Billable hours are not just a matter of revenue to me. They are a matter of ethics. There are too many horror stories out there of professionals over-billing clients for their services and padding their pockets with extra cash. Often, people are very attuned to this possibility in the legal community. According to an article on hg.org: “two-thirds of lawyers admit that “bill padding” occurs at their firms, one-third of lawyers openly double-bill clients, and more than half of all lawyers perform work not because the client or case demands it, but because the lawyer needs to bill more hours.” This is scary, and it is the type of thing that makes people distrust people in professional services industries.
Not Just Lawyers
Overbilling is not unique to legal practices. A quick Internet search on the topic reveals cases in consulting, accounting, and home improvement contractors, to name a few. In any case, where people are being paid based on billable hours, there is always a risk. In a particularly high-profile example, IT services company Infosys was involved in an overbilling case with Apple. Internal audits revealed that Apple received inflated invoices for several months. Though the total amount of the overbilling was apparently not large, the case demonstrates that any company is susceptible to falling into the overbilling trap.
Overbilling Practices to Watch Out For
There are several ways that clients can be overbilled by a contractor. Here are 5 things to watch out for when working in a billable hours situation.
Churning: One way that hours get inflated is that unnecessary activities are performed for the client to run up the bill.
Template Recycling: This is prevalent in custom software development. The contractor uses a base template for a project, but bills you as if they created everything from scratch.
Expert Mode: Clients get billed as if the principal or partner is working on the project when in reality it is an assistant or other person who is paid a much lower rate.
Expense Accounts: Clients can be rung up for copying, long-distance phone calls, shipping fees, etc. Billing expenses is fine. That said, expenses should not be a profit center. It is the digital age, these charges are cheap now, and the client should not pay crazy rates for them.
Double Billing: Very hard to detect, but it happens. A contractor bills two different clients for the same hour of work. Sometimes, a piece of software, maybe a patch, applies to multiple customers. However, billing multiple customers the full rate for it is just morally wrong.
How Atlas Precision Manages Billable Time
I hate keeping up with time. I have always found it to be a painful process to manage. When I started consulting, I knew this would be an issue. We integrated time tracking into our ERP system, Prophet 21, to be able to provide a description and time spent for each time entry.
It is very easy for us to run a report with a down-to-the-minute accounting of time spent on a project and what percent of completion we are at, if it was a quoted project. I am happy to provide these details at any point.
The Last Word…
I think that it is best to be transparent about pricing and try to take the variable cost out of the equation if possible. The consultant and the client must have a relationship built on trust. Playing games with hours is at best unethical, and is the quickest way to erode trust with the client.