Magazine article Risk Management

Harnessing the Cost of Legal Bills

Magazine article Risk Management

Harnessing the Cost of Legal Bills

Article excerpt

TODAY, THERE'S A VERITABLE REVOLUTION under way in the legal world, aimed at altering the relationship between companies and their outside legal counsel. This new movement, which has nothing to do with substantive issues of law, is instead focused on helping clients learn to better manage their relationships with their outside law firms, particularly with respect to litigation. The goals of this movement are reduced legal expenses and better litigation results.

So far, the large users of outside legal services have been the primary benefactors of this movement. These firms are big enough to employ significant numbers of in-house counsel who can spend the time necessary to learn how to more effectively manage the firm's outside attorneys and demand changes in how these counsel deal with their cases. However, large companies aren't the only ones who can benefit from an effective litigation management program.

In fact, any person who is responsible for monitoring litigation - including risk managers and non-attorneys - can learn the basic principles of litigation management. With sound training, and with the development of a proper system for managing outside attorneys, clients can implement a management program that will not only substantially reduce legal expenses, but also improve litigation results.

Moreover, as risk managers are already aware, legal fees to one's own counsel are often a bigger potential exposure in a case than the ultimate liability to an injured party. Therefore, controlling and reducing legal fees should be a prime goal of any risk management program. The good news is that, with proper training in litigation management, a risk manager can become an effective litigation manager as well.

THE LEGAL BILL AUDIT

For risk managers, the first step on the road to effective litigation management is, paradoxically, to start at the end of the litigation process - that is, with the organization's legal bills. This first step is important, because only when risk managers understand their companies' bills can they identify the services they are paying for and develop methods aimed at managing litigation costs. So, in order to gain an understanding of their bills, a good place to start is with what has become known as the legal bill audit.

Essentially, legal bill audits involve analyzing the client's bills to determine if they are accurate and appropriate for the services rendered. Why are legal bill audits necessary to begin with? First, legal bills have traditionally not been presented in a format or with sufficient information so that clients can truly tell what they are paying for. As a result, many clients find themselves unable to question billings. Second, some dubious billing practices have become the norm because clients were either unaware of them or believed that they were standard practices and therefore not subject to challenge.

There are two types of audits - the "overbilling" audit and the "management" audit. Overbilling audits are designed primarily to identify possible overbillings in a particular case. They involve analyzing the bills and the "backup" to the bills, which is usually in the form of attorneys' time notes and computer-generated draft bills. They also involve analyzing the work product generated in the case, such as correspondence and pleadings, and expense documentation. In addition, where possible, there should be input from the law firm. This type of review can take anywhere from a few days to a few weeks and 0 ccasionally longer.

While the purpose of an overbilling audit is to identify possible overbillings, management audits are designed to improve the client's management of future cases. A management audit of only a comparatively few hours' duration will tell the client most of what it needs to know to significantly improve the management of its cases. It typically involves analyzing the bills and any other information the client already has in its possession, so its cost is relatively low, yet what it uncovers can be applied to many cases. …

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