Corporate Spin Offs: Four Essential Compliance Steps
LegalOctober 30, 2020

Three can’t-miss best practices for outside counsel guidelines

This article was originally published in Legaltech News.

A good percentage of your invoice is going to be wasted if your billing guidelines are difficult to comprehend, routed to the wrong person, and/or not enforced. Unfortunately, that is more common than most folks in the industry may realize.

To some, outside counsel guidelines (OCGs) may seem like administrative minutia—too boring to care about. That may have been true in the past, when both law firms and corporate law departments (CLDs) were small and before e-billing made a “scientific” approach to outside counsel management possible. Since that time, CLDs and law firms alike have grown exponentially, creating an opportunity for in-house counsel to manage OCGs in a way that can generate a level of compliance and savings that is anything but boring. In addition to saving millions, OCGs are a way to improve both law firm billing practices and the underlying behavior they represent.

Here are three best practices to help organizations get the most out of their guidelines.

Ensure the guidelines are received and understood by the right person at the law firm. It may seem obvious to say billing guidelines must actually be read in order to be followed, but the reality is they often go unread. To remedy this problem, organizations must first figure out who at the law firm is in the best position to receive, understand, and implement the guidelines in question. A partner who works 12 hours a day at $800 per hour simply isn’t going to spend 45 minutes reading your OCGs. The person who will undertake that task is different at each firm but could include folks with titles like billing manager, account manager, billing coordinator, legal project manager, etc.

In addition to sending the guidelines to the right person, you should document that they were received and agreed to, ideally using e-signature. But even then, you’re not done because e-signature does nothing to guarantee actual comprehension occurred.

In order to ensure actual comprehension, the writing style used in billing guidelines needs to change. Currently, the style is largely legalese, a poor choice considering that some historians believe that variant of English was quite literally invented to make comprehension difficult for folks without a law license. Instead, focus on writing that is clear and easy to comprehend.

Make the guidelines simple and unambiguous. Stylistic questions aside, organizations still have to decide what requirements belong in the guidelines vs. what ones are not practical to comply with or unlikely to be enforced.

My suggestion: Focus on the types of violations that are impactful and important to you. Block-billing, where a timekeeper crams a dozen tasks into a single line-item without any indication of how long any particular task took, is a usual suspect. Another is where law firms hold a 10-person internal meeting and bill you for a lot of associates sitting around and listening—obviously something you shouldn’t pay for. Similarly, billing for travel time, vague line-item descriptions, administrative tasks like budgeting and conflict checks, time billed by first years and summer associates, and time billed getting associates “up to speed” on legal matters are all areas where, if you’re not playing defense, you’re leaking big money. These common violations should be explicitly addressed in the guidelines.

Corporate legal departments actually do an okay job of prohibiting a lot of these practices when they issue billing guidelines—but they also tend to waste both internal and law department time fretting over relatively insignificant details, like the amount that can be charged for making paper copies. In dollar terms, many of these rules amount to nothing more than a rounding error in the law department budget and are not necessarily worth paying attention to on either the law firm or CLD end.

One area I consider to be mismanaged is determination of initial hourly rates and requests for rate increases. I have gone into detail on this subject before but for the purposes of this article, suffice it to say that rate management currently is too decentralized, too unsystematic, and too characterized by tradition and politics, rather than the business/procurement discipline, that other parts of corporations consider nonnegotiable. This needs to be addressed by having rate management be more scientific and more about process than people—and the process should be explicitly laid out in billing guidelines as a nonnegotiable matter of policy.

In larger matters, staffing should also be spelled out. Consider requiring submission of a staffing plan for any matter over a certain size.

If these suggestions seem relatively generic, that’s the point. To the extent CLDs keep their guidelines generic, that makes it easier for law firms to comply with them—especially with the biggest, most important provisions with the largest dollar impact. But if every CLD wants to be a special snowflake, then the industry will remain mired in thousands of idiosyncratic billing guidelines that are difficult and potentially even cost-prohibitive to fully comply with.

Enforce the guidelines. If you don’t take your guidelines seriously, nobody else will, either. With this document, you are drawing a line in the sand, but that doesn’t mean law firms won’t cross it. No matter how clear your guidelines are, law firms will violate them—sometimes knowingly, but usually by accident because the task gets deemphasized in favor of other priorities. Without monitoring and enforcement, there is no motivation to read these hideously boring guidelines and put in the effort to comply.

Enforcing guidelines is easier with advances in technology, like AI-assisted invoice review, which increases the ROI of the bill review process. Additionally, legal spend and matter management platforms can help with everything from smarter staffing to streamlined communications.

Adherence to guidelines should also be part of the quarterly business review process. Organizations can have dashboards that measure and stack rank vendors on their compliance with OCGs and collaborate to help improve performance.

The bottom line. A single invoice with a single outside law firm can represent hundreds of thousands of dollars. A good percentage of that is going to be wasted if your billing guidelines are difficult to comprehend, routed to the wrong person, and/or not enforced. Unfortunately, that is more common than most folks in the industry may realize. Not only is billing guideline language itself often obtuse, but the guidelines are forgotten or enforced only lackadaisically after they are sent out.

As organizations, their law firms, and invoices all grow in size, this “boring” administrative task of managing billing guidelines starts to take on a lot more dollar significance than the outcome of many legal matters. That is why they need to be designed from the bottom up, with streamlined language and non-negotiable enforcement that reflects a more businesslike approach.

Nathan Cemenska
Director of Legal Operations and Industry Insights

Nathan Cemenska, JD/MBA, is the Director of Legal Operations and Industry Insights at Wolters Kluwer's ELM Solutions.

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