Last Thursday (March 5, 2020) I was, for the umpteenth time, shocked to be reminded of how un-businesslike the legal industry’s billable hour-based business model really is.
I say “un-businesslike” rather than “crazy” — or something more colorful — because the clients I serve are businesses themselves. And their businesses succeed or fail based on their results.
The legal industry (the vast majority at least) demands that their client businesses pay on the basis of lawyers’ inputs. And as I explain below, law firms charging by the billable hour business model routinely misstate what those inputs are.
So it’s no wonder that lawyers and business people have such a hard time understanding each other.
They literally occupy different universes.
From a commercial standpoint at least.
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So what shocked me last Thursday?
The Buying Legal Council retweeted Coote O’Grady’s tweet about their recent blog post, “20 Legal Invoice Review tips to reduce your 2020 external legal spend”.
Buying Legal Council is the leading organization promoting best practices in the emerging field of “legal procurement”. Their leadership has Harvard Business School case studies to their credit (here and here), law review articles, and three major treatises on legal procurement and related subjects.
I’ve admired these guys from the time I first learned about them, bought and read their HBS case studies, followed them closely. They’re very good.
And Coote O’Grady is a leading firm in what’s called “legal spend management”. Among their services: “Legal invoice review“. And their recent blog post featured “20 checks you can carry out on receipt of a legal bill to keep your 2020 legal budget under control”.
Among the 20:
- “‘Double-billing’: We see many examples of double-billing through our invoice review. Examples include two different timekeepers [that’s what attorneys are called in the billable hour context] billing for the same item, or travel being included within a line item and then billed as a separate charge.”
- “Inappropriate level of Lawyer: All actions should be completed at an appropriate level. You wouldn’t expect a Partner to be billing for photocopying documents, for example.”
- “Supervision: Clients should not be charged for time spent training or supervising junior employees.”
- “Number of fee earners on a matter: It is worth looking at the number of fee-earners [again, lawyer-speak in the billable hour context for “lawyers”] to consider if this looks appropriate, or if this is excessive.”
If a client company is paying lawyers by the hour, such “Legal Invoice Review” is vital. In fact, Coote O’Grady makes this claim:
“Our clients save between 2% and 6% on their external legal spend through our Legal Invoice Review service. We capture savings that would be missed (even by an eBilling system).”
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I had no right to feel shocked last Thursday. Every last item on that 20-point list is a live, current, financially material problem in legal billing.
As long as client companies put up with hourly billing, someone will have to keep law firms’ billing accurate.
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But the idea that a client company needs to seek out a third party to get good numbers on what they owe their lawyers — lawyers who are fiduciaries of that client company — makes no sense.
However much business executives need to defer to lawyers’ technical expertise on legal questions, the legal industry needs to start adhering to basic management principles in the ways that it delivers and charges for its services.