D. Casey Flaherty, corporate counsel, Kia Motors America
Editor's Note: D. Casey Flaherty, corporate counsel at Kia Motors America Inc., developed and administers an in-person, technology competency audit for his outside counsel. (Read more about it here, here, here, and here.)
MINI AUDIT
Here is a single topic, mini audit that in-house counsel can administer remotely.
The ask: Request that outside counsel provide you with a budget estimate for a common task, such as an opposition to a motion for summary judgment. When counsel respond that they are unable to construct a budget for a content-free hypothetical, ask that they merely provide you a range of costs for a final budget. If they supply that range, ask how they developed it, and what data it is based on.
What's being tested: Whether your firms use the large quantities of time data they collect for anything other than sending bills to clients.
Why: Most law firms are religious about recording attorneys' time. Time is the key metric in how they bill their clients. Many law firms purport to know, with a high degree of certainty, how much time was required to accomplish a specific task and how much the client owes the firm for that work. Yet, ask for a budget for a prospective task and you typically are fed a word salad about uniqueness, idiosyncrasies, contingencies, etc. In short, you are subjected to most lawyerly of all phrases: "It depends."
It certainly does depend. But your lawyers are not operating in an information vacuum. Presumably, they are your lawyers because they have done this kind of work — whatever it is — many times before. How long did those projects take? How much did they cost?
A budget request is not a demand for predictive perfection; it is probabilistic exercise based on expectations grounded in past experience, much of which has been captured as empirical data. Unfortunately, in too many instances, if you can move counsel beyond waxing eloquently about the contribution infinite variety makes to the subtle majesty of the law, you are given a gutstimate — a guesstimate based on gut feeling — in the hope that you will go away and let them get back to real lawyering. These conjectures are often useless.
Lawyers, as a group, seem particularly prone to the planning fallacy — the systematic tendency to underestimate how long is required to complete a task, despite past experience of similar tasks that ran over budget. Lawyers, as a group, are also less apt to recognize such shortcomings because we are the poster children for self-serving bias — the systematic tendency to attribute our successes to our personal merit, but attribute our failures to situational factors beyond our control.
The lack of data-driven deliberation can be galling, especially because the firms already collect the pertinent data. The numbers are there; firms just need to analyze them in such a way that they can provide in-house counsel with a range and distribution of potential time/cost for commonly recurring tasks. Discrete tasks can be combined to supply a cost range for a phase. And phases can be merged to present a budget for the engagement.
Indeed, there are umpteen ways to analyze, arrange, and present the data. And there any number of software providers and consultants who are happy to offer the 'optimal' method for doing so. I, however, am not advocating for any one approach. From what I have seen (candidly, pure anecdata; please email me to tell me I am wrong), few firms are at the point where it is even worth debating which method is preferable. For now, I would simply be heartened to be presented with any attempt at empirical analysis that is intended to be of use to clients.
The benefits of reasonably accurate budgets do not need to be explained to an in-house audience. But I probably need to be more explicit as to why in-house counsel would rely on law firms for quantitative analysis. Many in-house counsel already have access to all sorts of data about costs incurred on matters past.
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jjohnson@quantumediscovery.com
In my development of "The Proportionality Triangle" Game last year, I really got down into the data when it comes to cost predictability on the discovery side of the house. I built spreadsheet models that accommodate a wide range of variables, defensibility requirements, preservation strategy, culling strategy, search strategy, technology treatments to the data such as TAR. My conclusion was much like Mr. Flaherty's (in the discovery sense)...reasonably accurate budgets are possible, at least on the discovery side.
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OfficerFriendly
"Lawyers, as a group, are also less apt to recognize such shortcomings because we are the poster children for self-serving bias — the systematic tendency to attribute our successes to our personal merit, but attribute our failures to situational factors beyond our control."
See: "Fundamental Attribution Error" This is a nearly universal human trait.
The flip side of this bias is the belief that others fail due to personal shortcomings rather than as a result of confronting the same situational factors the observer uses to excuse his own failures.
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Richard Brzakala
I personally think that simply asking a law firm to create a budget is unfair. Clients have a responsibility to provide the firm with details of what it is that they are looking for. When someone undertakes a house renovation with a contractor.. you have specific details, expectations, timelines and costs. Budgets for legal work should not be any different. I would be concerned if a law firm in today’s market place responded saying that they cannot provide a budget estimate. Most firms understand the new market conditions and the power buyers of legal services hold. A law firms response demonstrates to the client the firms proposed game plan and what the client should expect. Anything less then a reasonable, predictable plan is sub-optimal and the client should look elsewhere.
I think that gone are the days where a law firm, particularly one that a client has used numerous times before, would list a thousand and one excuses as to why it can’t put a budget together. Sophisticated buyers of legal services in today’s tight and competitive market will say that If your firm CAN’T ( or is unwilling to) provide me with a budget… then I will find someone who CAN.
I agree with asking for background material around how a firm came up with its budget. It may shed some interesting insight into how the firm manages a clients work and may also identify factors that a client may have missed. I think corporate clients have started to use budgets as an alternative to a much larger and drawn out RFP processes. I think there is a trend in that budgets are being used as reverse bids where multiple firms bid on a piece of legal work.
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Maria
What about alternative fee arrangements? What role does technology play there? Are more clients asking for AFA? This blog has some insight into the matter but what are your thoughts? http://fir.mx/1598eIO
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D. Casey Flaherty
It would be the subject of a much longer article, but I don't currently utilize flat fees (not that I have an objection to them). In general, the primary reward that I can offer is additional work.
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