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In The Firm, Tom Cruise’s character defeated his murderous, money-laundering, mob-connected former partners by turning them in to the feds for overbilling. General counsel in movie audiences everywhere must have cheered. In-house counsel face conflicts about overbilling by outside counsel so often that it must have felt like a vindication of sorts to see Cruise prevail.

Certainly, Hollywood portrayals of law firms’ by-the-hour billing practices are exaggerated. But it’s a fact of life that the legal industry rewards inefficiency: the more hours billed, the more fees collected. Things are changing, however: Because inefficiency is unacceptable in the current economic climate, GCs, as clients, are more and more requiring their outside counsel to budget and scrupulously control costs.

Enter the era of litigation budgeting. Once a time-consuming drudgery confined to attorneys in the insurance-defense segment, litigation budgets have become a trend among, first, the nation’s financial institutions and, more recently, the domestic and international Fortune 500.

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