Legal Costs Part II: Technology to the Rescue?

Don't give me problems, give me solutions.

Moaning about bloated legal costs is one thing. But how do you fix the problem? To what extent can technology be used to deliver better value legal services, with less padding of bills?

One approach is to use technology to monitor and analyze bills so that it's easier to get a breakdown of costs and easier to spot any deviations from agreed budgets or billing guidelines. According to The Lawyer, this type of spend analysis tool is currently being used by Barclays to scrutinize its legal bills. Indeed, a Corporate Counsel technology survey suggests that a significant number of companies now require their external counsel to use some kind of e-billing software.

Improved tracking of legal spend may tell you which firms charge the most, and which firms are padding their bills, but it won't do much to improve the value of legal services. For that, you need technologies that target the root of the problem: inefficient processes and poor productivity. Technologies like document assembly.

So how does document assembly deliver more value for a given legal spend?

Used by law firms, it allows many drafting tasks to be done profitably, for a fixed price and to high standards, no matter who does the work. Clients don't pay top dollar for partners to cut and paste. Clients are not subjected to what Ken Adams calls the "scary vision of largely clueless associates hacking at forms of questionable quality and relevance." And a bigger share of the total spend is allocated to high-value negotiations, rather than routine drafting.

Used by companies, it allows in-house legal to push many drafting tasks out to the business, so that they have more capacity for high value work (negotiations, compliance, etc), and less need to outsource to high-priced external lawyers.

Either way, any given document can be drafted and signed off at significantly lower cost using document assembly than by cutting and pasting in Word.

Legal Costs Part I: Padding and Other Problems

I'm not paying for a junior to learn the ropes.

If it ain't broke, don't fix it. This might well be the motto of many law firms when it comes to billing by the hour. But if recent reports are any guide, it's getting increasingly difficult for firms to cling to the illusion that the hourly billing model ain't broke.



According to Susan Hackett, GC at the Association of Corporate Counsel, there is something wrong with a system where "law firm newbies will make more in their first year than an associate justice of the U.S. Supreme Court." Describing partner profits as "obscene", she reckons the time has come for in-house counsel to draw a line on costs. It's time to say "we're not paying for this anymore."

And she's not the only one. The stats from a recent YouGov survey (conducted for The Lawyer magazine) are similarly ugly: 73 per cent of general counsel have been on the receiving end of padded bills, and 95 per cent of in-house counsel think that chargeable hours targets encourage padding. The preferred alternatives are project-based billing (68 per cent) or flat fees (20 per cent).

Unfortunately, partners are either not listening, or not hearing this message. In the same survey, only 39% of partners think that hourly rates are outdated.

No doubt one of the arguments used to fend off calls for fixed or project based fees is the old favorite: "how long is a piece of string?"

But, as one general counsel points out, this argument is not very persuasive:

"If a firm's really good it will know how long the piece of string actually is, or at least how long it should be."

In other words, if a firm doesn't know how long the piece of string is, maybe the work should be going to one that does. Client's don't like paying big fees for juniors to learn the ropes.

As Susan Hackett concludes:

"Great legal service is expensive, but someone needs to remind the managing partners of the prestigious firms that it should never cost more than it's worth."

Does Reasonable Endeavours Mean Anything?

A favorite legal drafting trick is to play around with the strictness of obligations. Rather than say Fred must deliver the rocks to Barney within 7 days, why not say that Fred will use reasonable endeavours to deliver the rocks to Barney within 7 days. If the contract says "must" then Fred's failure to deliver will be a clear breach. If it says "reasonable endeavours" then Fred may well get away with delivering late, or not at all.

In light of a recent English decision (see Rhodia v Huntsman for more info) on the meaning of "reasonable endeavours", we now present a menu of phrases for your drafting pleasure:

1. "Must" is strict. It's an absolute or strict obligation. You must do it.
2. "Shall" is strict too. See "Must".
3. "Best endeavours" is not strict, but you do need to act in good faith, and you do need to do all that a reasonable person reasonably could do in the circumstances.
4. "All reasonable endeavours" falls somewhere between "Best endeavours" and "Reasonable endeavours".
5. "Reasonable endeavours" is "less stringent" than best endeavours. It may even be "appreciably less" stringent. It doesn't require much more than an "honest try". But it does require more than a dishonest try. You do need to try, a bit.
6. "Efforts" is the same as "Endeavours". You say "reasonable endeavours", I say "reasonable efforts". You say "tomato", I say "tomato"...
   

There's a good summary (albeit slightly dated) here.