Photo by 401(K) 2012 (Flickr/Creative Commons)
Photo by 401(K) 2012 (Flickr/Creative Commons)

Fee Specialist On How GCs Are Tackling Their Budgets

Cozen O’Connor’s Bruce Meckler started his career three decades ago as a prosecutor in Chicago. Meckler still describes himself as a trial lawyer but lately, his other business has been heating up.

Called Legal Fee Solutions, it’s a stand alone company — owned by Cozen O’Connor — in which Meckler and his team of attorneys, paralegals, and other experts help in-house counsel monitor their outside spend. The work includes bill audits, expert witness testimony and general legal fee management among other duties.

He said that since around 2008, in-house counsel have been applying new scrutiny to bills, and demanding more information from their outside counsel.

“Since the crash of ’07 or ’08, law firm economics has just been turned on its head,” said Meckler.

Many of the changes originated with practices first implemented by insurance companies in the 1990s, he said, and are now gradually spreading to all corporate law departments.

“There’s a lot more communication in general,” said Meckler. “The days of hiring a law firm and hearing about the status every six months are over. GCs need to hear updates every week.”

Still, though, he said that hasn’t stopped some law firms from billing more than they should, including one he recently came across that charged $50,000 for the work to prepare a budget that the firm needed to continue its relationship with the client.

Meckler spoke to Big Law Business about how and why in-house counsel are applying more pressure on their outside counsel, new billing practices and his expectations for law firm economics. Below is an edited transcript.

Big Law Business: How are corporate legal department’s billing practices changing?

Meckler: The days of hiring a law firm and hearing about the status every six months are over. GCs need to hear updates every week.

Most of them are requiring e-billing and implementing pretty specific guidelines as to how law firms perform their services. In the old days, the only parties that used to use guidelines were the insurance companies. Guidelines govern everything from the work the law firms can do, to how much time they can bill, to what they need approval for.

Another thing is that now, because of e-billing, you’re able to do audits. Those are very frequently done now. Most companies that are requiring e-billing are requiring task-based billing. So now when the bill comes in you can electronically see how much time is being spent task for task. Most of corporate America is really picking up on this and why wouldn’t they? If a company can reduce its legal spend by 10 or 20 percent, why wouldn’t they? And that’s what they’re being told by the billing companies. You can save 5 to 20 percent off the board if you use our products.

Big Law Business: Are you seeing any other trends?

Meckler: The other thing is GCs are really bearing down and requiring their outside counsel to prepare serious budgets. That’s a trend that’s going full speed ahead. Serious thoughtful budgets that should have every task that a law firm is going to be working on. The best budgets are for three to six months. It also should say who all the lawyers are that are going to be working on the case, what they’re going to be doing and how much it’s going to cost.

A handful of our big clients are doing these reverse auctions on a lot of their big cases. If I’m a company, I send out my proposal to five law firms of my choice to bid on a case I have and the low-bid is going to win. It’s being referred to as a reverse auction. It’s something that AIG started about five years ago, and it used to only really affect the insurance defense firms. But it’s evolved and many companies are using it for significant commercial litigation, and it’s moved into the mainstream with Big Law.

Big Law Business: Are law firms able to accurately predict the cost of a big ticket item upfront?

Meckler: That really is a great challenge to Big Law — the idea that you have to understand on the front-end how much you’re going to have to spend to defend something. It requires lots of consideration and thought about what each stage of the case is going to cost, and … it’s not that different from what these lawyers are being asked to do when they prepare a budget. But there’s more risk because it’s a longer time period with the usual uncertainties of litigation or a transaction. I did not think it would take off, but it really has.

Big Law Business: People often talk about how corporate counsel are no longer putting up with excessive billing practices. Why is this only happening now and how did the balance shift?

Meckler: I would suggest that it was a long time coming, that the law firms controlled way too much and had way too much leverage in the past. The crash of 2007 and 2008 and the complete change in the law firm business has given clients all the leverage. Correctly, now these companies are taking advantage of that leverage.

Since the crash of ’07 or ’08, law firm economics has just been turned on its head. Law firm economics has changed. Changed in terms of hiring, changed in terms of hourly rates although they’re going up. It’s changed in terms of companies that don’t want to litigate anymore unless they have to. It’s changed in terms of companies taking work in house. It started in the 1990s with insurance companies, in the 2000s it happened with companies and the government and then the crash just gave it a supercharge.

Big Law Business: We recently had a GC tell us,  ‘I hate it when lawyers charge me for reviewing their own bill.’ How common is that?

Meckler: The answer is, I see it all the time in my business. I see law firms billing for everything from reviewing their own bills to preparing budgets that clients ask for. I just saw one where a client was being billed almost $50,000 for the time it took a law firm to prepare a budget that the firm needed to continue its relationship with the client. Things that are administrative in nature, related to the overhead, that should never be billed. General counsel reject bills like that quite often. The trick is being able to identify and monitor bills coming in.

Big Law Business: Will the billable hour survive?

Meckler: The billable hour is obviously the hub of law firm economics. I don’t think that’s going to change. But the billable hour and the use of it is being carved away at by all the alternative legal service providers and the technology and the companies.

Probably the biggest trend is something that’s here and is here to stay. The discovery in large cases, e-discovery, has always been one of the largest drivers of law firm billing in big cases. Period. In almost every case, clients want that piece farmed out to contract providers who do it at a fifth of the cost of what law firms charge and that’s not going away.

The smartest firms have created their own discovery units and that will become a profit center, but far less than what the firms used to get paid. I just finished a case where the total bills were $60 million, and the document part was around $11 million. This firm had used their own attorneys at $350 to $500 hour for their associates, which is of course what rates are at big firms. But the client got wind of it, and well, it was resolved through arbitration. That bill should have been more like $4.2 million. It actually was $10.8 million. And that’s solely based on had the firm used contract personnel instead of their own people. It’s just based on hourly rates. This is the fourth level document review [one of the final stages before production].

Big Law Business: What practices are the better law firms adopting?

Meckler: I see some that are very efficient and are training their lawyers on the right way to bill. I think there are certainly a percentage of the law firms that are getting it, who aren’t resisting their clients efforts to manage legal fees. It’s really not difficult to have your lawyers keep track of their time, on a case by case basis, but some of the the older more traditional law firms that never used to do this are having a tough time. I’m talking about the ones who used to send out the one-liner bill.

There is a trend among lawyers who don’t want to do this and are coming up with a flat fee, or alternative billing method. That’s a real trend. They’re getting around the billable hourly rate altogether by charging a flat fee on a monthly basis. I’m still not sure that is adding benefit to the client but that is a new trend.

 

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