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Category: E-Billing / Matter Management

Law Firm Billing Tips For Good Client Relations

December 1, 2020

A recent Law 360 story by Aebra Coe, “Law Firm Billing Tips For Avoiding An Irate Client,” reports that a recent lawsuit filed against K&L Gates LLP by a client unhappy with a legal bill highlights some common pitfalls that law firms face when it comes to billing practices, but there are ways to avoid a similar situation, experts say.  The lawsuit against K&L Gates, which was filed in August by Chicora Life Center LC, accuses the firm of using several tactics to increase its bill for representing the bankrupt medical center in a Chapter 11 proceeding over a lease termination dispute.

Some of the alleged billing practices are not entirely uncommon among law firms, according to two experts who declined to comment directly on the lawsuit but provided their thoughts on client billing more generally.  The alleged practices include "block billing," where a lawyer "blocks" together a number of tasks over a set amount of hours; "hoarding," when an overqualified lawyer with a high billing rate retains work rather than passing it on to someone with a lower billing rate; and "multibilling," which occurs when multiple attorneys are tasked with performing the same work.

"All of those things mentioned have been going on for years and years.  This is not at all new," said James Wilbur, an expert on law firm billing at consulting firm Altman Weil Inc.  Regardless of how the K&L Gates suit shakes out in court, other law firms are likely looking for ways to avoid being in a similar position.  While such situations are not entirely preventable because clients can sometimes file bad-faith suits, there are steps firms can take to ensure clients are as happy as possible with a bill at the conclusion of a matter, Wilbur said.

He suggested firms rely on three things to accomplish this: technology, training and collaboration.  E-billing software can often catch double billing and block billing, he said, as well as phrases that might irk a client, like "reviewed phone notes," that may not indicate that the time spent added any value to the matter.

And that leads to training, which should be conducted at all levels on a regular basis so that any attorney or paralegal who puts together a bill is aware of best practices and is skilled in conveying the value brought to the client via the time the individual spent working, he said.  Senior attorneys billing for work that could be done by someone more junior is another beast, Wilbur said, and one that law firm management must work to dissuade by encouraging collaboration and the sharing of work.

Clients have many different rules when it comes to fees, but "no surprises" is a big one, said Toby Brown, chief practice management officer at Perkins Coie LLP.  "The bottom-line answer is more transparency.  And more real-time updates about what's going on," Brown said.  "The lawyers are uncomfortable talking about these things, and so they don't talk about them head-on."

He said lawyers and clients can often get wrapped up in the legal issues at hand, with fee issues taking a back seat.  For example, if the volume of discovery in a major case increases substantially, a conversation on cost might not always occur, but it should, he said.  Real-time sharing of information on the cost of a matter is vital, Brown said.  He said his firm has worked to incorporate the help of its project management team to flag when the scope of a matter has changed so that the attorney on the matter is aware a conversation is needed.

The firm has also implemented technology that goes beyond basic e-billing software to allow attorneys to better monitor their budget on a matter, he said.  Ultimately, according to Wilbur, having a strong relationship with a client to begin with will go a long way.

"Even in a firm that's highly ethical and has training around these issues, mistakes are going to happen. Something is going to creep through," he said.  "The first thing is you have to have a good enough relationship with the client so they know they can text or email you, pick up the phone and point out a problem in the bill, and you will deal with it without arguing."

When contacted by Law360 for comment about its case, K&L Gates described Chicora's claims as "a transparent attempt to re-litigate issues that were raised and rejected years ago through final orders in a concluded bankruptcy."  A third-party fee examiner, it said, expressly found that the fees requested by the firm were reasonable and should be recoverable, and then the bankruptcy court adopted that determination.  "We are confident the present claims also will be rejected," the firm said.

Article: Five Cost-Cutting Strategies for Corporate Legal Departments

October 22, 2020

A recent Law.com article by Nathan Wenzel of SimpleLegal Inc., “5 Cost-Cutting Strategies For Corporate Legal Department,” reports on legal cost measures for corporate legal departments.  This article was posted with permission.  The article reads:

Corporate legal departments have long been focused on reducing legal spending.  The emphasis on cost-cutting has only increased in 2020 as the economic uncertainties of the pandemic have caused companies to scrutinize expenses across the board.

According to a recent report from the Corporate Legal Operations Consortium, 61 cents of every dollar spent on legal costs in 2020 goes to external legal costs — a 15-cent increase from 2018.  This uptick, combined with the year's novel challenges, has many legal departments looking for new ways to control legal expenses beyond reviewing line items, which has proven to be ineffective for many companies.

While there's been a lot of chatter in the industry about the need to switch to fixed fees or alternative fee arrangements to reduce costs, these shifts have been slow to take hold.  They're also difficult to measure if we retain a focus on the billable hour.

When clients ask firms for fixed fees but also request the hours worked so they "know that the fixed fee was the right price," then we haven't really made the change to fixed fees.  It is a difficult transition and one that will take time.  We should always push toward better alignment of price and value, but we need to balance near-term realities with long-term goals.

In the near term, we need to control costs — even if that only means focusing on hourly rates.  In the long term, we need to align the work to the right types of providers at the right price, where price has very little connection to hourly rates.  No one wants to buy time.  We want outcomes, not hours.

To solve for both the short-term and long-term goals, we start with data.  Analyzing and reducing your legal spending start with asking yourself the following questions:

What am I spending now, on what and with which providers?
How does my current spending compare to past spending?
How am I allocating my legal work?
What metrics am I using to measure cost control?
Are there other cost considerations I'm overlooking?

1.  Understand where you are now.

The first step of implementing a change is to understand the current state. Reducing legal spending first requires knowing where you are right now.  This means not only keeping up with the total dollar figure of your spending, but how much you're spending in each practice area and with which law firms or providers.

Don't forget to also investigate the work you currently perform in-house.  With an understanding of outside legal spend and in-house legal work, you will have the current picture of how you allocate the demand for legal services from the business to the supply of legal services you have available.  With this deeper insight, you'll start to see where you can actually have an impact on spending.

Without this data, you risk investing time into an area that looks compelling but won't create real savings.  For example, reducing money spent on compliance may seem like a good idea because the partners at your primary firm have very high billing rates.  But if only 5% of your annual spending goes toward compliance work or if the primary compliance firm effectively leverages associates and paralegals, your efforts won't translate into real savings for the business.

When you track data and analyze legal spending details from your e-billing system, you'll be better equipped to start a real conversation about reductions.  You can identify the practice areas and firms where your efforts will create real returns.

2.  Compare now to where you used to be.

Your business is not static.  It's important to understand where you are today, but it is even more important to understand how things change over time. After you determine where you're spending your money today, you need to compare those numbers to what you were doing last year or the last time you negotiated rates and pricing.

You may have a reliable history of sending work to a single attorney or team at a firm. You may have increased the amount of work sent to a particular firm or in a particular practice area.  If you used to send $2 million worth of business to a firm and now spend $5 million with that firm, that's a powerful position for starting rate and price negotiations.

Additionally, if your team uses multiple firms for similar work, you may benefit from consolidating that work with fewer preferred firms.  Larger companies may go through a formal panel selection process annually or every few years.  A preferred panel is a great tool to provide the best legal services to the business at the best price if you have the team and time to implement this type of program.  But you can still achieve the benefits of allocating work to fewer firms without a full preferred panel program.

You don't always know what the demand for legal services will be from year to year.  But if your data shows that you have a history of allocating work among several firms, ask those firms what they would be willing to do to earn a greater share of that work.

3. Understand how you're allocating work.

After you have an understanding of the dollar value of your legal spending, you need to know how you're allocating different types of work, to whom and why. How you're assigning your legal work certainly depends on finding the provider with the right expertise but should be equally dependent on its business impact and complexity.

Your high-impact, high-complexity work probably belongs with the more expensive firms.  An example of a high-impact matter could be a large litigation that threatens the balance sheet of the company.  Or it might be a patent for the core technology driving your business.  In either case, you might choose to work with the very best money can buy.

Every year the legal press makes a big deal about high billable rates for eye-catching headlines.  But for your highest-impact and highest-complexity work, those firms and lawyers are probably a bargain at twice the price.  You're buying outcomes, not hours.

Too many companies simply send the rest of their work along with their high-impact work without stopping to see if smaller matters would be better handled by a lower-cost provider.  There are a variety of suppliers beyond the Am Law 100, such as specialty firms, alternative legal service providers, nonlegal consultants and your in-house team.

Your low-impact, low-complexity work probably doesn't need to go to the premier firms.  Specialty firms, alternative legal service providers, consultants and solo practitioners may not have massive staff and unlimited support resources, but they can still provide high-quality work at a fraction of the price.

You may also have high-impact but routine work where speed and a deep understanding of business issues are important.  The most common example here is commercial contracts.

For customer contracts, any delay in reviewing costs the company revenue. An extensive back-and-forth over mundane legal minutiae could cause your company to miss a quarter's revenue target.  In-house teams will have a better understanding of business priorities and can better deliver the right kind of legal work with speed at the right price.

When you satisfy your demand with the right mix of supply, the potential for savings is much greater than through rate discounts alone.  Allocating work based on impact and complexity provides far greater cost savings than a 10% rate reduction when the right provider is already half the price.

4. Use the right metrics.

You can't manage what you can't measure.  You get what you incentivize.  These two classic business statements tell us that we need to measure savings with the right metrics.

How are you measuring cost savings today?  Is it through average hourly rates?  Adjustments to bills based on guidelines?  If you measure discounts on rates to determine savings, you're going to focus on high hourly rate firms that discount their hour rates.  But is that really saving your company any money?

Achieving savings by reallocating work rather than by negotiating rate discounts definitely makes sense.  But with the wrong metrics it is harder for the C-suite to understand what you've accomplished.  If you measure and report savings only as the discount on standard rates, the reallocation effort appears to have achieved nothing.  In fact, if the work was moved in-house or to a provider with a lower but not discounted rate, it may appear that you have lost savings because you won't have a discount to report.

In fact, with the wrong metrics, if you were to implement a routing tool for automated nondisclosure agreement review, it might appear to be a driver of cost even if it created hard dollar savings from external counsel and soft dollar savings — i.e., efficiencies — from allowing in-house counsel to spend time on high-impact, high-complexity work.  With the right metrics, you can show the true return on these investments.

To demonstrate the full value of the savings and quality initiatives, you might need to use new metrics.  I am certainly not advocating for cherry-picking data or choosing vanity metrics.  To the contrary, the right metrics will actually make more sense to the business, the CEO and the board.

Legal expense as a percentage of revenue has been promoted in Association of Corporate Counsel benchmarking studies and Altman Weil Inc. surveys. It is well understood and trusted by chief financial officers and CEOs.

Whichever metrics are used to measure legal cost controls, just remember that you get what you incentivize.  If you're going to achieve cost savings, you need to use the right metrics to incentivize your team and showcase results.

5. Monitor compliance with your billing guidelines, consider automation of certain legal tasks and standardize workflows.

The preceding four steps are the critical actions that build on each other to significantly trim legal spending.  It's a journey.  You don't need to take all the steps all at once to achieve results.  Alongside those major considerations, there are a couple other things to keep in mind to run alongside those longer-term initiatives.

The first is billing guidelines.  Your billing guidelines let your firms know what it means to be a good legal partner to your department and a good business partner to your company.

Guidelines often devolve into rules about copy charges and not billing excessively for underqualified people — things your firms probably already do on their own to better serve their clients.  You should always be monitoring compliance with your billing guidelines and enforcing timekeeper rates, but it is important to remember that ensuring that your firms only bill for work in accordance with your guidelines isn't actual savings — it only prevents overcharging.

Another way to reduce legal costs and improve response time is to automate low-complexity, low-impact legal tasks and standardize workflows.  Automation of basic document review by artificially intelligent contract review tools can be a big time and money saver.  As an example, nondisclosure agreements are high-volume but typically low-impact documents that can be reviewed with the help of AI-enabled tools.

In addition to automation, standardized playbooks designed by the legal team to give other departments a checklist of items to review can also help improve turnaround time and reduce costs.  For example, a sourcing manager in a procurement department could be given a checklist of five or six specific business and legal terms to review before sending to the legal team.

Automation and standardization improve speed of delivery and reduce cost of delivery for the business.

The Path to Lower Legal Spending

It's time to shift the perspective on cost reduction beyond hourly rates and copy charges.  As legal departments, you need to look at where you are now, how that compares to the past, how you're allocating your work and whether you're using the right legal spending metrics to achieve real savings.  These steps with effective legal billing guidelines, automation and standardization provide the foundation to match your company's demand for legal services to the right legal service providers to trim your spending while improving delivery.

Nathan Wenzel is co-founder at SimpleLegal Inc.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Technology Alone is Not the Answer to Outside Fee Guidelines

February 14, 2020

A recent American Lawyer story by Dan Packel, “‘Technology Alone Is Not the Answer’ Wilmer Revisits Outside Counsel Guidelines,” reports that the number of outside counsel guidelines that attorneys and administrators at Wilmer Cutler Pickering Hale and Dorr have to juggle is striking.  In total, the firm is sitting on approximately 1,000 documents, after receiving, in 2019 alone, roughly 260 new retainer agreements or updates to existing guidelines that stipulate what clients expect from the attorneys they are hiring. 

Wilmer isn’t the only law firm dealing with heightened standards from corporate clients about what they’ll pay for and what they won’t.  A recent study from timekeeping technology company Bellefield and the Association of Legal Administrators estimated the cost of compliance with these guidelines at nearly $4 million annually for some firms.  “There are a lot of process failures out there,” said Kyle Liepelt, who was named Wilmer’s first dedicated outside counsel guidelines administrator in February 2018.  “Technology alone is not the answer.”

When Wilmer began the process of reevaluating how it dealt with these guidelines in 2017, leaders found that—unlike the majority of the firms responding to the Bellefield and ALA survey—it was over-complying with guidelines.  Instead of losing money through rejected bills, convoluted appeals and write-downs, attorneys were being overly cautious in their billing.

“We couldn’t arm our partners to the nuances of these client differences,” said Steve Smith, the firm’s director of matter management services, describing a problem of “excessive diligence.”  “That impact, both in time and money, to communicate the complexity around outside counsel guidelines, that’s time that we should have been spending adding real value to our clients,” he continued. 

Following an initial workshop, one of Wilmer’s first steps was to create the centralized administrator position held by Liepelt, who spent the previous five years as a conflicts specialist in the firm’s new business department.  Each set of new guidelines goes directly to him, and he’s responsible for reviewing their terms, looping in the relationship partner and the billing partners on a given matter.

Room For Negotiations

These conversations aren’t just to circulate the substance of what clients are demanding.  Wilmer is not afraid to push back on terms that the firm would prefer not to agree to.  Liepelt said that his conversations within the industry showed that’s not always the case elsewhere.  “A lot of firms often receive them and that’s it, there’s no real discussion about them.  They may post them, so people can see them, but there’s no discussion on substance,” he said. 

According to the Bellefield and ALA survey, 23% of firms make no effort to share guidelines with attorneys, while 24% simply post them on the firm’s intranet.  While 52% share guidelines via email, the survey did not capture whether this is the prelude to a wider discussion, let alone to a response to the client.  But Liepelt said that the reaction is generally positive. At the very least, clients appreciate that the firm is carefully considering the guidelines.

“When it comes to the recommendations that we give, it’s a mixed bag.  Some say, ‘This is what it is, and we want you to follow it,’” he said “Other times there’s a negotiation back and forth and we arrive somewhere in the middle.”  Liepelt will often handle these conversations with the client, particularly if the attorneys don’t want to get involved.  “Discussion can be a burden on attorneys,” he said.  “I try to relieve them of any potential conflict.”

Into The Database

If these conversations illustrate the human side of the process, the technical side takes the forefront once any negotiations are finished.  The Wilmer team looked to a database to help solve the problem of scale, teaming with a vendor that had its own outside counsel guidelines solution and using the underlying workflow and source code to built their own unique design.  Each client’s guidelines are broken down into a data record with component terms highlighted, and attorneys and staff can search for terms and easily access the source documents.

Smith gave the example of different clients specifying what personnel can and can’t be used.  Some bar paralegals, others rule out first-year associates, still others place caps on each category for a given matter.  “We can surface those,” he said.  “We have a standardized process to review them very quickly.”

When updated versions of guidelines roll in, Liepelt can turn to the database to identify what’s changed, then rapidly point out the differences to the partners involved.  When looking at intranet profiles for the firm’s attorneys, he and others can follow links to see what outside counsel guidelines apply to each matter they’re working on, guiding conversations about matter efficiency.  And, in the unlikely event of a data breach, the firm can quickly pull up the list of clients that need to be notified within 24 hours.

A Bellwether for the Relationship

One year into the new system, the feedback, from both inside and outside the firm, has been overwhelmingly positive, according to Smith and Liepelt.  Partners appreciate having an internal point person to whom they can direct their inquiries and concerns, while staff have the information at their disposal to do pre-bill auditing.  Turnaround time with clients has decreased by 25%.

“The delays are less on our side and more on their side,” Leipelt said. “We’re much more responsive than we were, and that leads to better relationships.”  Beyond that, the new system offers a selling point when it comes to marketing the firm.  “There’s not an RFP that we see these days that doesn’t specifically ask us what are the firm’s capabilities in innovation and improving processes,” Smith said. “How we handle outside counsel guidelines is a bellwether for our stewardship of their financial resources.”

Why Law Firms Struggle with Outside Counsel Guidelines

December 4, 2019

A recent the American Lawyer article by Dan Packel, “Why Firms Struggle With Outside Counsel Guidelines – and Pay the Price,” reports on a new survey that draws a straight line between lower realization rates and law firms’ failure to communicate the substance of outside counsel guidelines to billing attorneys.  The article reads:

Law firms are struggling to comply with clients’ outside counsel guidelines, leading to slower rates of realization and increasing write-offs, according to a recent report from timekeeping technology company Bellefield and the Association of Legal Administrators.  In the groups’ inaugural survey of respondents from nearly 200 law firms, they found that firms’ failure to communicate the substance of these guidelines to the attorneys who actually bill leads to invoices that are rejected or reduced.

“They’ve got to make that business case to attorneys,” said Patricia Nagy, a director at Proxy PR who helped write the report.  “Attorneys are being overwhelmed with new tasks, in terms of compliance and information governance, but this one hits directly and immediately to their pocketbooks if they don’t comply.”

While corporate legal departments have been probing the consequences of these outside counsel guidelines for several years, this is the first effort to gauge their impact on law firms.  The survey received participation from 198 firms, over 20% of which have over 300 attorneys.  Almost 35% had between 51 and 299 attorneys, and nearly 30% had between 10 and 50.

Nagy said that she was surprised to discover that nearly one-quarter of firms surveyed made no effort at all to communicate these guidelines to billing attorneys.  Over 52% of firms share these guidelines with attorneys via email, and 24% simply post them on the firm’s intranet, with the hopes that lawyers look at them.  “We weren’t surprised there were a lot of process failures,” Nagy said.  “What was surprising was the degree of the failures, and that a lot of them were using ‘hope’ strategies.”  Indeed, even among the firms that communicate these guidelines to billing attorneys, 82% do not require acknowledgment of receipt, and attorneys are only monitored to ensure they are following guidelines 55% of the time.

As a consequence, when navigating clients’ e-billing systems, firms are finding that an increasing number of invoices are being rejected, even as firms have managed to keep rates robust.  The ALA and Bellefield survey shows that 70% of firms believe that e-billing has not improved billing and collections, with billing and collection cycles expanding, for the most part by 30 days, according to 41% of respondents, or 60 days, per 29%.

Rejections are also a growing problem. Nearly half the firms surveyed experience 5% to 10% of their e-bills rejected or reduced.  And 15% do not appeal rejections, either because of inadequate staffing or because they treat them as a cost of doing business.  Nagy noted that as clients increasingly use metrics to evaluate outside counsel, firms that make less friction during the invoicing process are more likely to receive repeat business.

Asked how they would like to improve the process, nearly 60% of respondents asked for more visibility into what corporate law departments actually want.  This tracks with a conclusion that these guidelines have actually made it harder for firms to communicate with clients, a sentiment shared with 40% of respondents, compared to 11% who point to improved communications.  And 45% of respondents hoped for a technological solution that would help them make sense of these guidelines.  With different guidelines coming in from each client, automation becomes a particularly challenging task.