Managing Your Company’s Legal Spend by Eliminating Cost Surprises
“Surprise!” is not something you usually want to hear from someone who is reporting to you on outside counsel billing or the entire spend of your legal department.
Surprises are better saved for a milestone birthday. In the case of budgeted-to-actual billing reports, there’s nothing like the sweet sound of just what was promised and expected.
Given the open-ended and unpredictable nature of many legal matters, it’s unrealistic to expect that everything can be accurately forecast. But many steps can be taken to minimize the variables and help control risk with regard to overall spend, including some measures available through legal e-billing.
To look to the future, first start with the past. A comprehensive review should include the legal services performed in-house and outside, by category; which outside firms performed the different types of service; the mix and billing rates of timekeepers; the number of hours budgeted and actually billed; and where guidelines were broken. By reviewing past spend and identifying trends and potential or likely areas of change, the task of estimating becomes more reliable.
Estimate, establish budgets, and track your spend
With the features and data available from today’s e-billing software, the process of estimation, budgeting and tracking has become more simple, as the information accrued has become more detailed and accurate. Mining the data, it becomes clear what costs, staffing, and time can be reasonably expected from similar matters so that initial estimates can be more on-target. Develop an annual budget that is broken down by month; track it; check mid-month or phase by phase to see if any forecasts need to be revised and, if so, why. Establish clear expectations with outside counsel and have them generate regular status reports and request unbilled totals, if necessary.
Establish and monitor guidelines
Established guidelines are essential and should cover the full range of service variables: billing rates and staffing expectations; billing formats; reimbursable expenses; and timing. Provisions should be established for failure to adhere to the regulations. For example, what if a 90-day limit is in place for filing of invoices, and an outside firm sends a bill six months after the fact? (You don’t want a holiday surprise like that for work performed in the summer.)
Alternative fee arrangements
Alternative fees can be a means of managing spend, reducing spend, or eliminating surprises. Arrangements can include retainers (an established amount paid for a specific period), blended rates (covering partners and associates), fixed fees for specific projects, a cap on rate hikes, or a volume discount once a certain level of spend has been reached with one firm.
With e-billing systems such as those developed by BusyLamp, budgets can be established, shared, and submitted; projects, progress, and spending can be tracked; reports can be generated; and data can be readily and automatically collected and analyzed.
Of course, given the technological advances of recent years, that should come as no surprise.