A recent Corporate Counsel article by Ryan Loro, “10 Ways That Outside Counsel Disguise Overbilling,” reports on overbilling from outside counsel. This article was posted with permission. The article reads:
Legal invoices can be overwhelming and nearly impossible to understand. The task of sifting through line after line of attorney time entries from outside counsel is time consuming, and more times than not, in-house legal and accounting teams may miss billing errors. Despite the complexity of legal invoices, there are ways to spot overbilling if you know what you are looking for.
According to recent industry research, large companies with big legal departments go over budget by about 37% every single year. Why do they go over budget? A big reason is overbilling from the outside law firms they hire to do work for them.
It’s become such an issue that entire companies have been formed to help businesses analyze and help organizations manage their legal spend. That’s right, lawyers sometimes pad their billable time—and there is now a growing industry to ensure that businesses pay a fair amount for their legal services.
Here are the top 10 ways law firms can hide overbilling:
Block Billing. Block billing is when a lawyer enters multiple tasks under one time period, without separating the time each task took. Here is an example from an actual time entry reviewed by SIB Legal Bill Review:
7.6 Hours: Telephone call with client regarding assignment of rents; review lease agreement of [company]; draft agreement; emails with opposing counsel; revise agreement accordingly.
Block billing obscures the value to the client and the reasonableness of the charges for a given task. If you don’t know how long it took to draft the contract (because drafting the contract is one of five tasks within a 7.6-hour block of time), you can’t tell if the charge for drafting the contract is reasonable. One study by the California Bar Association concluded that block billing increases the time charged by an average of 23%.
Intra-Office Communications. Intra-office communications is when multiple attorneys within the same firm discuss the client’s matter with each other or seek advice from a colleague about a legal issue. One of the major selling points for larger law firms is that they have a breadth of knowledge in specialized subjects. But when a lawyer seeks a colleague’s advice, the client should not have to pay for one attorney to educate another—just have the specialist handle that part of the matter.
Higher-Rate Staff Used Inappropriately. Sometimes lawyers will do work that is more appropriate for a lower-rate attorney or a paralegal. For example, if a partner’s rate is $900/hour and they perform a task that, more than likely is work that a second-year associate attorney who’s rate is $300/hour should be doing, the client will be paying an additional $600 per hour.
Excessive Time. This is the most common complaint of clients, yet has historically been the easiest for law firms to justify. Many clients have a “feeling” that a certain task took too long, but cannot explain why. SIB Legal Bill Review explains in detail the reasons a law firm should reconsider specific charges on an invoice. Here is an example:
The law firm charged 5.1 hours for work on a confidentiality agreement where opposing counsel had already provided a comprehensive draft agreement for comment and markup. This time is excessive. We propose the charge be revised to a total of 2.5 hours: 2.0 for analysis and markup of the draft agreement, and 0.5 for negotiation of points with opposing counsel.
Junior Lawyer Training. Law firms have been known to charge clients for a junior lawyer’s on-the-job training. We believe that the law firm carries the financial responsibility for training its lawyers; it is for the law firm’s long-term benefit. On an invoice we reviewed, one law firm actually charged $1,084 to the client for a junior lawyer’s time to “investigate how to file an appeal.” Of course, there is a point in the junior lawyer’s career when they need to learn how to file an appeal, but the client should not have been asked to pay for that training.
Inadequate Description. When a lawyer does not adequately describe his activity, there is no way for the client to determine if that activity added value for the client or if the charges for that activity are reasonable. Attorneys are paid to be precise in their language. It is not unreasonable to require lawyers to accurately describe how they spent their time and the client’s money. More problematic, inadequately described time can be camouflaging the fact that the attorney invented the time entry to fill his time card or increase the bill. Here is an example of a real time entry:
Attention to licensing files and review of licenses and leases; attention to pro-forma license transfer structure; additional review of proposed structure; attention to fees and timing relevant to pro-forma and non-pro forma assignment; address related licensing matter.
At first glance, it appears that this associate has done a lot of work for the client. But notice that the task descriptions are all nebulous: “attention to … ; analysis of … ;” and so on. In this particular time entry, no actual work product was produced. The client has no way of knowing what value was delivered because of this inadequate description.
Over-staffing a Given Task. Many times, a law firm will over-staff a task, using three attorneys for something that should have only taken one. More often than not, the time for all three attorneys is billed to the client. Defending a deposition and arguing a discovery motion are usually one-lawyer tasks and should be billed as such.
Duplicative Work. Duplicative work is an issue that occurs when one attorney will charge for the same task in more than one billing period, or two attorneys will charge for the same task in the same billing period. Here is our response to an instance of duplicative work:
Junior lawyer charged 25.1 hours ($6,149.50) to draft motion for summary judgment. Senior lawyer charged 14.6 hours ($4,844) to draft the same motion at a later date.
In this particular case, the client did not receive 39.7 hours of work. If the law firm decided to push a motion for summary judgment draft onto a junior lawyer, only to have it rewritten by a senior lawyer, this is not the responsibility of the client.
In fact, according to a study conducted by Samford University Law School in 2007, 48.2% of lawyers believed double billing was ethical, which was up nearly 13% from 10 years prior. It would not be surprising to learn that 12 years removed from the study that the percentage of lawyers who believe double billing is ethical and acceptable has exceeded the 50% mark.
Administrative Tasks. Sometimes law firms will charge attorney or paralegal rates for tasks that could and should be done by administrative staff. The client should not pay $300 an hour for filing a court document. That type of task should be done by a legal secretary at no charge, as part of the firm’s overhead costs.
Discrepancies Between Time Entries. A simple mistake that happens more often than you would think is when two lawyers attend the same meeting but charge different amounts of time for doing so. Another example in discrepancies between time entries occurs when one lawyer charges for an in-office task when another time entry shows she was not in the office that day. The variations of discrepant time entries are many, but the conclusion is singular: one of the time entries is probably inaccurate.
Analyzing the line item charges on legal bills is no small task. The analysis itself is 60% experience in legal practice, 30% psychology, and 10% mechanics and mathematics. Unfortunately for many businesses, computers can only assist in the last and smallest category. Then, when the analysis is done, someone has to negotiate with the billing attorney to convince him that certain charges are unreasonable and should be removed from the bill.
All of this is a daunting task. There is hope for businesses who fear they are being overcharged. Even if you don’t have the resources inside your organization, these functions can be outsourced. Legal bill review services help to increase efficiency and take the burden away from in-house teams and businesses so that they can focus on their work. Finding a legal bill review service that analyzes every line item of all of your invoice every single month is an important and efficient way to help reduce your organization’s legal spend with outside counsel.
Ryan Loro is the president of SIB Legal Bill Review.