280 posts categorized "Legal Business Trends"

August 31, 2016

How pricing can affect legal practice

Guest post by Carl Herstein, Chief Value Partner, Honigman

Changes in pricing lead to changes in the way law is practiced. 

For example, the way contingency fee lawyers practice is different from the way most commercial full service business firms practice. At Honigman, we have a very big contingency fee segment of our practice in the real estate tax appeals area. So I’ve gotten to see how contingency practices work. They are enormously efficient. As a general rule, lawyers don’t do things until the last minute. That might be thought of as a vice, but call it “just-in-time management” and suddenly it becomes a virtue! 

Now, traditional commercial clients like to talk a lot about their cases, especially if they have in-house counsel. It’s their life, after all, and they are accountable for what happens in these cases. As a result, they often want frequent updates and strategy discussions. The biggest complaint one hears about contingency fee lawyers is “They don’t want to talk to me.”

That’s because for a lawyer on contingency, after communicating what is absolutely necessary, talking is a waste of time and therefore money. It’s a very different model: “We’ll tell you when we think you need to know something.” Now, I’m not suggesting that if you are on a contingency you shouldn’t talk to your clients, and I am exaggerating a bit for effect. But the point is that the billing arrangement changes the perception of the value of the interaction. If somebody wants to call you on the telephone and is willing to pay you $450 to $1,300 per hour to listen to them talk, you are happy to listen.  But, if it doesn’t make any difference to the fee you’re going to collect – or actually reduces it – maybe you will want to move that call along a little faster! 

Similarly, if you’ve got the billion-dollar case, it doesn’t matter how many interesting legal issues there are to chase down or how uncertain the law is. You’ll do the legwork, and the client will want you to. Otherwise, lawyers need to make judgments about what their clients can afford.

Clients will tell you, “Don’t bankrupt me by doing a perfect job,” which is really hard for the current generation of lawyers to deal with. Sometimes a client can talk to a lawyer and say, “We are going to have a problem with this case because fees are already $600,000, the most we can collect is a $1.8 million, and we haven’t even gotten to trial yet.”

And they’ll answer, “You’re not asking me to commit malpractice, are you?”

No one wants anyone to commit malpractice, but you have to make judgments. You can’t bankrupt your client while you worry about perfection. Younger lawyers are usually better able to grasp these dynamics. They are flexible and adaptable; they see the way the world is changing. People my age, my partners and many other lawyers whose world is different than it was when they were growing up – we’re the ones who have the hardest time with it.

This guest post is an excerpt from Carl Herstein’s thought provoking article “The Changing Legal Market: Some Thoughts for Law Students,” originally published in Of Counsel, Wolters Kluwer, August 2016.

August 24, 2016

Three causes of high legal fees:  Perfectionism isn’t the only challenge

Guest post by Carl Herstein, Chief Value Partner, Honigman

The AmLaw 200 and many smaller firms are in the early stages of trying to improve efficiency and provide higher quality at lower costs.  There are three major trends that have led to the ever-increasing costs of legal services and to the segmentation of the legal market:

1) Lawyers have to deal with the rapidly expanding size, scope, and complexity of American and international law. 

2) The impact of technology on the law.

3) The nature of the American legal system, with its emphasis on perfect procedure and perfect outcomes, is a decisive element. 

Those trends, in turn, have inspired a focus on improving the process of providing legal services, reducing costs, and improving quality.  The third point – perfectionism - is talked about a lot, but the first two have inspired far less discussion.

Why do I talk about the size, scope, and complexity of the law? Forty years ago, when I graduated from law school, at least it was a manageable proposition to try to do legal research. Nowadays, with the incredible number of cases, sources, and materials out there, it’s almost impossible in certain respects. Similarly, while there were statutes and regulations at the federal, state, local, and international levels, it was complicated but not overwhelming. In my judgment, it is now overwhelming. 

In 1976, when I left law school, there really was no environmental law. There was no healthcare law, no ERISA, and no significant practice in various other areas.  Now there are departments in each of the major law firms to deal with these things.  Law is more and more complex, so there’s more and more work for lawyers and law firms to handle. 

And of course we have a love-hate relationship with technology. Technology allows us to access all of these hundreds of thousands of cases. But the more you have, the more you have to encompass. Technology allows clients to preserve all sorts of data in the form of emails, voicemails, documents, notes, etc. Guess what: discovery in litigation matters is a herculean task. Again, new technology is helping us sort these things out, but every time it helps us solve a problem, it makes other problems more complex. 

When I started out, the typical commercial mortgage document was five to fifteen pages in part because it actually had to be typed. Now, it’s not surprising to get a 125- or 150-page commercial mortgage document. One of the resulting problems is that very few buyers can afford to have a lawyer read the whole thing. It takes five or six hours to read one of these documents and actually figure out whether it all makes sense. 

If you do read one of them, often you find that some of the provisions don’t jive; that, in attempting to address every potential problem in detail, people have just made terrible problems for themselves. So just a bit of gratuitous practical advice here: if you are writing documents, shorter and simpler is often better. 

We have a quest for perfection in America. This virtue is also a vice. We have wonderful procedural protections. We have tremendous appellate rights. If you have a claim, in many respects you have all the time in the world to prosecute it to a conclusion. Unfortunately, it makes the cost of dealing with a legal matter almost incalculable in many situations.

As a result of these factors driving ever-higher legal costs, the marketplace has segmented. Let’s say that you work in a 100-plus person law firm. A relatively modest commercial case comes in the door with a mere $1 million at stake. Since yours is not a mega-firm, but just a good regional firm like some here in Detroit, your clients are only going to be paying a mere $400 or $500 per hour for an experienced partner’s services. They are going to get billed $300 per hour for the second lawyer; perhaps $175 per hour for a legal assistant. You’ll have to hire an expert with similar costs, perhaps several. You’ll need a firm to help you with the electronic discovery simply because we have a few hundred thousand documents to review. 

Figure a seven-10 day trial could cost you a mere $150,000. It then probably costs $200,000 to get up to the trial with a complaint, motion practice, and discovery.  Now you’ve got a $350,000 budget for your million dollar case. No wonder clients think costs are out of control! 

Imagine you’re the defendant in that case. You think you have been wronged, not the other way around, yet the plaintiff is demanding $1 million from you. Your lawyers tell you they are going to charge $350,000 to vindicate you in a situation where you think your liability is zero.

 

This guest post is an excerpt from Carl Herstein’s thought provoking article “The Changing Legal Market: Some Thoughts for Law Students,” originally published in Of Counsel, Wolters Kluwer, August 2016.

August 17, 2016

Tracking and controlling costs (Part 2 of 2)

By Steve Barrett and Jim Hassett

 

Step 3:  Compare planned spending against actual spending at regular intervals

If the firm does have timely information going into the system, the next step is to get it out.

Whatever accounting package your firm uses -- whether it is Elite, Aderant, Juris, Rippe Kingston, or another -- it already has a number of built in features to assist budget tracking.  The exact details vary not just from one program to another, but also depend on the version your firm is running, and any add-ons they purchased.  Since features are also constantly being updated and enhanced by software vendors, the best way to find out exactly what your firm’s software can do is to talk to your finance staff.

There is no one best solution for tracking.  The best answer for you will depend on client needs, the way you like to work, the features of the software your firm already owns, and how much time is required and available for assistance from finance personnel.  (Depending on your software, your finance department may simply not have enough staff available to implement a solution which is technically possible but time consuming to set up or administer.)

The need to talk to appropriate personnel is especially strong if you work at one of the many firms that has developed, or is in the process of developing, its own individual custom applications to track and report spending.

During your discussion, you may want to talk about how practical it is to set up features in advance such as: 

  • Initial budgets for a matter, phases, tasks within phases and/or work in progress (WIP) on individual tasks by each timekeeper.
  • A set of specific tasks and phases (whether the standard UTBMS set or a custom developed set).
  • A standard set of prose descriptions to identify tasks, with uniform nomenclature. (In many packages, you can enter a task name in the pre-designated user-defined task field, typically with a 60- or 80-character field text limit.)
  • The ability to limit which timekeepers are allowed, or not allowed, to bill time to a particular matter.

Then you should discuss the most practical way for you to review the data, such as:

  • Summary reports by matter – The finance department may be able to set up a simple report that can automatically be generated every week, every month, or at whatever reporting interval you specify.
  • Summary reports by client – It may be practical to track and report on overall client charges (by percent, absolute amount, retainer or credit limits), as well as the phase, task or individual timekeeper reports.
  • Excel spreadsheets – If you like to work in Excel, reports can often be delivered in this format at your request (e.g. simply showing three columns: the initial budget, actual spending to date, and remaining budget).
  • Alarms or flags can be set to warn you – via computer-generated automatic e-mails – if a matter is running beyond its budget for a period, or any time a certain number of dollars have been spent, or whenever a matter has spent any pre-defined percentage of its budget. For example, you could request that emails be sent to you automatically when you reach 25%, 50%, 75%, 90%, and 100% of spending).

In addition to the features in standard accounting packages, and the custom programs some firms have developed, there are a number of related software tools that firms use to track and analyze financial metrics, such as Redwood Analytics and DataFusion’s Intelliquest family of analytic tools.  In the last few years, legal project management software has also started to emerge as a new category, including Prosperoware’s Umbria, the Cael™ app suite from Elevate, and Randy Steere’s Budget Manager.  A few years ago, Engage was the leading software in this space, but late in 2014 Thomson Reuters announced that they would stop supporting the product in 2017.

In summary, there are so many options and variations in this area, and they are changing so rapidly, that if you want to know the most practical way to track budgets in your firm, you will need to talk to the appropriate staff.

Step 4:  Define a plan in advance to address critical gaps between planned spending and actual costs

We’ve discussed this critical step before in several blog posts.  For example, see the guest post by Stacy Ballin, a partner and General Counsel at Squire Patton Boggs, entitled “Scope changes in litigation.”  Another related post in this blog is entitled “How to track legal work that is out of scope” and describes how some firms are using special task codes for out of scope work to make lawyers more aware of the issue.  The fourth edition of our Legal Project Management Quick Reference Guide, which will come out in October, includes some new resources on this topic, notably an article by JT Stuart Dodds, the Director, Global Pricing and Legal Project Management at Baker & McKenzie, entitled “Establishing a change control process.”

At the end of the day, the details of the system you use to address gaps is less important than the simple fact that you have set some rules in advance.

August 10, 2016

Tracking and controlling costs (Part 1 of 2)

By Steve Barrett and Jim Hassett

Tracking and controlling legal costs is one of those topics that would require an entire book of its own to do it justice.  This short overview is designed to outline a framework for an effective system.  The practical details of how budget tracking works in your firm will depend on the approach of your finance department, and the tools they use. 

In many firms, this is an area that is evolving rapidly as clients demand more timely and sophisticated information about spending.  If you are not already familiar with the latest budget tracking procedures in your firm, our single most important piece of advice is to stop reading this post and instead talk to your finance or practice development staff about the tools and techniques that are currently available to you, and what is planned for the future.

This two part series provides a brief overview of four major steps in tracking and controlling costs.

Step 1:  Define a baseline budget before the matter begins

If you have no idea what the total cost should be at the end of a matter, it’s pretty obvious that it will be hard to know where you stand.  Yet we continue to be amazed at the number of lawyers we see who operate without sensible budgets.

If you need to improve in this area, you may want to see the posts from this blog on Six steps to better budgets”.  For important matters, you should ideally develop what we called a “high detail” budget in that series, in which you have estimated the cost for each phase. For example, in litigation you could have separate budget estimates for case assessment, pre-trial pleadings, discovery, trial preparation and trial, and appeal.  (As noted in our recent series of posts on task codes, high level phases generally work better than detailed tasks for this, because it is so difficult to get lawyers to accurately code their time entries by tasks.)  Many firms now require high detail budgets for all matters over a certain dollar threshold, even if clients do not request them.  The threshold may be as low as $50,000 or less, or as high as $250,000 or more, depending on the size of the firm and the amount of financial control that is desired and practical.

Step 2:  Obtain accurate and timely information about spending as the matter proceeds

In order to evaluate the financial status of a matter, you need to know how much has been spent to date.  In coaching lawyers in LPM over the last several years, timekeeping practices is probably the area where we have seen the most change.  Years ago, the standard at most firms was for lawyers to submit timesheets at the end of the month, which occasionally became an exercise in “creative writing.”  And if a partner submitted a time sheet a month or two late, no one got too excited.  Until the day that time was submitted on a matter after the final bill went out, and the firm had to write off the difference.  There are still firms that live with this system, but the number goes down every year.

At the other extreme, there are now practice groups and entire firms that require lawyers to submit their time electronically at the end of every day.  The next morning, the relationship partner can get a real time view of exactly how much has been spent.

Most firms fall somewhere in the middle and many are still struggling with systems to encourage timesheets to be submitted promptly.  We have seen many approaches used by firms to induce compliance with prompt time entry practices, both “carrots” and “sticks.”  The “stick” ranges from continually nagging and cajoling, to systems of either financial penalties (e.g. $50 per end-of week or end-of-month tardy time release) or evaluation penalties (e.g. reduction in the offender’s year-end evaluation for bonuses).  The “carrot” systems offer evaluation or dollar awards for compliance. 

One of the more creative systems we’ve come across was the CEO of an AmLaw 100 firm who suspended direct deposit on pay day for anyone whose timesheet was late.  The individual had to then come to the CEO’s office to pick up a physical pay check.  Another creative firm created a contest among administrative assistants, with cash rewards for those whose groups had the best record for meeting timesheet deadlines.

Regardless of the state of timesheet practices at your firm, if you are responsible for keeping a matter within budget, you will need to find a way to get complete and timely information on hours billed to your project.  Without it, any subsequent analysis will simply be a matter of “garbage in, garbage out.”

This series was adapted from the fourth edition of the Legal Project Management Quick Reference Guide which will be published in October.

 

August 03, 2016

Tip of the month:  Adapt your reporting style to each client

Under-reporting of the status and results of legal matters can result in surprises to the client and unpaid bills.  But over-reporting can make clients think that you are insecure or even lack competence.  The trick is that different clients draw the line at different places, so whether your reporting consists of weekly phone calls or short monthly reports or something else will vary from client to client.  Success starts by talking with each client about what they want.

The first Wednesday of every month is devoted to a short and simple reminder like this to help lawyers increase efficiency, provide greater value to their clients and/or develop new business. For more about this tip, see our Legal Project Management Quick Reference Guide.

July 27, 2016

Using outsourcing to reduce legal costs (Part 2 of 2)

By Jim Hassett, Mike Egnatchik, and Jonathan Groner

Michael Bryant, the CEO of nSource, stressed that help desk functions are only one of many operations that law firms can and are outsourcing with the help of companies like his.

For example, DLA Piper asked nSource to manage a “captive operation” for it in an off-site location in Tampa, Fla. Bryant says that some law firm functions that were at first thought of as requiring attorneys on site actually were susceptible to being done off site by contract employees. One of them, in DLA Piper’s case, was conflict checking – a crucial function that a law firm must undertake before it takes on a new matter.

“We distinguished between the strategic and the tactical aspects of conflict checking,” Bryant said, “and we found that the tactical, day-to-day aspects could be done off site. By doing so, we reduced the firm’s costs for this function by 50 percent, and we also achieved a 50 percent decrease in the time required to hire a new conflicts analyst and bring him or her up to speed.”

nSource did this by carefully studying the conflict checking process – what steps were involved, who did them, and how long each step took. After completing this process mapping, it was able to advise its client, DLA Piper, on how to outsource that task.

Bryant said DLA Piper’s leaders were so pleased with the way outsourcing worked in the conflict checking arena that they expanded it to other functions as well, saving money, increasing efficiency and improving the way the tasks were done.

Legal marketing, like conflict checking, has aspects that are highly strategic and can’t easily be outsourced. But, DLA Piper and nSource found, it has many routine aspects as well.

“Although there are some people in marketing who really need to be near the lawyers,” Bryant said, “when you think about all the external and internal communications demands on a marketing team, the RFP responses, the responses to honors and awards submissions, these can be leveraged and done in a centralized way, off site. For DLA Piper, we moved to a factory-like setting, where they really churn these things out. We placed rigor and precision around an area that has historically been chaotic.”

In similar ways, nSource has set up outsourced offices for other functions such as library services and human resources for DLA Piper and other clients. 

The new world of legal outsourcing does however raise some new management issues.  The challenge of managing subcontractors is familiar in other professions. The 11th edition of Harold Kerzner’s widely quoted textbook, Project Management, has an entire chapter devoted to working with external suppliers. The perspective is interesting, since the chapter makes it clear that a firm using an external source for some of its work on a matter is now in a role reversal. The firm is a client of the outsourcer it has hired, and has the same responsibilities to monitor that outsourced supplier that its own client has to monitor the firm’s work.

If XYZ Corporation has hired your firm for a matter, the legal department of XYZ had the job of hiring you in the first place and has the responsibility to monitor your work. Similarly, if you hire supplier DIS for discovery work, you had the job of hiring DIS in the first place and then you have the responsibility of monitoring DIS to assure that their work product is acceptable. The law firm is responsible for the entire work product, and must make sure that all the parts work.

Lawyers are just starting to become familiar with the idea of subcontracting work, and the use of outsourcers presents new challenges.

As Mark Ross noted in a paper entitled "The Ethics of Legal Outsourcing", “It is clear that to satisfy the duty of competently representing one’s client, a US lawyer engaging a legal process outsourcing provider cannot rely on the provider to evaluate its own work product and must himself or herself be able critically and independently to evaluate the work product received.”

Oversight can be complex. For example, consider the eDiscovery technique of predictive coding. Unlike simpler forms of eDiscovery—such as keyword search, concept searching, and looking for clusters of similar document groups—in predictive coding attorneys train software algorithms to find the most relevant documents by using samples of documents called training sets. According to Predictive Coding for Dummies (p. 8):

Training the predictive coding system is an iterative process that requires attorneys and their legal teams to evaluate the accuracy of the computer’s document prediction scores. If the accuracy of the computer-generated predictions is insufficient, additional training set documents are selected from the document population being considered. Multiple training sets are reviewed and coded until the required performance levels are achieved. Once the desired performance levels are achieved, decisions can be made about which documents to produce.

The great advantage of this approach is that attorneys will be able to explain the decisions made by the computer, since they worked to train the computer algorithms. This can satisfy the obligation of competent representation, so long as things are properly done. But there is always the danger that things will not be properly done. Predictive Coding for Dummies (p. 11) goes on to say:

Understanding how to use predictive coding tools properly is critical for several reasons. First, predictive coding is relatively new to the legal field and introduces additional complexity to the eDiscovery process. Second, many different predictive coding solutions are available on the market that vary in quality and approach. Third, even though predictive coding solutions can be difficult to use, clear instructions and training are often lacking, which can increase the risk of error. These and other factors have combined to create confusion about the proper methodology for using predictive coding tools.

The message is clear: A firm that uses predictive coding cannot rely on it as a black box that gives right answers at all times. Not all providers are equal. There must be a procurement process that evaluates and selects an appropriately qualified provider.

Competent representation includes understanding and monitoring the provider’s work. If that does not happen, the law firm may be at risk.

Due to the growth in outsourcing, in 2008 the ABA Standing Committee on Ethics and Professional Responsibility issued an opinion to provide ethical guidance to lawyers about how to outsource in a manner that is consistent with the profession’s core values. State and local bar associations have also offered guidance in this area.

In August 2012, the ABA Commission on Ethics 20/20 concluded that outsourcing did not require changes to the Model Rules of Professional Conduct. However, it did propose new Comments to identify the factors that lawyers need to consider when retaining outside lawyers (Model Rule 1.1) and non-lawyers (Model Rule 5.3) to assist on a client’s matter. The Commission also proposed a new sentence (for Comment 1 on Model Rule 5.5) to clarify that lawyers cannot engage in outsourcing if it would facilitate the unauthorized practice of law.

Like many obligations described in the Model Rules, these proposals were intended to be “rules of reason” and were not intended to preclude consideration of broader legal concerns, such as malpractice and tort liability. But they did reflect the fact that new trends in outsourcing place new demands on the supervising lawyers.

This series was adapted from the fourth edition of the Legal Project Management Quick Reference Guide which will be published this fall.

 

July 20, 2016

Using outsourcing to reduce legal costs (Part 1 of 2)

By Jim Hassett, Mike Egnatchik, and Jonathan Groner

At a time when clients are demanding to pay less for legal services, it is easy to see the benefit of getting work done for lower hourly rates. Law firms and their clients are looking at each step in legal processes and asking the question, “Can I hire somebody else to do this step at a lower cost, or do it better, or do both?”

Some types of legal work are relatively easy to outsource. Here’s how Pat Lamb has explained the underlying rationale:

The four-buckets rule—developed by Jeffrey Carr…—is that that legal work fits into one of four buckets: process, content, advocacy and counseling. The Carr corollary is that general counsel are willing to pay generously for advocacy and counseling, but believe process and content should be free, or at least much less expensive, while law firms make the bulk of their revenue from the process and content buckets.

In one widely quoted discussion of outsourcing, Legal OnRamp founder Paul Lippe argued that about 25% of all legal work falls into Carr’s process bucket:

Moving information from one place to another to create legal work product, typically either generating or analyzing contracts, or working through discovery-based work in litigation or investigation…. Process work will continue to grow, but it will increasingly be managed… with a combination of lower-cost people, process and technology.

Lippe went on to note that “large law firms charge from $150/hour (paralegal) to $400/hour (mid-level associate) for process work.” He then listed these lower cost alternatives:

  • “In-house teams can execute process work for $100-200/hour, and much less if they organize for it as Cisco
  • Non-traditional providers like Axiom charge perhaps $125-250/hour for process work, but are still often advantageous for clients, because they represent a variable, not fixed, cost, and don’t require supervision.
  • Legal process outsourcers (LPOs) can deliver process work (including onshore lawyers, technology and process) for around $60/hour with predictable quality, integrated with legal departments and with formal methods for delivering and ensuring quality.
  • Law firms have started to create their own ‘captive’ LPOs, like Orrick in Wheeling, W.Va., Wilmer in Dayton, Ohio, Allen & Overy in Belfast and Baker & McKenzie in Manila.”

In his book Tomorrow’s Lawyers: An Introduction to Your Future (p.33), Richard Susskind takes this much further:

In the past, when confronted with a legal job, a client had a single choice: undertake it internally or pass it out to an external law firm (or perhaps a blend of the two). The legal world has now changed, so that new alternative sources of legal service are now available. I have identified 15 ways of sourcing legal work.

The key point here is that the identification and management of outsourcing alternatives will become an important task for firms that want to compete in the new normal.

In addition to outsourcing some elements of the work that lawyers do, law firms are also beginning to outsource many back office functions that don’t directly involve the practice of law (such as their IT help desks and elements of their marketing departments) and that involve the practice of law only indirectly (such as conflicts-checking functions).. Outsourcing of these functions can reduce costs significantly and help make firms competitive.

“What has caused this situation,” said Brad Christmas, a co-founder of nSource, a Chicago-based outsourcing consulting firm, “is the fall-off in demand for legal services – the dramatic change in how legal services are being priced and purchased.”

“All the sins of inefficiency that were covered up in the past, when law firms were riding high, are becoming exposed,” said Christmas. “Unless you are truly a premier law firm, you are fighting with many other firms over a diminishing body of legal work. The result is intense pressure to reduce prices and to keep expenses down.  And not all expenses can be kept down. There has been a constant increase in the cost of top legal talent, and firms certainly don’t want to start paying their partners less, so there are not many easy choices left.  Firms have to run their business more efficiently.”

Enter outsourcing consultants such as nSource, who describe their role as advising law firms about how to cut costs and become more competitive in the same way that consulting firms like Accenture advise corporations on how to become more efficient. In fact, they suggest to law firms many of the same cost-saving techniques that corporate America has used for years. nSource was founded in 2012, when it became clear that the new legal economy was here to stay.  It has since grown rapidly by advising major law firms on how to outsource a wide variety of their functions and on actually hiring people to perform those functions in off-site offices.

Law firms, Christmas said, “are starting slowly and gradually” to outsource many functions.  “These changes particularly affect any lower-skill, routine, rote functions that a law firm may be performing.  As to what is considered ‘routine,’ the bar keeps moving up. When e-discovery first became a major need, law firms responded by hiring lots of staff attorneys. But later, many corporate GCs took control of that function and told law firms they wouldn’t be paying for that many staff attorneys. And advances in e-discovery are gradually reducing the need to have human beings doing much of this work.”

One good example of low level work being outsourced is the information technology help desk function. A recent college graduate – not even a trained computer analyst – can easily be trained to solve the technical computer problems of most law firm attorneys and staff. And they don’t need to work on site; they can work anywhere, as long as they are connected by phone and email to the firm’s worldwide offices. So the law firm will place these people in remote offices where costs of living and wages are lower.

“The business approach for outsourcing low skill tasks is similar to the military,” Christmas summed it up. “You find an intelligent young person. You train him or her, and they do the job very well at a low cost for two or three years. Then they move on, and you hire someone else.”

This series was adapted from the fourth edition of the Legal Project Management Quick Reference Guide which will be published this fall.

July 13, 2016

Task codes and budgeting: What works and what doesn’t (Part 7 of 7)

So what does it all mean?  After reviewing all the opinions listed in the first six parts of this series, what are our conclusions and recommendations?

When we discuss these issues with clients, some take the position that there is simply too much controversy about task codes to make intelligent choices at this time. They would prefer to wait on the sidelines until experts agree and precedents have been set.

But these issues are too important to wait. When we did a survey of AmLaw 200 leaders for the book Client Value and Law Firm Profitability, an amazing 85% of chairs, managing partners, and senior decision makers agreed that firms will have an advantage if they address LPM before their competitors do. Given the fierce competition for a shrinking marketplace, the lawyers that try to wait on the sidelines may regret it.

There is absolutely no question that lawyers can increase client satisfaction and profitability by improving the way they plan and execute their work. The reason that project management is growing in the legal professions is that clients are demanding it. In its 2015 Chief Legal Officer Survey, Altman Weil asked general counsel to select the “service improvements and innovations… that you would most like to see from your outside counsel.” The top three were greater cost reduction (selected by 50% of respondents), improved budget forecasting (46%), and more efficient project management (40%). Since LPM leads to cost reductions and more accurate budgets, you could say that the top three requests of in-house counsel these days are LPM, LPM, and more LPM.

And task codes are a very important element in the LPM toolbox. In the fifth edition of the widely quoted text Fast Forward MBA in Project Management, Erik Verzuh wrote:

A task list… [more formally known as a] work breakdown structure… turns one large, unique, perhaps mystifying piece of work… into many small manageable tasks… It is the foundation of project planning and one of the most important techniques used in project management. If done well, it can become the secret to successful project management. The work breakdown structure is perhaps the most useful technique in this [510-page] book.

For lawyers who work in areas in which UTBMS codes have been developed – including litigation, bankruptcy, IP, and M&A – the single most important benefit of task codes may be the fact that they provide a ready-made work breakdown structure. Lawyers can immediately start using them to plan a new matter without re-inventing the wheel.

Still, many questions remain in the details of when and how to use phase and task codes, especially in the many practice areas where there is no standard set of UTBMS codes. Perhaps the most critical question is whether every lawyer in a practice group or a firm should be required to use the same codes in the same way or whether individual lawyers should be permitted or even encouraged to use their own systems their own way.

The benefits of a single universal system are obvious to anyone who wants to analyze and compare costs. However, as noted in several of the expert quotes above, many lawyers resist using a pre-existing set which is not to their liking, and others fail to use them properly. The result can be a huge amount of effort to create a system that produces “garbage in, garbage out.”

Based on our experience coaching hundreds of lawyers on these issues, we believe that “bottom up” solutions work better than “top down” mandates in almost all law firms. This implies that meeting the ideal of a single universal system, in which everyone in the firm uses the same codes in the same way, will be very difficult to achieve.

In contrast, if an influential partner or group of partners is asked to create a list of codes that meets their needs, it is a much simpler task. Lawyers in our coaching programs have developed codesets for many specialties that are not part of UTBMS, including real estate loans, private equity fund formation, venture rounds, private investment in public equity transactions, wage and hour audits, Equal Employment Opportunity audits and compliance, Office of Federal Contract Compliance matters, labor and employment litigation, National Labor Relations arbitrations, and more.

Even the format of these code systems can vary widely. Steve Barrett, one of the co-authors of this series has personally coached many lawyers to create such systems and notes that:

The code fields of major legal accounting systems can generally accept either letters or numbers (usually up to 10 characters), and the task title fields can accept 60-80 characters, so why not just use plain English? As long as there is enough planning and education at a matter’s outset to assure that everyone who works on the matter uses the same codes in the same way, it works very well.

Is it worth the effort to create and enforce a firmwide system? It depends.

In my Legal Business Development Quick Reference Guide, I’ve written about a similar “it depends” situation in business development:

When lawyers ask us for the single most important piece of advice in legal business development, the answer is simple: Ignore good ideas. You must prioritize relentlessly… Lawyers are much too busy to spend time on ideas that are only good. To maximize the chances of success, each individual must focus on the very best idea for their practice, their personality, and their schedule.

In the case of LPM, budgets and pricing are clearly very important, and a firmwide set of task codes which is properly implemented will certainly help. But it will also require a significant amount of time and effort that could be used to focus on other LPM tactics. And, as Toby Brown noted near the end of his article on “The State of Legal Pricing”:

As clients are trying to lower legal costs, and firms are trying to keep clients happy, the real trick will be more cost-conscious management of legal work.

The fourth edition of our Legal Project Management Quick Reference Guide, which will be published this fall, includes over 300 pages of tools and templates designed to help lawyers with “cost-conscious management of legal work” but have little to do with task codes, such as:

  • Improving engagement letters
  • Statements of work
  • Negotiating changes of scope
  • Business process improvement
  • Internal team management
  • Delegation
  • Personal time management
  • Risk analysis
  • Quality management
  • Improved client communication
  • Lessons learned reviews
  • And much more

In our study of the AmLaw 200, we found that managing partners and law firm leaders said that the two most important LPM issues they faced were defining the scope of matters better at the outset and communicating better with clients. Neither issue would be helped by investing time and energy into firmwide task codes.

Different lawyers will inevitably reach different conclusions because they are in different situations. We believe that in order to improve their competitive position, each firm, each practice group, and even each lawyer must decide for themselves where to best invest their LPM time and energy.

This series was adapted from the Fourth Edition of the Legal Project Management Quick Reference Guide, which will be published this fall.

June 29, 2016

Task codes and budgeting: What works and what doesn’t (Part 6 of 7)

Before concluding our review of task codes, it is important to emphasize that while this series of posts summarizes an emerging consensus, the area is still evolving and our conclusions are by no means universally accepted. As the use of task codes for budgeting has spread, a small number of critics have even begun to question the very idea of task coding. In our confidential interviews, the most extreme view was held by the expert who said:

I have looked at task codes for all of the possible reasons, including looking at past performance and planning future budgets for nearly a decade. I have looked for patterns in types of cases and I have tried to use task codes to create pricing components for templates that can be used in the future. My general conclusion, having looked at hundreds of legal matters, is that I have found task codes, as presently constituted, to be worthless.

In 2014, Toby Brown (who also participated in the confidential interviews for these posts) posted a piece in his “Three Geeks and a Law Blog” entitled The Value of Task Codes? which began:

Billing task codes are not magic pixie dust. There seems to be a broad perception that task codes will solve pricing and legal project management problems for all practices. “If we only had task codes for [insert type of work], we would know how to price this.” My general feeling is that A) the task codes were not designed to address this need. B) The use of task codes is highly inconsistent, so the data is poorly structured. And C) Even if the data was in good shape, it won’t provide magic pricing and budgets.

In our opinion, the most serious of these objections is the quality of the data. Several people we talked to mentioned that even if you use the ABA code for depositions, let’s say, the system does not enable you to easily code the type of depositions for a particular case or even their number. One interviewee put it this way:

You really can’t figure out in any meaningful way what a deposition costs, even though that’s something you’d like to know. But even if you could say that a deposition costs $50,000, the question would be: For what kind of case? Single-plaintiff employment? Toxic tort? Patent litigation? Simply saying it costs $50,000 says nothing.

Ken Grady has taken this argument a step further in his blog post, “The Days of UTBMS Codes Are Over, Let’s Focus on Value,” which includes the following example:

Assume we have two single-plaintiff lawsuits where the issues and facts are relatively similar, and both are in the same jurisdiction so the law applying in each case is the same. Lawyer 1 is handling the first case and Lawyer 2 is handling the second case.

One of the premises of the UTBMS code system is that we can use the data to compare performance by lawyers. We assume we can look at the time spent by Lawyer 1, compare it to Lawyer 2, and draw a conclusion about which lawyer is more efficient.

But there are far too many variables with values we don’t know to make such a judgment. The following list contains just a few examples of those variables as they could apply to one piece of the case – the plaintiff’s deposition:

  • Was the plaintiff in one lawsuit very experienced with depositions and the plaintiff in the other inexperienced?
  • hat impact did the plaintiff’s attorney have in each case (preparing the plaintiff, at the deposition, otherwise in the case)?
  • What other factors affected the deposition (e.g. mood of each participant, logistical issues)?

These types of variations are behind the problem that Toby Brown wrote about in his article “The State of Legal Pricing”:

What most clients ultimately want is to know that a patent litigation will cost $X through the Markman hearing or that an acquisition will cost $Y for Due Diligence, and $Z to close the deal. But an acquisition service may have a price range of $10,000 to $10,000,000 – from experience, that type of fee range is not an exaggeration – and what drives the range is a combination of scope, size and client goals related to the deal.

Some of the strongest proponents of task codes whom we interviewed are well aware of this variation, but argue that this just requires a higher level of sophistication when analyzing task code data:

If you have 100,000 depositions in your database and the average cost is $10,000, that’s just a “so what” factoid. But if you categorize matters based on the type of case, size of the company, whether it was public or private, and other relevant factors, you can get very useful information for predicting future costs.

Despite these counter-arguments, Grady’s overall conclusion is that:

Continuing to spend a lot of time and effort on UTBMS codes, in my opinion, does not add value to improving the efficiency, productivity, or quality of legal services. I don’t want the least effort low value service. I want a high value service delivered efficiently. To accomplish that goal, I want to focus on what adds value, measure the value, and ruthlessly eliminate things that don’t add value or detract from the value. 

Many critics take a less radical view that offers more hope for the future. In the comments that were posted to Toby Brown’s 2014 blog post quoted above, Michael Byrd, currently the director of financial operations (North America) at Baker & McKenzie, wrote:

I have struggled with this topic for several years now and agree that there is little utility within the current construct [of task codes]. That said, my gut tells me that there is an opportunity here. If firms can find a way to leverage their use when required by clients with internal budget tracking by major components of an engagement AND provide transparency into that budget for their working timekeepers, then maybe, just maybe, the quality of the data will improve generally and outside counsel can legitimately claim progress in project management while meeting their clients’ e-billing requirements.

This series was adapted from the Fourth Edition of the Legal Project Management Quick Reference Guide which will be published this fall.

June 22, 2016

Task codes and budgeting: What works and what doesn’t (Part 5 of 7)

In our work coaching lawyers about how to use task codes, one of the most interesting innovations we’ve seen was from firms that have created a special code to internally track work that fell outside the scope defined by each engagement letter.  This led to the sixth and final recommendation from our research:   Create an internal code for work that is out of scope.

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 our Legal Project Management Quick Reference Guide, we quote 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 a 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 for the matters you’ve worked on lately?” Only one in four raised their hands. To put it another way, three out of four 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 the beginning of key matters at Bilzin Sumberg, 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: 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
  • 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.

The idea of having a separate code for work that is out of scope is directly related to one key goal of the entire task code movement -- to improve cost estimates before similar matters begin:

If the codes are in place for long enough, the firm can start using them for practical purposes. For example, the litigation department may be able to carve out certain components of litigation that are conducive to fixed fee work. They may then be able to go to a client and say, for example, that they will do a series of depositions for a certain fee.

But this isn’t easy. As another interviewee summed it up:

It takes a long time to build a reliable history of transactions. The more often lawyers use this system, the more data there will be and the more useful it will be. At the start, we thought it would enable us to just give our clients an estimate right on the spot, but every experience and every deal is different and has its own story. Not all transactions will develop the way you expect them to happen.

How well are firms using the data they do have? Several noted that there is room for improvement:

Our firm right now does not do such a good job of leveraging the fee data that it has and tracking all the trends. For example, we should have enough data to answer the question of how many hours are typically needed to respond to a motion to dismiss. But this process is usually being done only on an individual basis, where a lawyer will compare a present case to a past case. The firm could be using “Big Data” gleaned from its past experiences more effectively. In fact, that is one of the firm’s current projects. We have perhaps 1,000 cases and matters with phase code information, so there are resources to generate comprehensive data from those cases and matters…. All of that data is in the firm’s hands to slice and dice. Just seeing the range, the highs and lows, would be quite eye-opening.

Based on our experience, we would recommend resisting the urge to “slice and dice” the data and instead focus on a “less is more” approach that makes it extremely easy for lawyers to get the big picture quickly. This could be as simple as a one-page summary for each type of matter listing the total costs of all similar matters in the last few years, with quick comments on any factors that appeared to raise or lower the cost.

The shorter that each summary document is, the more likely it is that lawyers will use it. Several pages of task summaries will have much less impact than one page listing key recent matters and the total cost. Even if people see only the wide variation, it will move the conversation forward.

Of course, even if a firm had a crystal clear understanding of what a motion to dismiss would cost at its standard rates, that does not mean that they can charge that price in the current highly competitive marketplace:

The task code system lets you know what the deal is worth and how it should be valued in an ideal world, but you don’t always bid that. You will often need to bid lower to try to land the business.

Nevertheless, phase and task code analysis can also be helpful in other ways. As one expert put it:

Ultimately, it’s not just a matter of adding up the numbers. The firm can use the data to add ideas and to maintain and increase profitability by learning to work more efficiently.

This series was adapted from the Fourth Edition of the Legal Project Management Quick Reference Guide[1] which will be published this fall.