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June 13, 2012

Tracking Legal Costs with Task Codes: Different Firms Take Different Approaches (Part 1 of 3)

Of Counsel, the Legal Practice and Management Report recently published this article, which I wrote with Jonathan Groner.  This post has some minor editorial differences from the published version, including some new survey data which appeared after Of Counsel went to press.

In Altman Weil’s 2012 Law Firms in Transition Survey, 238 managing partners and chairs of firms with over 50 lawyers reported that the two current trends that are most likely to change the legal profession are “focus on improved practice efficiency” and “more price competition.” 96 percent said practice efficiency was a permanent change and 92 percent thought price competition was permanent too.

In order to succeed in today’s increasingly competitive world, law firms need to be able to better estimate their costs before a matter begins. Bid too high, and they will not get the work.  Bid too low, and they may land a fixed-price job at a price that causes them to lose money. 

But it is very difficult for law firms to know what the cost will be for a particular matter or a group of cases.  Part of the problem lies in the unpredictable and adversarial nature of many legal matters.  But it also lies in the way legal matters have traditionally been managed, with more focus on quality and on eliminating risk than on cost. 

In the past, law firms generally made money simply by billing more hours.  But when firms work on a fixed price basis, putting in more hours can be the worst thing to do.

Being able to predict future costs starts with understanding the past.  With the rise of alternative fee arrangements (AFAs), decreasing realization, and client pressures to cut costs, many law firms have become motivated to track legal costs in ways that they never have before. 

One obvious place to start is by tracking spending with UTBMS, the Uniform Task-Based Management System. The rest of today’s post reviews what UTBMS codes are and where they came from. If you’d prefer to focus on how they are being used today, wait for Part 2 in this series, which will discuss “Three Key Questions about Task Codes.”

A brief history of UTBMS

According to the UTBMS web page,“In the mid-1990s major US law departments and insurers wanted to better understand the services provided by outside counsel…[Therefore], a joint group from The American Bar Association, the Association of Corporate Counsel and PricewaterhouseCoopers was formed to create a unified electronic billing standard.”

The idea was to create electronic time entries that tracked the time spent by phases and tasks using a system of standard codes.  The committee originally developed four sets of codes: litigation, bankruptcy, counseling and “project codes” for transactional work.  Later, succeeding committees approved code sets for patents, trademarks and ediscovery, and also issued a revised set of the project codes. (To this day, there are no approved UTBMS code sets for labor and employment, real estate, and many other areas of law.  And if you ask experienced lawyers about the “project” codeset, most will tell you that it does a woefully inadequate job of codifying most transactions, whether they are simple or complex.)

In UTBMS, each time entry has three components: a phase code, a task code, and an activity code.  For example, litigation was divided into five phases: case assessment, development and administration (coded L100), pre-trial pleadings and motions (L200), discovery (L300), trial preparation and trial (L400) and appeal (L500). 

Each of these phases was further broken down into tasks.  For example, the discovery phase included tasks for written discovery (L310), document production (L320), depositions (L330) and more. 

Phase and task codes were designed to be independent of activity codes, which seek to further define the nature of the work that an attorney performed on each task.  There are eleven activity codes, and they apply across the board to all code sets, starting with A101 for plan and prepare, A102 for research and A103 for draft and revise.  So, for example, a lawyer would use two codes on her timesheet when preparing for a deposition, the activity code A101 for preparing, and the task code L330 for a deposition.

Among other things, the system was intended to allow for comparison of costs and services across providers and better forecasting of costs for similar matters.  The usefulness of the data to the client and the law firm would be dependent on consistency in coding both within and across law firms.

Initial reaction to the system was lukewarm at best.  Some clients, mostly bigger clients with large legal spends, were early adopters and mandated use of the system by their outside counsel for designated engagements, mostly relating to litigation.  Law firms tended to only employ the UTBMS when required to do so by the client, foreseeing little use for such data in the good old days prior to 2007.  Few law firms embraced the system across their practices or invested the training time to assure consistency of coding among their lawyers and other timekeepers.  Even fewer clients used the data to measure law firm performance or insisted on strict adherence.  Bills got paid regardless of whether the time was coded to the technically correct phase, task or activity.

In addition, when clients required using these codes for ebilling, many seemed to think that the U in UTBMS stood for “unique” instead of “uniform.”  Each thought that their particular situation was so special that they needed to make adjustments to the code sets for their organization. 

Are you confused yet?  Imagine the poor junior associate who devoted months of work to a complex legal matter and had to classify her time according multiple codes, in six-minute increments.  Now imagine that the exact same activity might be coded differently if the associate worked for two different clients who had slightly different versions of UTBMS.

Some clients felt they were so unique that they developed entirely new task code sets, not based on UTBMS at all.  One lawyer we talked to recently, who preferred to remain nameless, described an IP client who had created a coding system “with hundreds of categories,” and“tried to impose this on all their outside law firms. This turned out to be a complete waste of time.”

The result of all this complexity has been that UTBMS codes never caught on the way the original committee had hoped.

In May 2009, an article in ACC Docket (“Ebilling 2.0: A Novelty Becomes an Essential Management Tool” by Chris Marlin, Stuart Roth, and Rob Thomas) noted that,“Much of the initial enthusiasm has faded, as law firms found that lawyers often cannot be relied upon to accurately enter two codes for each time entry, and clients found the data untrustworthy, difficult to analyze and/or inconclusive.”

In most law firms, tracking time by phase and task codes became the exception, not the rule.  The vast majority of clients currently do not use ebilling and do not require task codes at all. 

However, these days, a new pressure to use task codes is coming from the law firm side, as firms see the value of tracking time better in order to respond to client demands for more predictable costs.  There is also renewed interest on the client side as ebilling software has evolved, allowing for integration of billing and other functions such as case and matter management. Today’s systems generally conform to the LEDES (Legal Electronic Data Exchange Standard) file format standards.  Many LEDES clients use UTBMS, although some don’t. 

Increased interest in project management has also advanced the cause as has pressure on general counsel to more actively manage and reduce legal spend.  Many law firms are seeing increased client interest in real time communication of budget to actual costs on legal projects.

In part 2, we will review several different approaches firms are now taking to use task codes in budget tracking.

 

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