Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Legal Spend

Study: Speed Paying Legal Bills Matters Most to Law Firms During Pandemic

June 25, 2020

A recent Law 360 story by Aebra Coe, “Clients’ Speed Paying Bills Could Make or Break Law Firms” reports that a report out shows law firms have fared "surprisingly well" financially during the coronavirus pandemic so far, but experts say there is still a danger that some firms could run out of cash because of difficulty collecting payments from struggling clients.

Most law firms do not have deep cash reserves and rely on monthly collections from client payments to continue operating.  With the possibility those payments could dry up due to clients' lack of ability or willingness to pay, liquidity is a major concern for some law firms right now, according to Michael Blanchard, managing director of the Law Firm Advisory Team at Aon.  "A lot of firms now are starting to realize that productivity may not be the issue but that liquidity from clients paying in a timely fashion is a bigger challenge to a lot of firms," Blanchard said.

According to the report released by Wells Fargo Private Bank Legal Specialty Group, "the legal industry has fared surprisingly well" so far financially during the coronavirus pandemic when compared to other industries, with demand for the surveyed law firms' services down just 1.4% from the start of the year through June 1 compared to the same five-month period last year.

But that modest decline in demand is skewed by a very strong start to the year, with steep declines in demand in April and May, according to Joe Mendola, senior director of sales for the bank's legal specialty group.  That could result in corresponding declines in the payments law firms receive from clients over the next three to four months since there is a lag between when firms perform work and when they are paid, he said.  Demand appears to have "bottomed out" in May, which would likely translate to the largest dip in cash in hand from payments by around August, Mendola said.

In addition to the problem of fewer bills owed in the second half of the year because of declines in demand during April and May, law firms could also face trouble collecting in a timely fashion and being paid in full as clients themselves struggle financially and seek steep discounts, which could lead to cash-flow difficulties for law firms.  "Certainly, through the first five months of 2020, the legal industry has fared better than most industries. But I think the more challenging months will be ahead of us," Mendola said.

The Wells Fargo survey found that while demand was down during the first five months of the year, the amount of money in the pipeline owed to firms, called inventory, was actually up by 7%, suggesting that collections are lagging, Mendola said.  Additionally, 54% of the firms surveyed said client requests for discounts increased in May over the previous month, and 52% said they saw more payment extension requests from clients in May.

"I think the key to 2020's final results [for law firm financials] will be how collections play out," Mendola said.  While firms have taken a hit and likely will continue to when it comes to collecting bills, the damage has not been as substantial as the industry first predicted, according to Gretta Rusanow, managing director at Citi Private Bank's Law Firm Group.

Surveys her bank conducted found that at the start of April, firms anticipated that they would see a 15% drop in demand, a 15% drop in revenue and an 11% lengthening in the collections cycle.  But the actual numbers for April and May, according to Rusanow, ended up showing an average decline in demand of 6.2%, a decline in revenue of 1.3% and a slowdown in collection times of 3.4%.

"The bottom line is: Going into this there was very much a concern that not only would activity levels drop, but it would be hard to collect from clients, and in fact what's happened is it hasn't been as bad as anticipated at the industry level," Rusanow said.  But Rusanow and Mendola both noted that there was significant dispersion in the industry during the first few months of the year, with some firms performing well and others performing poorly, all of which is wrapped up in those averages.

Actions that firms have taken during this time — likely as a result of fear of major drops in revenue and demand — have made a big impact on preserving their financial health, the experts said.  "Probably the thing resounding across the industry in the past few months has been a very much disciplined approach around billing and collections," Rusanow said.

That means firms have buckled down on attorneys getting their time tracked and bills promptly sent out to clients, and many are having conversations with clients about their ability to pay, she said.  Some firms have drawn on their lines of credit for cash flow, according to Mendola.

In addition, GLC Business Services CEO Michael Hayes said that smaller firms have been able to rely on the federal government's Paycheck Protection Program for loans that are either forgivable or are to be paid back at a very low interest rate.  "The Paycheck Protection Program has added liquidity to small firms and their clients," Hayes said.  "It pushes off the potential for danger at least until the end of year."

In addition to turning a closer eye to getting paid for the work they do and finding ways to keep money flowing in, law firms have also cut costs in anticipation of a dip in revenue, according to Aon's Blanchard.  That has meant reduced partner draws, reductions in associate and staff pay, some layoffs, some cuts in real estate expenses as attorneys and staff work from home, and less money spent in areas like travel, training and firm retreats.

"I think firms have started looking at different ways to improve their margins," Blanchard said.  Mendola said the belt-tightening has helped.  His survey found that at the end of May the industry has reported good liquidity with almost 90% of the responding firms showing three months or more coverage of monthly expenses excluding partner draws.  "I think those cost-cutting measures are paying off.  It's better to be prudent and readjust than not be ready," he said.  "Once money is out the door, you're not going to get it back."

Article: Five Tips for Drafting Effective Legal Billing Guidelines

June 11, 2020

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.

Demand Grows for Hourly Rate Data in Big Bankruptcy

May 26, 2020

A recent Legaltech News story by Rhys Dipshan, “Reorg Launches New Database to Bring Big Data Analytics to Bankruptcy Fees” reports that the recession is already choosing its winners and losers: The once-strong appetite for M&A work is increasingly being replaced by a growing demand in bankruptcy services.  And due to efforts started in advance of the current economy, some in the legal tech space are looking to capitalize on this new opportunity.

Financial intelligence provider Reorg has announced the launch of its Legal Billing Rates Database, which aims to provide corporations and law firms with benchmarks regarding outside counsel’s bankruptcy fees.  The goal is to help general counsel and other corporate officers make informed bankruptcy hiring decisions, as well as help law firms competitively set their rates.

Darby Green, Reorg’s senior director of product, strategy and innovation, explained that the database pulls interim, monthly, and final fee applications from U.S. Bankruptcy Court dockets in the Southern District of New York and the District of Delaware, which she called the “preeminent jurisdictions for these types of large Chapter 11 [bankruptcy cases].”  She noted that “the attorneys involved in these [cases] come from all over … and also fee examiners expect that from jurisdiction to jurisdiction you’re not changing your fee, so it can become a good place to get an overall sense of what these fees look like.”

To be sure, while demand for bankruptcy services has grown in recent weeks, the new database was not built in response to the current market.  “When you build a data science-driven tool, it actually takes a very long time to do; we’ve been working on this behind closed doors for more than a year,” Green said.

She added that the development was “really a time-consuming process” given the need to structure docket data that was obtained via PACER.  For example, “even something as simple as figuring the department [took time].  Since every law firm is structured a little bit differently, you’re not going to necessarily find ‘bankruptcy lawyers’ at every firm, you might find ‘restructuring,’ you might find ‘financial insolvency,’ etc.”

Of course, Reorg is far from the only company offering legal spend or bankruptcy analytics, with LexisNexis, Bloomberg, Wolters Kluwer, Bodhala and Brightflag, among others, competing in the market.  What’s more, legal research providers such as Fastcase and Casetext are also planning on expanding their bankruptcy analytics and services.

Green, however, believes that where Reorg stands out is in its sole focus on bankruptcy fees.  “Our understanding is that we are the only company that is applying machine learning and this type of analysis to bankruptcy dockets.  There are a lot of providers looking at district court dockets, but what is unique about us is that because we’re so focused on the high yield and stress and distress markets that we are really embedded in bankruptcy dockets, and that provides an advantage,” she said.

Clients Eager for Billing Rate Discounts During COVID-19 Pandemic

April 23, 2020

A recent Law 360 story by Aebra Coe, “Clients Are Eager for Discounts As Pandemic Rages On,” reports that more clients are looking for ways to reduce the cost of their outside counsel as the world grapples with the economic consequences of the COVID-19 pandemic, with high demand for billing rate discounts, according to a group of top pricing professionals at large law firms.  BigLaw pricing, innovation and operations leaders gathered virtually for the Legal Value Network’s Council of Luminaries meeting to discuss the effects of the pandemic on the legal industry, according to a summary of the meeting posted online.

The council members include top pricing officers at Pinsent Masons LLP, Perkins Coie LLP, Covington & Burling LLP, Katten Muchin Rosenman LLP and Baker McKenzie as well as other law firm leaders, law professors and law firm management consultants.  The industry experts reported that they are being approached more often by clients or partners who need to respond to clients looking to reduce costs in light of the pandemic.  They are also more often tapped to help partners proactively approach clients looking to reduce costs.

“More law departments have been reaching out to firms to ask for discussions about discounts — with some even notifying firms unilaterally that additional (and often substantial) discounts will be applied to their invoices without any dialogue,” the summary of the meeting on Legal Value Network’s website said.  Some clients have also asked their outside firms to extend payment terms on their legal bills, the summary said.

The council members suggested law firms not accept blanket, mass reductions or payment extensions without careful consideration, and they make sure they are continuing to negotiate for the best possible rates, even during a pandemic.  “It is important to remember the importance of basic negotiation: Try to get something in return,” the summary said.  “For example, try to guarantee more work in exchange for bigger discounts.  And for those asking for extended terms, consider offering a quick pay discount for paying on time instead.”

Who is asking for the fee discount or change in payment terms is important, the council members noted. If the person asking is a general counsel, compromise is more likely, as an in-house lawyer likely has a better understanding of the value the law firm provides and may be able to trade a discount for a promise of future work.

Negotiation with a procurement department can be more difficult, they said.  “You can’t trade a discount for a promise of future work — or often for anything beyond what is in the black-and-white letter of the demand — because they are charged with implementing and enforcing rather than negotiating,” the summary said.

The council members suggested that outside counsel dealing with procurement officials loop in someone with clout in the legal department on the procurement demand in cases where the matter will affect the corporation’s nonroutine work.  “Context often helps open doors for compromise, and these internal stakeholders can consider the situation using that filter to appeal for exceptions,” they said.

Do Outside Billing Guidelines Hurt the Profession?

April 21, 2020

A recent Law 360 story by Aebra Coe, “Do Strict Outside Counsel Guidelines Hurt the Profession?, reports that an American Bar Association presentation offered two opposing perspectives on a debate that's raging over whether outside counsel guidelines place too many restrictions on attorneys, with one speaker saying a "total disparity of bargaining power" has led to "frighteningly" onerous provisions.

Clyde & Co. LLP of counsel Anthony Davis highlighted instances in which he believes outside counsel guidelines, which corporate legal departments often require their law firms to agree to before beginning representation, go "too far" by restricting the outside attorneys when it comes to conflicts of interest and confidentiality beyond what the rules of professional conduct prohibit.

"Lawyers are supposed to be exercising independent professional judgment for their clients.  These kinds of provisions, in my view, are intended by clients to limit lawyers' and law firms' ability to exercise independent, considered judgment," Davis said.

Davis, a professional responsibility lawyer who advises other attorneys and law firms on their ethical obligations, spoke during the ABA presentation titled "Are Outside Counsel Guidelines a Threat to the Practice?" alongside Bruce Green, director of the Stein Center for Law and Ethics at the Fordham University School of Law.

Some of the provisions that Davis pointed to that he believes are problematic include those that expand the definition of "client" to include a vast array of subsidiaries or joint ventures, those that restrict lawyers from providing services to the client's competitors, those that do not allow attorneys to take on clients that argue for positions on important legal issues that are contrary to the existing client, and those that require disclosure of confidential information of other clients.

Such rules can limit an attorney's ability to represent multiple clients in a given industry, hurting their opportunities to obtain wide-ranging expertise, and hurting potential clients' ability to find lawyers who specialize in the area in which they need legal help.  In other instances, such as a provision that requires disclosure of certain information, an attorney may be obligated to violate ethics rules by complying, he said.

"[Some of these provisions] limit the work the firm can do pretty much exclusively to this client.  And does it in a way that almost compels the firm to violate other ethics rules," Davis said. "In my mind that is highly problematic."  At least one bar association, the D.C. Bar, has considered implementing a rule that would prohibit certain outside counsel guideline provisions that are viewed as harmful to the profession, the speakers noted.

Green took a less alarmed view on the matter than Davis.  He said that while he believes law firms should not agree to some of the most outrageous provisions, it is something that should and can be negotiated between the client and outside counsel on an individual basis without the need for an ethics rule.

Lawyers have long negotiated with clients for consent to advance waivers for conflicts of interest, and these stringent outside counsel guidelines are the flip side of that, providing for a more strict application than the rules provide for, Green said.  "If lawyers can use their leverage to make clients waive conflicts rules, then clients can do the same to expand on the protections," he said.  Plus, he added, conflicts rules are meant to be a floor and not a ceiling.

"If you go below them you get punished. They're not supposed to define the most a lawyer can do for a client, but the least," Green said.  But Davis said that he believes the idea that outside counsel are in a position to negotiate with clients freely when it comes to legal engagements is flawed.  After the last recession, he explained, law transitioned to become a buyer's market, and as a result of that, corporate clients now wield substantially more bargaining power than law firms do.  "[There is a] total disparity of bargaining power that has arisen between law firms and clients since 2008," Davis said.

Three Places Overbilling May Be Lurking

December 2, 2019

A recent Law 360 article by Andrew Strickler, “3 Places Overbilling May Be Lurking,” reports on overbilling.  The article reads: By most accounts, the wild ol’ days of lawyer invoicing —...

Read Full Post