LEGAL
Before we get started, take a moment and try to remember the last legal bill you received as in-house counsel. Now think about this: what would your outside counsel say if you asked them, honestly, whether they would pay their own bills? If it was their money, do you think they would staff matters differently or work more efficiently? Would they believe they were getting good value from their legal spend?
As an attorney, I inherently know that there are certain taboos in the legal industry, subjects not to be mentioned outside of close company. For instance, you do not ask a group of first-year associates whether they passed the bar exam! And you don't talk about whether your outside law firms are overbilling you, even though you suspect that it's happening. You'll be relieved to know that I'm not here to ask if you passed the bar exam, but I am here to tell you that if you suspect that your law firms are charging you too much, you are not alone.
Even with the increasing pressure to reduce spend and control costs, many in-house counsel turn a blind eye to avoidable billing issues. Maybe this is because many attorneys view overbilling as an inevitable consequence of the billable hour. Overbilling is not inevitable, but addressing overbilling issues is about as complicated as your relationship with your outside counsel.
Various internal documents (e.g., billing guidelines and engagement letters), legal precedent, and ethical rules provide guidance to control the fiduciary aspects of the relationship you have with your law firms. Despite that, the core of an attorney-client relationship is trust. Overbilling, on a fundamental level, is a breach of that trust. Not to belabor the point, but discovering that your outside counsel is overbilling you is a little like catching your significant other cheating: trust is broken, resulting in some combination of anger and shame. It is such a sensitive subject for some that they fear the mere mention of overbilling may be interpreted as an accusation, jeopardizing a valuable law firm relationship that carries years of institutional knowledge.
Fearful of upsetting existing outside counsel relationships, the topic of overbilling can become a minefield for in-house attorneys, better avoided in its entirety than carefully and strategically navigated. Plus, even if overbilling affects you, it is likely low on your priority list. Sure it bothers you that there are five people on the line every time you call your outside counsel, but you have a board meeting next week to prep for, a call with the head of HR to update your diversity policy, and five documents to turn before you leave the office today. Of course you are frustrated when you see a partner bill $650/hour to make copies and file court documents, but you have three months of bills sitting in your inbox and you don't have time to review every single entry in the 15 minutes you have before your next call.
With everything that you have on your plate, it's easy to ignore overbilling, but outside counsel costs are increasingly scrutinized and subject to internal criticism. Not to mention, doing nothing and staying silent can have disastrous effects.
For those of you who have chosen to or been told to "grin and bear it" when you see overbilling, I encourage you to learn from Think Tank Software Development Corporation v. Mayer Brown LLP and Abrahamson, Reed & Bilse. In September 2008, Think Tank hired Mayer Brown and Abrahamson, Reed & Bilse to assist with an ongoing lawsuit. After the lead counsel at Mayer Brown left for a judgeship, according to a report in Law 360, the firm determined it was too expensive to continue the representation, dropped Think Tank as a client, and delivered a bill for more than $1.1 million of legal fees. On June 5, Think Tank filed a malpractice suit alleging overbilling practices amounting to breach of their retainer agreement and negligence, among other legal missteps.
Suing outside counsel is an avoidable worst-case scenario. Setting aside the issues related to the representation itself, let's look at Think Tank's allegations of "billing abuses" and review the different types of "excessive, duplicative, and/or otherwise unnecessary and unreasonable" charges that you might see in your own bills.
(Over)Staffing issues
Of the many alleged billing issues, overstaffing is one of the easiest to identify. Or is it? What exactly is overstaffing? Each matter is unique, with varying complexity and nuance. It would be absurd to expect uniformity in staffing – a multi-billion dollar international bankruptcy litigation and an 8-K filing will be staffed very differently. According to Think Tank, Mayer Brown staffed their "bet the company" litigation with 20 attorneys and staff. Maybe the issues were complex enough to require a 20-person team; I've definitely seen matters complex enough to necessitate a team that size. But that begs the question – if the number of lawyers on a matter isn't prima facie overstaffing, how do we determine when a matter is overstaffed?
You could argue that overstaffing is, in this way, a bit like pornography – you know it when you see it. There is a bit of that, but thankfully you can identify overstaffing issues because they rarely fly solo. Think Tank alleged that the 20-person team performed "duplicative and excessive" work throughout the representation. Additional attorneys and staff isn't a bad thing until the team grows too large and becomes inefficient! When work slows down because there are too many cooks in the kitchen, you pay the price, literally. If your bills contain entries for duplicative work, multiple timekeepers on simple projects, or inefficiencies that could be eliminated with a more streamlined team, that is overstaffing.
Now that you can identify overstaffing, you'll be happy to know that you have the power to define what overstaffing means to you and your company! In fact, somewhere hidden in the mess of your retainer agreements, engagement letters, annual rate disclosures, fee schedules, individual matter budgets and addenda, and written billing guidelines, you may have already established specific staffing parameters. If not, speak with the billing partner or matter lead to address overstaffing issues when you find them or before they arise.
INSIDER TIP: To reduce the likelihood of overstaffing, set a core team for each matter in your engagement letter or billing guidelines. Require notice for changes or additions to the core team.
Overqualified billers
A more subtle issue addressed in Think Tank's complaint is the unnecessary expense incurred when a more senior (i.e., expensive) attorney or staff member does work that would be more appropriately completely by a more junior (i.e., less expensive) person. When work is handled by a more senior attorney or staff member than is necessary, your law firm is not using your money responsibly.
Here is an egregious example from Think Tank. They claim that that they were billed $76,742.50 for a 23-page brief, which was prepared by a senior attorney instead of an associate who could have handled the work at a lower rate. For those of you keeping score at home, that is nearly $3,500 per page!
INSIDER TIP: Review your bills to ensure tasks are being completed by the appropriate timekeepers. Ask yourself if the work could reasonably have been done by a junior associate, paralegal, or secretary instead.
Even over-qualification is not as clear-cut as it might seem. Unless the work is objectively clerical or administrative, reasonable minds may differ as to the most appropriate timekeeper for a particular task. While your outside counsel can do many things, reading your mind is not one of them; absent specific instruction, law firms will staff their matters in the way that best suits them, regardless of your budgetary goals. Set the tone for your representation by making your preferences about staffing known to your firms.
INSIDER TIP: Determine your team's preference for staffing and share that preference, in writing, with your outside counsel. For example, if you want a junior associate to take the first pass of your 10-K update, or if you refuse to pay for first-year associates, make sure your billing partner knows.
Block billing
Think Tank's complaint alleges that a substantial portion of the legal bills include "block billing" entries. Block billing is a method of invoicing clients where attorneys charge for large blocks of time covering a variety of activities, regardless of how much time is spent on each activity and whether or not each activity would merit a bill on its own. It is an extremely lucrative practice for law firms, but it is losing favor with clients and the courts. In fact, there is precedent for discounting legal bills with block-billed entries. Here's a quick example:
I must confess: when I practiced I was a block biller. I bet at least some of you were, too. In my defense, I didn't know I was doing anything wrong, nobody told me not to, and that is the problem. Even now, block billing is widely used, but I know first-hand that you can break the habit. If you want your attorneys to stop block billing, tell them!
INSIDER TIP: Request line-item bills and specifically require your law firms to unblock their time entries so that it is clear from the bill exactly how much time was spent on each activity.
To solve the problem of overbilling, you have to consider the bills themselves, which are generated externally, but I would be remiss if I neglected the need to look inward as well. To do your part to avoid being overbilled, you will need two things: (i) time and (ii) tools that create efficiency. Let me explain ...
Time is a scarce resource, but is essential to dedicate at least some if you want to avoid issues with your bills. Whether it is you, a colleague, or a third-party, someone has to take the time to review your bills as they arrive to ensure compliance with your billing guidelines. Law firms have no inherent incentive to change their profitable, inefficient billing practices. However, with the increased competition for clients, you may be surprised how quickly law firms will change their billing behavior if they know someone is watching!
Remember that ambiguity is the enemy of efficiency. If you want to end overbilling, the relationship you have with your outside counsel should be crystal clear, meaning that the tools you use to control that relationship – your billing guidelines and other controlling documents – should also be crystal clear. Attorneys are under an ethical obligation to prepare and deliver accurate legal bills in accordance with the operative billing arrangement, and you have more power than ever to control those documents. In a perfect world, these documents set forth, in writing, your expectations for the representation, fees, staffing procedures, bill format/delivery, and whatever other preferences, guidelines, or rules you would like. Ideally these documents are agreed upon before the engagement, but for those of you with ongoing relationships, make sure your current billing guidelines or governing engagement letters clearly set forth your expectations for the bills. If your system isn't clear, easy to follow, and reasonable, it will be hard for anyone to follow, internally or externally.
INSIDER TIP: Take the time to locate and review all of the documents that control your outside counsel relationships. Where possible, consolidate and remove duplicative guidance. Create a set of clear, easily enforceable, written billing guidelines for your team and your law firms to follow.
Think Tank's complaint illustrates just a few of the most common overbilling issues. If you haven't already seen these issues in your own legal bills, you may start to now that overbilling is on your mind. As the legal industry changes and adapts to new economic pressures, increased competition, and rapidly developing technology, you can take proactive steps to reduce your legal bills and overcome overbilling.
Lauren Amanda Adler has been helping attorneys overcome inefficiency for more than a decade (or from birth if you ask her father). After working in the legal departments of the National Hockey League and the National Basketball Association, Lauren Amanda practiced in the corporate department of Proskauer Rose LLP in New York. She is now the Director of Sales & Marketing at Legal Fee Advisors, where she consults with companies to improve efficiencies and control legal spend. If you'd like to speak with Lauren Amanda about how to streamline your legal department – or how she mastered the art of talking about herself in the third person – you can reach her directly at ladler@legalfeeadvisors.com.
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