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May 22, 2013

How to track legal work that is out of scope

A few months ago, during a routine review call in our LPM coaching program at Bilzin Sumberg,  Executive Director Michelle Weber mentioned that her firm was beginning to require lawyers to systematically track work that fell outside the scope defined by each engagement letter. 

Steve Barrett was on the call with me, and we both had the same reaction:  Why didn’t we think of that?  It is such a simple idea, and such a valuable one, that neither one of us could believe we’d never suggested it, nor heard of anyone else doing it.

When I later learned that Baker & McKenzie was also tracking work this way, I began asking around looking for more examples.  So far I have heard of only one other that does this: Faegre Baker Daniels.  According to Steve Petrie, the firm’s Chief Strategy Officer, Faegre Baker Daniels uses separate matter numbers to track out of scope work for certain fixed-fee arrangements.  This is done in collaboration with the client and is subject to a clear and mutually-understood, change-order process.  (If your firm requires lawyers to track work that is out of scope, please email me the details, and I’ll write about them in a future post.)

At the beginning of every matter, lawyers should be asking clients about their goals and expectations, so that the legal team delivers what the client needs, and is willing to pay for. A failure to get a clear understanding at the beginning of a matter can lead to unnecessary work, strained client relations, and ultimately to reduced realization and profitability if clients refuse to pay their bills.

Anyone who has ever worked at a law firm knows that a clear definition of scope at the beginning of a matter often simply does not happen.  Many lawyers are impatient problem solvers, and they like to just jump in and start working. In the third edition of my Legal Project Management Quick Reference Guide (page 15), I quoted the executive director of an AmLaw 100 firm (who preferred to remain anonymous) about the ambiguities in a typical engagement letter: 

The scope of work often contained in our engagement letters is generally no more than one or two lines.  Lawyers are missing an opportunity to clearly specify the scope of what is included in each matter, and what is not.

And even if an engagement letter is well defined, there is the question of who sees it.  A senior executive at different AmLaw 100 firm (who also preferred to remain anonymous) recently did an informal survey of senior associates during a talk he gave on LPM.  He asked very simply:  How many of you have seen the engagement letter on the matters you’ve worked on lately?  Only 1 in 4 raised their hands.  To put it another way, 3 out of 4 of these lawyers had no way of knowing what was in scope, and what was not.  When this executive later shared those results with a group of partners, “they were horrified.”

Any system that requires lawyers to classify some hours as out of scope starts with a huge benefit, simply by requiring lawyers to be clear about the distinction. 

At Bilzin, at the beginning of key matters they now post the statement of scope on their intranet, where every team member can review it.  Then lawyers are required to record each hour worked under two different codes in their accounting system for each matter: one for work within scope, and the other for work that falls outside scope. 

As Bilzin partner Al Dotson summed it up:

Keeping the scope of work top of mind has many benefits.  The tactic of tracking out of scope work requires:

  • An understanding by all billers to the file as to what the scope of work is
  • An ongoing recognition of the status of the matter and when a task is out of scope, and
  • An understanding of the protocols to be followed when out of scope work is requested or done.

This benefits both the client and the law firm and often is the basis for clearer communication before there is a problem.

At Baker & McKenzie the procedures are a bit more complex, as you might expect at a firm with more than 4,000 lawyers in 73 offices around the world.  According to Stuart Dodds, the firm’s  Director of Global Pricing and Legal Project Management, some groups use the same approach as Bilzin, while others have developed task codes that provide additional detail.  For example, in an M&A deal, a particular type of due diligence could be in scope or out of scope, depending on exactly what is involved and what was expected and agreed to.  Some lawyers therefore have two task codes for due diligence, one for in scope, one for out of scope.

Whatever system is used, Dodds said, tracking improves awareness, internal management and external communication.  If the responsible attorney sees the number of hours beyond scope growing, it is a warning sign to report back to the client and ask “how do you want us to proceed?” before the number gets still higher.

“There are many ways to accomplish this coding,” Dodds said in a recent interview.  “We don’t want to be too prescriptive in defining the details.  The battle right now is getting lawyers using a tracking system they are comfortable with. The key to success is to keep it simple.”

 

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Comments

Is the idea that the out of scope work is done and then the firms ask the clients about it? Seems to me there is no reason to have an "out of scope" category if the clients approve the work before it is done. If they don't approve the work before it is done, the process being employed by the firm is wrong.

If the idea is that once the client approves a change order, that new work is tracked separately so the firm can learn from it, then I applaud the concept. - Pat Lamb

Pat - I have no doubt that different firms will use this code in different ways, but I think the general idea is that on large fast moving cases it is sometimes desirable to take action that is technically beyond scope before the client approves it. In some cases, work that is beyond scope may be performed for free as a marketing investment in a strong relationship. This new category enables firms to track this so they can decide when or if they should talk to the client about it. --- Jim Hassett

Pat - I think one other approach here is that you may specifically state what is in scope for your original fee (i.e. in due diligence all documents identified within the first x days) and then any other review of documents post that time are ‘out of scope’ and would be then supported at an additional fee. Obviously this is done with client approval prior to doing so, but is a good way to track (for both parties) changes to the original estimate or agreed fee. This is consistent with your last comment. -- Stuart Dodds

Pat - So much of this is simply the discipline of staying focused on the scope. Scope creep is very hard to control. Transferring time after a discussion with a client is easy. -- Michelle Weber

I think it's a bad idea to do any work on out-of-scope tasks before the client has approved them, tracked or not. - Jim Hannigan

Jim - You and I agree about a lot of things, but this is definitely not one of them. I think that performing some work that is beyond scope, without complaining or dragging your heels, is sometimes the best marketing investment a firm can make. The question is not whether to do work that is beyond scope, but how much of it you should do before communicating with the client about the implications, and trying to negotiate a change order. Deciding where to draw the line requires business decisions and discussions that will always be tough. But you can't even begin those discussions until you have a way of tracking work that is beyond scope, which is exactly what these firms are doing. -- Jim Hassett

Jim - I just think it's a bad incentive from a firm's perspective to institutionalize out of scope work. The focus should be on detailed scope agreements from the outset with change orders applying only when legitimately unexpected issues arise. I understand it can be used occasionally as goodwill but in my opinion that alternative should be used very selectively.

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