A penny billed is a penny earned?

In the December 31st posting to the blog “Above the Law”, Elie Mystal writes about how Hughes Hubbard (a Mattern Client) has just implemented a new policy as of January 1stthat implements a 5% pay cut for the first time an Attorney is late entering their time. This increases to 10% for the next instance and 20% for the third time. Lateness  is defined as more than five (5) days of time prior to any pay date. The reduced salary will continue in effect until the timekeeper is no longer five (5) days in arrears.  There is also no retroactive payment for the salary reductions. Hughes Hubbard is not the only firm attacking this problem, Simpson Thatcher and Akin Gump are also taking steps along the same lines?

Is this harshness necessary? According to an Adam Smith and Smart Webparts survey in May of 2010, the average Attorney underbills anywhere from $20,000 to $40,000 annually. So a firm with 100 Attorneys this underbilled amount could equate to $2,000,000 to $4,000,000 dollars per year. In our 2010 Cost Recovery Survey, one of the most astonishing bits of data that came out was the amount of internal write-offs (amounts deducted from the bill by the billing Attorney) . For example, in the case of black and white copies alone, for a 100 Attorney firm the amount that does not even make it to the invoice ranges from $195,000 to $477,000 per year. Keep in mind this amount does not factor in what the clients are not paying. Granted this is not in the same neighborhood as $2 to $4 million dollars but it is still a chunk of change. In addition this is only black & white copies, if we added in color copies, prints, scans, etc. this amount would easily exceed $1 million dollars. Again in my world, quite a chunk of change.

Is it good that Firms are addressing this issue and taking such drastic steps to do so? Is the stick better than the carrot? Should the same steps be taken to address the internal write –offs of soft costs?