Headline of a December 17, 2019 article in Corporate Counsel, a prominent publication directed to in-house lawyers.
Citing the Association of Corporate Counsel’s findings in its “2019 Global Legal Department Benchmarking Report”, the article begins with this statement of fact:
” … 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.”
Cost overruns of that size.
And inaccuracies in charges imposed on clients by people who serve as fiduciaries (attorneys) to the clients harmed by those inaccuracies.
Inaccuracies that advantage those outside firms — not ones that result in under-charges.
How did this become business as usual? How can it be that such overruns and billing inaccuracies are normalized?
What’s so wrong with this area of Legal — outside lawyers’ charges to client companies — that the article’s author, Ryan Loro, can be part of an entire industry — “legal bill auditing” — that checks up on the accuracy of what lawyers bill their clients? And gets paid solely from the excess of what law firms charge over what they agreed to charge (i.e., no net cost to the client)?
The short answer: Hourly billing, and the distortions in pricing, staffing, and workflow that hourly billing incentivizes.
Paying lawyers for the time they spent — after-the-fact — instead of working to pre-agreed fees for defined tasks.
This rewards attorney “management” methods where:
- Taking longer means more money earned, and the client doesn’t know the price until after it’s earned;
- Assigning more bodies to a task means more hours billed; and
- Insertion of inexperienced recent law grads into the mix yields even more revenue.
On paying law firm lawyers more money for taking more time, Mr. Loro offers a heading devoted to “Excessive Time“. He offers the following example where he said time should be cut in half:
“The law firm [whose bill his firm was auditing on behalf of his client company] 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.”
On assigning more bodies to a task to goose the bill:
Mr. Loro offers a heading devoted to “Duplicative Work“. He offers the following example:
“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 … 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.”
On insertion of inexperienced recent law grads into a team and then charging the client company for what amounts to their training:
Mr. Loro offers a heading devoted to “Junior Lawyer Training“. He offers the following example:
“On an invoice we reviewed, one law firm actually charged $1,084 for a junior lawyer’s time to ‘investigate how to file an appeal.'”
Mr. Loro has placed his proverbial money where his mouth is on the above statements. His SIB Legal Bill Review — and an entire industry of legal bill auditing firms like it — are based on the reality that there’s enough of such billing misfeasance that their client companies can pay them solely out of savings realized by the excess charges they identify.
For companies that have to deal with this unhappy status quo — paying conventional law firms whose business model is based on hourly billing — firms like Mr. Loro’s make lots of sense.
But overbilling and consequent legal budget excesses should be the exception — not business as usual.
“Auditing & bill review is fine, but it reflects the Anger stage & is both relationship harmful & unsustainable.”
Lawyers need a firm hand from executive management to correct this dysfunction. With rare and noteworthy exceptions like Jeff Carr, attorneys in outside firms and in-house law departments are not doing this themselves.