A recent Law 360 article by Chris Seezen, “5 Tips for Drafting Effective Legal Billing Guidelines” reports on tips for drafting effective legal billing guidelines. This article was posted with permission. The article reads:
Relationships with outside counsel have taken on increased scrutiny as companies become more focused on the administrative processes of their legal departments and the work they do. As a result, legal departments are looking more closely at the law firms they hire, what they pay those firms and the outcomes of the cases they've handled.
To properly manage outside counsel, it's imperative to implement and maintain effective legal billing guidelines. These rules serve as a working guide to determine expectations and processes, allowing a legal department to decide with their law firms what they will and won't pay for, to set processes for staffing cases and requesting rate increases, and to lay out how matters will be handled. This can include whether a company has a specific budget on a given matter and when it should be submitted, how budget revisions should be handled, or what to do when a matter goes over budget. It's all about setting the table with the necessary information before the work begins.
Drafting legal billing guidelines requires a legal department to actively assess its case management practices, evaluate its law firm relationships and monitor ongoing guideline compliance — all of which are beneficial to keep track of. While some vendors or partners might not need much beyond a simple contract — such as an IT team, for example — when working with a more complex and costly service such as a law firm, having legal billing guidelines in place is a wise step for the investment and relationship.
To draft effective and enforceable legal billing guidelines, legal departments should consider the following:
Include all pertinent information in an easy-to-read format.
Including a process for law firms to get authorization for new timekeepers or rate increases, or determining a specific person in the department these requests should be sent to are examples of the kind of information that should be ironed out before a new law firm relationship begins. Depending on the size of the firm, invoicing may be handled primarily by a billing department that doesn't have direct involvement in the matter, so providing all necessary details will improve compliance.
Additionally, most companies prefer to be billed monthly, but some may only want to be billed once services reach a certain amount and may request for the firm to hold the bill until the next pay cycle. This is another matter that should be determined before work rolls out. Although the latter option is a convenient way to cut down on administrative costs, monthly bills are still recommended as they keep information flow consistent and recent legal tasks top of mind.
Similar to other business documents, billing guidelines should be organized and presented in an easy-to-review format. This may include using bullet points and lists instead of long sentences or paragraphs. Additionally, similar items should be positioned together or organized in categories to keep the guidelines as straightforward as possible, such as travel bills/logistics, noncompensable administrative processes, etc.
Providing a brief overview that highlights the takeaways or expectations in bite-sized format, in addition to a more in-depth document, will also help to present the guidelines in a digestible way that supports compliance.
Identify the purpose of the guidelines.
Many legal departments use these guidelines to better control outside counsel costs. In this case, they should outline all areas considered noncompensable (such as office overhead, scheduling or review of local rules) or that will have a cap. The guidelines may also include protocol on matter management practices such as status update requirements or case staffing limitations. Including this information, as well as requirements for any possible exceptions, will inform outside counsel how to approach similar matters upfront.
Draft a living document and reevaluate the guidelines as needed.
Although important to determine at the outset of the relationship, billing guidelines for outside counsel should not be set in stone. While what's initially decided and drafted may seem appropriate, needs may change once set into practice and as time goes on. Some requirements may prove too burdensome on outside counsel while other areas may be too lenient. Additionally, there will always be that one matter that's the exception to the rule and the guidelines should cover those outlier cases. Implementing an annual review of the billing guidelines will allow general counsel to revise and incorporate new procedures that best fit the company's needs.
Failing to review the guidelines regularly can cause legal departments to miss accommodations such as new travel time billing (for a case in a city with heavy traffic, for example) or important regulatory changes that may surface. Therefore, even though a good rule of thumb is to review and update the general guidelines annually, the above situations and others like them should be updated in real time. It's important to maintain a process that supports the company's evolving requirements.
Additionally, many billing guidelines include hiring protocol to cover what kind of attorney a company wants working on their claims, who will be carrying out tasks that vary in complexity, and what the rate will be for each. When reviewing bills more closely to ensure they adhere to preexisting guidelines, companies are more likely to catch discrepancies in these agreements (such as an attorney billing time for work that a paralegal should be doing) and can call attention to the matter, lower their rate, or revise the guidelines to reflect the request.
Anticipate and prepare for resistance.
No one likes someone looking over their shoulder or second-guessing their work. Outside counsel provides a valuable service to legal departments and should be properly compensated for it. However, some law firms may be resistant to the implementation of billing guidelines, viewing them as intrusive or in place only to cut their bills. Billing guidelines are becoming standard practice for legal departments, and almost every law firm has a client with billing requirements. Informing outside counsel of the guideline implementation, as well as the purposes behind it, will help to alleviate any misunderstanding or animosity.
Stand by the guidelines.
The most important piece to consider when implementing billing guidelines is enforcement. Many legal departments have them in place, but don't have the internal resources to ensure outside counsel is complying. Failing to enforce the guidelines not only makes the time and effort to draft them a waste, but it can also undermine a company's position with its outside counsel. In a newer relationship, enforcing the guidelines sets an important precedence.
To ensure all expectations are fairly treated in the event of a billing discrepancy, companies can ask to adjust the current bill down or request a current or future discount. Referring to the guidelines will serve as leverage for this request. For law firms that continue to violate agreements, companies have every right to discontinue their work with them.
The purpose of this method is to more clearly show rates that are being paid for the work that's being done. Fostering a fair and transparent process is the ultimate goal.
Drafting, implementing and enforcing legal billing guidelines for outside counsel allows legal departments to be stewards of their company resources while maintaining control over case management. For cost savings, streamlined administrative processes and deeper insight into their billing procedures, companies must invest the adequate time and effort into their initial and evolving guidelines — the foundation of a productive relationship with outside counsel.