationalize a system where the client was starting with 40 profile groups – no thanks). Or they want a structure that is unnecessary and will only lead to problems later on (thus necessitating lengthy and frustrating discussions about why that is the case). Or they have highly complex security needs. Or their legacy documents are spread all over their system, including in local “My Documents” folders. All this sort of thing can make an installation spiral out of control. And they there are the things that “pop up”and were never part of the original projection: “as long as we are doing this, can’t you just also...?”
As I have
recently noted, flat-fee billing is about shifting the risk that billable hours will escalate for some reason from the client to the consultant. Other than that, the issue is about trust. If you trust a client/consultant then there should not be any issues about hourly billing. So out of curiosity, I looked at my 10 most recent Worldox installations. There was only one installation that ran substantially over the maximum estimate (150%). The other nine averaged 80% of my maximum estimate and 99% of my minimum estimate.
So the conclusion is that if I simply gave clients a flat fee rate equal to my maximum estimate I would be increasing my income by 20% or so and my clients would be paying a corresponding 20% penalty.
For now, unless clients request a flat fee quote, I’ll still with hourly billing.