Proactive Legal Cost Management
Over the past 10 years, the structure of legal departments in Canada has changed. There are certainly many more in-house legal groups in organizations today than there were a decade ago. However, in general, the size of many of the larger legal departments has shrunk because of corporate down-sizing. Where there is a legal department, its size is relatively small give the work that must be undertaken. The result is that a significant portion of legal work is still sent to outside counsel for handling. Today, an effective General Counsel must not only be a good lawyer but a good manager as well. The General Counsel is also under increased pressure to manage legal costs and to keep them down. Thus we see the struggle between the in-house lawyer who must reduce costs to be effective and the outside lawyers who depend on these same costs for their livelihood.
But how are these tasks to be accomplished? Until recently, there was no easy way for managers and financial executives to measure and evaluate the performance of their outside professional service providers or check for accuracy in billing. This was due to a number of factors:
-the" mystique" surrounding the provision of services as being something that really cannot be determined or budgeted in advance
-the status of professionals and the perception that their services are so specialized that they do not lend themselves to standard audit techniques -the conflicting time demands on business executives
-the lack of "tools" to make the job easy and manageable, especially specialized software designed for the legal profession.
In the last few years with companies examining all of their operations and relationships, legal cost management has become a reality and a necessity for corporate counsel. Fortunately, their task can be made easier through the use of the Uniform Task Based Management System (UTBMS), a standardized set of task, activity and expense codes, and using electronic data interchange (EDI) methods as a means to transport legal invoice data. This is nothing new since doctors have been using a variation of this approach for years to bill the various insurers and government agencies for their services.
What also will help is that a new type of computer software for managing legal costs has been developed that can both help corporations understand where and how their legal dollars are being spent and help them establish benchmark, historical data from which to help budget their future legal fees and expenses. This software is distinguished from traditional audit software used by consultants to analyze specific billings to determine fraud or over-billing, review and analysis software. Professional Fee Manager is an example of this new kind of computer software.
Contrary to what may be expected, implementation of a legal cost management program does not necessarily imply an antagonistic relationship between in-house and outside counsel. In fact, smart outside counsel ought to be taking the lead in creating innovative cost proposals and not wait until they are imposed on them by their clients. Such actions can help cement a good relationship between the outside and in-house counsel. Why would a client leave a firm who helps make its tasks easier?
What can UTBMS and Professional Fee Manager software do for the General Counsel to help in the management of legal costs?
The first major achievement, in a sense, has nothing to do with UTBMS or the software itself. In order for the software to perform its tasks, Professional Fee Manager forces General Counsel to consider in specific detail what their relationship is with outside counsel respecting the provision and billing of legal services. This is vital as the basis of the software system is a set of "rules" that govern the billing practices of outside counsel. The General Counsel must actually sit down with outside counsel right at the start of a new file and consider who is to perform what tasks and how, to determine what fees are to be paid for certain costs and what rates are to be charged for specific tasks. These "rules" should form the basis of the relationship with outside counsel and be part of a written retainer agreement. If it did nothing more than help define specifically the role of outside counsel, the software would be worth its price.
Next, these "rules" permit Professional Fee Manager to check incoming invoices for deviations from the fee and expense guidelines that were agreed-upon between counsel and then to prepare "exception" reports setting out the incorrect charges. These rules can be for things as simple as limiting the amount charged for photocopying or as complex as not allowing more than one partner at an examination for discovery for more than 4 hours without prior written approval. Specific examples of rules include:
-The person billing is not authorized to work on the file
-The rate charged is not authorized
-Too much time has been billed during a billing period
-The expense limit has been exceeded
-Too many people are involved in the file
-The maximum number of hours allowed to be charged to a task was reached
-Certain categories of charges cannot be billed
-The agreed-upon fee for the file has been exceeded
The whole invoice review process is intended to find mistakes and to monitor compliance with fee and expense guidelines. The exception report prepared by Professional Fee Manager allows corporate counsel to know within a matter of minutes exactly where deviations from fee and expense guidelines have occurred and then to make a decision to ignore an exception or to hold it for further discussions with outside counsel.
This monitoring of accounts undertaken by Professional Fee Manager is not all one way. This electronic invoice review process should allow for faster approval of invoices. This should result in faster payment to outside counsel and improved cash flow. If there are billing errors, they can also be identified and corrected quickly without unduly holding up payment.
However, the truly innovative side of the combination of UTBMS and Professional Fee Manager is that they provide a powerful, but easy and quick, tool to find information with which to help the General Counsel in managing legal costs. Knowing where legal dollars are being spent becomes easier when you are using a task-based billing system. Understanding your costs becomes possible only by using an extensive post-case and comparative analysis tool. Professional Fee Manager excels in the area of reporting because the software's foundation was placed on understanding not only what legal costs are, but also their composition.
For instance, activities are applied as the action for a specific task. A task is a discrete type of work such as motions or examinations for discovery. Things such as review/analyze or research are examples of activities. Action is applied to tasks by using activities. An example would be draft/revise (activity) statement of claim (task). By using Professional Fee Manager a General Counsel would know not only how much was spent on drafting/revising the statement of claim but would also be able to separate the activity from the task and know how much was spent in the whole matter on drafting/revising or doing research and who did it. The General Counsel then has a better understanding of what was done on a file, when and by whom and whether there was true value given for the fees charged.
To take another example, if, as a result of a report, a General Counsel saw significant legal fees being charged for research undertaken by senior counsel after examinations for discoveries were completed, a whole line of questions should spring immediately to mind: why was the research done so late in the process, was the initial opinion on the file flawed, is there a problem that needs immediate attention, why is senior counsel doing the work, if the work had been undertaken earlier could the file have been resolved earlier etc.
General Counsel should be budgeting their matters by capturing and tracking budget data. This is the only way to have any predictive way to measure performance. Professional Fee Manager allows corporate counsel to know within a matter of minutes which matters are tracking efficiently with respect to budget and those that appear to be "getting into trouble." This allows users to know ahead of time that there may be problems with a particular matter and to adjust the budget, if appropriate.
Once a database of information has been built up, then the General Counsel can analyze regional and nature specific data and is better able to predict what the costs would be of similar files in every region of the country and to perform comparative analyses of outside counsel charges. Quite often, this data can be shared with outside counsel when discussing legal costs since it now provides concrete information to be used in discussions.
Using software like Professional Fee Manager will allow General Counsel to manage legal expenditures effectively and to begin to understand the nature of those costs. By creating a new relationship in-house and outside counsel can begin to make both the legal services rendered and the billing process more efficient.
© 1997 arditti@msn.com
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