Taking the bill by the horns

As lawyers in a highly regulated global business the Barclays legal team instructs lawyers all over the world on a huge spectrum of matters. From his experience Jeremy Ogden of Barclays Bank gives an insight into the client’s experiences of and thoughts on billing and offers some guidance on how all firms could improve their billing practices.

The billing concept

The conventional concept of billing in the legal profession seems somewhat outdated. Often commercial lawyers appear to be behind other service providers when you scrutinise the manner in which they recoup their fees from the client. Partners should not shy away from challenging billing concepts and practices that are derived from the 19^th century. They should not be afraid to ask whether ‘they provide clients with a service or do they sell them time?’

At a meeting with a major firm recently one of my team was struck by the following phrase that a partner used when discussing the various stages of a transaction. At an appropriate watershed in the transaction he pointed out what he perceived as a “point of no return” for the bank as after that point we would begin to “burn up time and therefore money”. The reference was made specifically to his firm’s fees.

In spite of lip service being paid to the notion of ‘value-added’ services being provided by firms language like this emphasises that there does not yet seem to have been any dramatic change in attitudes among partners. The focus seems to remain on selling the hours and minutes of the firm’s solicitors to clients rather than offering solutions to the client’s problems. With increasing pressures across all industries to reduce and control costs firms should consider challenging billing conventions and using alternative approaches tailored to clients’ needs as a means of securing new business.

Certainty

The control and budgeting of legal costs is often a difficult issue facing project managers during the early planning stage. Conscientious project managers approach their in-house lawyers to discuss legal support for the project and are often dismayed when the matter of costs is discussed. Often it seems to be the case that external solicitors do not seem to ‘cost’ their work with any degree of accuracy before they are instructed. In-house lawyers are required to legislate for this in managing the expectations of their clients internally which can make accurate budgeting of a project very difficult.

There are obvious attractions to solicitors providing an ‘all in’ cost at the beginning of a project. This is obviously not appropriate for all transactions (particularly litigation) but with increased specialisation this approach ought to be appropriate for some commercial and corporate projects. We have been able to make such arrangements with regional firms but this is not an approach that major city law firms seem to be comfortable subscribing to.

As well as a degree of certainty for the client agreeing to take such an approach to billing can provide a useful insight into a firm:

* It shows that the firm has given careful consideration to how it will support the project in arriving at its costing

* It shows that the firm is committed to the client’s commercial objective by assuming some of the risk that the costing may not be correct

* Above all it shows that the firm is sensitive to the pressures on the client to deliver its project on a strict budget.

The goodwill that this commitment generates is not something that ought to be underestimated by firms. It highlights the difference between those firms that work in partnership with their clients and those who simply sell a service.

Control

In cases where a more conventional billing approach is still necessary firms should give careful consideration to the question of control. There are three aspects to this issue:

1. The estimate

As I mentioned above many lawyers do not seem to give much thought to ‘costing’ their work at the outset. The difficulties that this can cause are well illustrated by the ‘estimate’. Barclays’ legal team has had many experiences of receiving an estimate of costs and then having a bill arrive six months later for a sum that was double the estimate. The transaction proceeded without any major incident and there had been no indication in the interim that such substantial costs had been incurred. I am pleased to report that said instances are now few and far between.

When a firm receives a request for an estimate it is better for the firm to consider carefully the likely final costs rather than providing a ‘gut feel’ of what the transaction is likely to cost. A properly costed estimate can also generate goodwill in much the same way that fixed-fee arrangements can.

2. Keeping the client informed

The difficulties over inadequately prepared estimates are often compounded by the deafening silence on the topic of costs that can prevail during the course of a transaction. It is not unusual for a six-month period to pass during which no information on costs is provided. Invariably this silence is followed by a substantial bill (often in excess of the estimate) which the in-house lawyer must then have settled by his or her client. Remember that the in-house lawyer has his own client to keep happy and informed.

At the beginning of any transaction the frequency of bills and the provision of updates on costs ought to be expressly agreed with the client. It is mentioned in client care letters and in firms’ terms of engagement but it does not seem that these provisions are observed as carefully as they might be. Firms should view this as symptomatic of bad housekeeping; failing to provide updates suggests that the solicitors involved in a transaction are perhaps not effectively recording time and costs. This in turn can suggest that the figure finally billed might be inaccurate due to poor time-recording techniques.

Firms should ensure that they provide their clients with updates on costs incurred to date and to an agreed timetable. This avoids confrontation with clients when increases in costs arrive ‘out of the blue’ and is indicative of a professional and well-managed firm.

3. Information: the right lawyer for the right job

Not only is it essential that details of costs are provided with the requisite degree of frequency but firms must be prepared to detail what work lawyers have done. Experiences on this issue seem to vary wildly from firm to firm with some providing unit-by-unit breakdowns of who has undertaken work - and others providing no details at all. Justifying legal expenditure is much more straightforward when the in-house lawyer knows who has done what and why any given lawyer has undertaken a particular piece of work. Understandably clients are often vexed to find senior partners having billed for tasks that could more appropriately have been undertaken by more junior lawyers. This ties in closely to the question of costing discussed above. By planning the transaction more carefully at the outset firms should be more inclined to ensure that the right lawyer is undertaking the right work at any given point.

External solicitors also need to understand two key and related aspects. The client does not mind paying a premium price for a premium piece of work. Indeed it expects to do so and in return expects the service. Equally the client does not always need the Rolls Royce service on every job or the Rolls Royce bill. Sometimes it is simply a question of getting the job done. Achieving the results in the most efficient way is what the clients wants.

Billing and relationships

In recent years many organisations have drastically reduced their panels (for example Virgin’s recent re-structuring). For those firms that remain on the panel there is an emphasis on relationship building and the provision of value added services. Billing is fundamental to these issues.

The ‘relationship statement’ has become a vital part of the relationship between firms and their clients. They often contain provisions on billing and estimates but in practice these are not generally adhered to. Failing to do so casts doubt on the firm’s commitment to the client and raises questions about the overall validity of the relationship statement.

The treatment of billing and costs is also a matter that should not be confined merely to senior partners and relationship managers. Sensitivity to these issues should permeate throughout the firm; fee-earners at all levels of the firm should be aware of the client’s sensitivities on these issues and should take individual responsibility for seeing that they are addressed. Firms should recognise those who do this and should take steps to help encourage those who do not to re-assess their working practices.

Firms who are preferred suppliers of legal services should also consider assessing their ‘global’ bills to clients. When trying to assess the legal costs of an organisation it is vital for relationship managers at law firms to be able to provide an accurate picture of the total costs billed to a client as often the in-house team will find it very difficult to provide this figure. Taking the trouble to do this emphasises the firm’s awareness of the pressures on costs that most clients are subject to. Such information ought also to prompt firms to asses preferential fee structures and consider whether they are approaching costs and billing in a manner appropriate for the client. The issue of ‘spend’ should also to be a standing agenda item for relationship meetings with clients.

Disputes

Disputes over bills can be hugely detrimental to the relationship with the client. Adhering to some of the practices I have outlined above ought to help avoid confrontational disputes over bills. After all it is difficult to see how a dispute could arise where estimates have been adhered to and updates have been provided.

From time-to-time disputes will arise and firms ought to be prepared to treat these disputes as an opportunity to learn and to demonstrate to the client what value their relationship adds to the client’s business. If there is a question over why a particular lawyer has undertaken a particular task it provides the firm an opportunity to sell that lawyer’s skills. It need not be a defensive action by the firm justifying its costs. In cases where a firm cannot adopt this approach it suggests that the transaction was not as carefully planned as it might have been and that the bill in question might in fact be inappropriate.

Conclusion

I am pleased to report that over the last twelve months we at Barclays have addressed the issues and concerns outlined in this article with our key external law firms. The result has been the monthly provision of financial/billing information to us and quarterly relationship meetings at which billing problems or issues across the group are raised. This discussion is conducted in a positive and open manner and in return Barclays has made a commitment to its law firms to ensure their bills are settled promptly.

There are four simple tenets that firms should consider internalising to help improve their billing practices and client relationships:

* Cost your work accurately before engagement

* Keep your client informed of the costs that they incur

* Manage the transaction to keep costs under control

* Adhere to agreements and statements on billing.

Increasingly clients will expect law firms to be more than service providers. They should also be partners helping the client to achieve its commercial objectives. Rethinking the approach to billing can be the first step to achieving this aim.

Jeremy Ogden is the deputy group general counsel and general counsel Barclays Private Clients. He can be contacted on +44 (0)20 7977 7000.