How to avoid lawyers overcharging

Law Society Gazette - Thursday 28th October 2004

Bare facts of billing
Dissatisfied with the quality of billing information from law firms, in-house lawyers are producing their own letters of engagement and calling on external practices to show more transparency, discovers Lucy Trevelyan

General counsel have had enough. Fed up with law firms failing to provide clear, upfront information about rates, expenses, professional indemnity cover levels or pending complaints, in-house lawyers are increasingly drawing up their own letters of engagement with their lawyers – and are spending up to three working days a month on disputed invoices, according to new research.

The study was carried out by the London committee of the Law Society’s Commerce and Industry (C&I) Group (see [2004] Gazette, 23 September, 7). Its chairman and director of legal tendering service First Law, Anthony Armitage, says the disputes are ‘very wasteful’ of an in-house department’s resources. ‘Disputes could be avoided altogether if firms adopted a more disciplined and transparent approach to billing,’ he says.

Mr Armitage says the quality of information appearing on bills is generally poor. ‘Many firms still resort to the unsatisfactory practice of printing off copies of timesheets and presenting these as some sort of narrative. The key elements in-house lawyers look for are precise dates of work and the time spent by individual fee-earners, coupled with a concise output-based narrative that identifies results achieved.

‘Ideally, law firms should provide comprehensive pricing information to clients before a bill is issued. This gives the client the opportunity to review time costing and narrative information, and resolve any issues arising. It is psychologically more difficult to do this after a formal invoice has landed on your desk.’

Lara Oyesanya, head of legal services at Lex Vehicle Leasing, says the descriptions on bills from law firms are ‘quite unsatisfactory’.

She says: ’There is usually not sufficient description of the type of work carried out and the level of the fee-earner and why it was appropriate for the fee-earner to do the job or the need for a high volume of calls, research or correspondence on matters within the expertise of the firm.’

Ms Oyesanya says firms’ estimates often do not match the final bill and that, frustratingly, the firms sometimes fail to provide a review of their estimates before submission of the final bill.

Richard Tapp, company secretary and director of legal services at business and construction services company Carillion, says: ‘The bulk of our work is not done on hourly rates; where it is, we need clarity of description. We expect an estimate on all work which exceed a defined value. We are increasingly asking our law firms to take the risk of inflation – they are best placed to manage their resources.’

Mr Armitage says firms often breach professional conduct rules that require solicitors to provide estimates and notify the client if estimates are likely to be exceeded.

He points out: ‘Often estimates are not given and I have been engaged by several corporate clients recently to audit solicitors’ fees in cases where the final bill is a multiple of the original estimate.’

Mr Armitage says that law firm reactions to complaints vary ‘but they are consistently defensive in nature’, adding: ‘Firms ritually drag their heels in providing concise costs information, perhaps in the hope that the client will not have the stomach for a drawn-out dispute. When a dialogue begins, law firms tend to treat the matter as adversarial rather than inquisitorial. In the event of a deadlock, there will be residual bitterness on one or both sides, which may manifest itself in the firm declining future instructions or the client reducing the volume of work it refers to the firm.’

Ms Oyesanya says: ‘Complaints are generally dealt with well because in reality firms cannot afford not to due to the fierce competition amongst firms. The client has a choice – instruct another firm. I would expect that uncooperative firms would lose clients.’

Mr Armitage agrees. ‘Any of the following situations would be sufficient for me to consider changing firm: no estimate being given; an estimate being exceeded without consultation; an attempt to renegotiate a capped or fixed-fee arrangement; or a refusal to provide a precise output-based billing narrative.’

He says in-house lawyers are under increasing pressure to stick to budgets – this is difficult with lawyers’ usual hourly-charge rate method.

A general counsel at a major global company, who asked not to be named, says firms should be more open in terms of billing transparency, but that in-house lawyers need to change their attitudes too.

‘Clients allocate blame when sometimes they should blame themselves. Those who say bills aren’t detailed should have said in advance what detail they want law firms to go into rather than say nothing and then criticise.

‘Law firms will provide more clarity if asked but they are too reactive. It requires a fundamental change in mindset. Lawyers have been taught for hundreds of years that it is best to charge by the hour. I’m not being cynical but it is in their interest to drag out the work as long as possible.’

However, he adds that some firms take a more sanguine view and will get a job done swiftly because they reckon they will get more work if they do so. These though, he says, are in the minority.

‘Law firms are not being driven by client interests – they are being driven by the desire to earn a respectable income.’

Carillion’s panel law firms have to adhere to a detailed written protocol.

‘It is intended to ensure that we each understand how our relationship, and particular matters, are to be managed to mutual benefit, and so avoid any problems becoming real difficulties. Our arrangements have proved to work well with our network firms.

‘We seek to help our network firms understand our financial models, and in doing so to appreciate that we cannot accommodate billing which is not in accordance with our agreed arrangements.’

Mr Armitage also draws up his own letter of engagement which, he says, should give contractual effect to billing procedures, with compensation provisions for non-compliance.

He adds: ‘Law firms often issue their terms of business at the outset of an instruction with the inference that they are non-negotiable. Willing acceptance of the client’s own service-level agreement is viewed by in-house lawyers positively and bodes well for the future relationship.’

Richard Kemp is founder partner of City-based IT boutique firm Kemp Little, which is building itself a reputation for transparency, helped further by its on-line work-in-progress (WIP) reporting service.

He says: ‘Our client WIP extranet was the first in the UK, and still is the most comprehensive. This will gain weight over time. As technology enables structural innovation in law firms, so this will become more prevalent and then the norm.’

Some law firms have taken to e-billing in a bid to provide greater transparency in terms of work undertaken and time costing. However, Mr Armitage is unsure of its worth. ‘If it is used merely as a more efficient way for firms to raise invoices and recover fees, I see no benefit from an in-house lawyer’s perspective. The best innovations are those which improve transparency and allow clients to control costs.’

The unnamed general counsel also uses technology in the billing process – he pays law firms with whom he has a close relationship before he has checked the bill, provided they are using his Web portal system.

‘We get them to fill in pre-determined fields on the portal which allows us to obtain the level of detail we want to see rather than the hotchpotch information law firms want to present us with.’

He adds that clients could use their own technology to bring down legal bills. ‘Many clients are now allowing key law firms to access their knowledge management extranets, which can help cut down research fees considerably.’

Mr Kemp says disputes between law firms and clients tend to be about value delivered in relation to charges. ‘We have had referrals from clients who instructed us because they were unhappy with the previous firm’s value-add in relation to charges and/or the way billing issues were handled at that firm. You must never forget that each of your clients has a choice. They use the market to get best value.’

He says it is ‘fine’ that some of his clients insist on drawing up own letters of engagement. He adds: ‘Part of the discussions around the engagement should be about charges and billing. It is for the law firm to set expectations and reach agreement with the client on this.’

Negotiation, understanding and compromise appear key to a good relationship between in-house lawyers and their external law firms. Isn’t that what lawyers are good at?

Lucy Trevelyan is a freelance journalist