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While it’s not the stuff of “Law & Order,” or the latest John Grisham thriller, few things are more fractious to a lawyer-client relationship than disputes over fees. It’s a complicated problem with many root causes. Some of the blame lies with the billing system. Hourly fee charges are the most common method of invoicing for legal services, and reviewing invoices in detail is the most widely used way to control legal expenses. Although alternative fee arrangements are increasing in popularity, a recent survey by Hildebrandt International, the strategic consulting firm I work for, reports that hourly rate agreements continue to dominate relationships between law firms and business clients. Misconceptions also lead to these “fee fights.” It’s a myth that in a quality business relationship, a law firm’s clients do not scrutinize legal expenses. In the corporate view, even the closest relationships warrant some management of expense. Reviewing a legal invoice is more art than science. The typical invoice is chronological — it describes work performed during the billing period, identifies the timekeepers, and indicates the time taken to perform the work and the hourly rates to be applied to that time. While straightforward, it offers little guidance about the reasonableness of the fees. The bottom-line question for the in-house reviewer: Is the firm entitled to payment for what is reported in the invoice? Here are some of the red flags that signal potential problems with fees. Multiple timekeepers.There is nothing wrong with more than one person at a law firm billing time. The questions for the client and law firm to resolve are: How many timekeepers do we need to service this matter, and how will this team be managed to ensure efficiency? Most issues of efficiency relate to interaction of the team, which some corporate clients seek to control by limiting charges for “internal” communications and through use of systems that streamline access to the work product. (Matter management and knowledge management systems, which put files and other work products into searchable computer-based repositories, can make law firms more efficient.) Look for changes in timekeepers, too. Are timekeepers being added or replaced? Additions should reflect increased work on the matter. Replacements suggest turnover (or a change in required skill sets). Either circumstance can increase costs. The time charges for new members of the team should be closely monitored to determine the expense of getting up to speed. Where the potential for staff changes is high, clients and law firms might prepare an easily accessible orientation piece so that new timekeepers can receive a quick primer on relevant information. Research. “One of the most egregious forms of overbilling in many law firms is the almost infinite amount of time that is expended upon research into the most minute legal issues,” writes law professor William Ross in his book “The Honest Hour.” He’s right. There are two basic issues relating to research — was it necessary, and was it efficiently conducted? The problem for the invoice reviewer is that the value of research cannot be measured by outcome. Research that leads to a dead end can be just as valuable as finding that critical decision that bolsters your case. To determine efficiency, consider who did the research. Research by the most senior lawyer might be expensive on a rate basis, but might also be the most cost-effective. Research by a junior lawyer might be cheaper on a rate basis, but, if he struggled to understand the issues, it might cost more overall. Explore the extent to which the attorneys used knowledge management systems, research vendors or technology to assist with the research. File review time. Invoices commonly include charges for the time taken to review the file for the matter. These time entries are a common topic in billing disputes, particularly charges for file reviews that aren’t contemporaneous with an event or activity. This is not to suggest that file reviews have no value of their own — they might spark action in an otherwise dormant matter. The key is to clarify why the file review is necessary. Some clients and firms establish guidelines or intervals for file reviews that occur in the absence of an event. Clerical tasks. Issues arise when a timekeeper charges for work that could have been performed by a nonbillable staff member. Common examples are a lawyer who drafts routine, simple letters (such as transmittal letters) or makes photocopies. While there may be a good reason for a lawyer or paraprofessional to do this work, the client might question whether this is due to an urgent need, or whether it’s simply bad planning or work style — and whether the clerical staffing of the firm is adequate to support the services required. Minimum time increment. Most law firms bill at increments of .10 of an hour because that’s what clients ask for, although many of the tasks performed take less than six minutes. Indeed, most phone calls are shorter. Look for two patterns: an absence of minimum increments or an abundance of minimum increments. An absence of charges at the minimum increment might indicate inflated time entries, or it may be that the lawyer is not recording time for nominal tasks. In either circumstance, the law firm and client should clearly understand why. An abundance of minimum time charges spread across multiple matters can inflate fees. A common example is a form letter prepared for a mass mailing. Drafting a form letter to 100 recipients should not result in a charge of .10 for each recipient, unless the letter actually took 10 hours to draft. When time charges are spread across matters, consider a master invoice where actual time is reported, with charges allocated to each matter via an agreed formula. Finally, there is another way to reduce costs. The invoice review process suffers from being retrospective — the review occurs after the law firm has incurred the resource cost. A prospective process — where issues of cost are resolved before the services are performed — is much more effective in controlling legal expenses. And it saves both sides from all those unpleasant phone conversations. Robert Peahl is a Washington, D.C.�based senior consultant for Hildebrandt International. Hildebrandt provides strategic advice to professional services organizations and corporate legal departments. E-mail: [email protected].

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