Data, Diversity & Delivering Value: Reflections on Buying Legal Council Americas 2019

It was a privilege to attend and participate in last week’s Buying Legal Council Americas conference. We enjoyed reconnecting with old friends, meeting new industry professionals and sharing our passion for actionable data.

Here are some thoughts, as we reflected on the views shared by the many insightful speakers:

Data quality impacts the effectiveness of data driven decision-making

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“82% of respondents reported that law firms are leveraging insights from total data intelligence and taking a holistic look at their own data,” according to a recent report by Ari Kaplan. With this increased spotlight on data, we believe it is imperative that law firms and legal departments are using high quality data to make important decisions around scoping, matter management and pricing.

Digitory’s Catherine Krow addressed the importance of data quality in her session, emphasizing that the legal industry cannot harness the power of data without first paying its “data debt" and transforming dirty and poorly structured data into actionable insight. We define actionable billing data as task level, well-labelled, accurately coded and connected to context.  When law firms and legal departments have actionable, decision-grade data, they will achieve better results for themselves and their clients.

Legal procurement teams want a better understanding of value from law firms

Current billing data and fee structures make it difficult for legal procurement teams to understand the value that law firms are delivering on engagements. One panelist commented “show me the numbers that show me how you made this more efficient.” Procurement teams and legal departments need more detailed information from their firms to be able to move away from the frustrations of the billable hour model to value-based pricing.

We agree with Matt Beekhuizen who said, “hourly billing data is the information that we have now, and we can use it to bridge the gap to achieve value-based pricing.” When law firms gain a better understanding of their own hourly billing data, then they can provide clients with effective scoping, greater transparency and predictably which can deliver on the holy grail of value-based pricing. 

Legal procurement can play a key role in driving diversity

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Despite the encouraging number of law firms who received the Mansfield 2.0 Certification, there is still much to be done to move the needle on diversity in the legal industry. Jonathan Lovitz commented, “the commitment and the numbers just aren’t adding up.” We believe that one of the tools for advancing diversity is actionable billing data. As Catherine Krow said, “When you have actionable data you can see whether your diverse lawyers are getting career advancing opportunities . . . When you can see it, you can fix it!” 

The conference focused on the important role that procurement teams can play in supporting their legal departments’ diversity initiatives by requesting diversity information from law firms in all their RFPs. One of our favorite moments of the day was a call-to-action by Adrienne Fox, who asked all procurement professionals in the room to commit to including a diversity question in their RFPs.  Legal Operations consultant Vandana Dhamija joined in that call, confirming that she would be encouraging her clients to be doing this too.

Thank you to Silvia Hodges Silverstein and her team at Buying Legal Council and the many wonderful speakers who shared their insights.  We look forward to supporting the legal industry as it advances on its journey towards data-driven decision-making.

Contact us, if you would like to find out more about how Digitory Legal’s data analytics and cost management services can help you to gain a deeper understanding of your billing data and more effectively manage complex fee arrangements.

It’s Not A Legal Snowflake – AI + Legal Costs Prediction

Ask litigators how much a complex litigation matter will cost and they will respond with some version of ‘it depends’.

This answer is deeply ingrained in many lawyers, who believe that each case is unique, like a snowflake, therefore it is impossible to predict the costs.

For years, clients accepted this non-answer. Then, the market evolved.

Today, ‘it depends’ estimates are not good enough. After the market crash of 2009, corporate clients began applying an unprecedented level of business discipline to the practice of law. Slowly but surely, this pressure generated a rising tide of alternative fees, competitive bidding and budget caps that now reaches even the most high value work.

To succeed in this environment, law firms must cost out litigation matters more accurately and competitively than they have ever done in the past. In fact, getting this right is mission critical.

Fortunately, modern technology can provide an unprecedented degree of transparency and precision in cost estimation. The key is using artificial intelligence to unlock the predictive power of billing data.

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Measure The Unmeasurable

Law firms’ inability to accurately forecast costs frustrates and confuses clients. After all, the firms claim to be experts who have worked on big, complicated matters time and time again. Given that experience and the firms’ access to piles of historical billing data, clients expect outside counsel to predict legal fees correctly.

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But many firms forecast litigation fees poorly. The reason for this is not the unpredictable nature of litigation. The real problem is this: in its natural state, legal billing data is virtually useless.

Historical billing data is of little help in future cost estimation for two reasons.

First, you cannot use past costs to estimate future fees without real insight into the scope of those prior matters, e.g.:

  • What volume of documents were reviewed?

  • Which motions were filed?

  • What experts were needed?

  • How many witnesses were interviewed?

However, the industry standard codes for litigation billing are very high-level and provide no information about matter scope or the unit costs for each task.[1] 

Second, the timekeepers (or ‘fee earners’ as they are called in the United Kingdom) who bill time on litigation matters typically code their time entries inconsistently and wrong.

Put these two problems together, and – to use a construction analogy – it is like seeing cost of a house but having no idea how many square feet, floors, bedrooms or bathrooms there are. And then having all the plumbing work coded as drywall. The number tells you nothing.

Today’s technology can shed new light on dense and misleading historical billing data. The more visibility firms have into the past, the more accurately they can predict the future. Of course, nothing worth doing is ever easy.

The first rule of artificial intelligence is ‘garbage in, garbage out’. Thus, because lawyers code time narratives so poorly, their coding choices should not form the foundation of any technology.

To produce accurate and consistent results, the data sets used to train algorithms need to be coded by experienced professionals, preferably individuals who understand complex litigation and can see patterns in the data based on context. This process is time-consuming, expensive, and absolutely critical.

In addition, filling in the missing scope element means dividing data into more granular categories than the industry standards allow and clearly labelling it to allow for proper visualization.

For example, rather than using the UTBMS standard ‘L330’ code for all deposition work, technology can help allocate the time associated with each individual deposition to that specific witness and track the number and type of witnesses to account for scope. (See e.g., Figures 1 & 2).[2]

Figure 1: Visualization of deposition cost data for U.S. case.

Figure 1: Visualization of deposition cost data for U.S. case.

Figure 2: Visualization of U.K. cost data for injunction-related affidavits.

Figure 2: Visualization of U.K. cost data for injunction-related affidavits.

Using the Past to Redefine and Predict the Future

Once billing data is transformed and visualized, inefficiencies are easy to spot. With this insight, law firms and clients can better align resources and reduce costs where appropriate without compromising quality of service.  This allows them to move past what matters did cost to what they should cost, building well-scoped fee arrangements that are less expensive for clients and still profitable for law firms.

Furthermore, even litigation ‘snowflakes’ will follow patterns. When artificial intelligence is applied to data at scale, those patterns can emerge.

The result: predictive cost models – such as complexity-scored budget templates – for different types of cases.

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With the deep understanding of costs that artificial intelligence makes possible, perhaps the legal industry can finally shake its stubborn addiction to the billable hour model. So lawyers can stop obsessing over time and focus on their primary goal – the outcome.


Notes:

[1]The industry standard billing codes for U.S. litigation is the Uniform Task Based Management System (UTBMS) litigation code set.  In the United Kingdom, the new industry standard regime for litigation time recording is the Jackson codes. These code sets are referred to as the “L” and “J” codes, respectively.

[2]Data in figures is synthetic and should not be considered representative of actual costs.

How to Succeed in the Modern Legal Market

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SAN FRANCISCO - January 31, 2018

The recently released Georgetown Law and Thomson Reuters Legal Executive Institute 2018 Report on the State of the Legal Market paints a bleak financial picture for firms that remain wedded to business-as-usual strategies. By contrast, "law firms that proactively address the needs of their clients – e.g., by implementing alternative staffing strategies, pursuing flexible pricing models, adopting work process changes, making better use of innovative technologies, and the like – can achieve significant success."¹

For anyone who has been following legal market trends, these conclusions are not new; the pressure on firms to deliver greater efficiency, predictability and cost effectiveness has been intensifying over the past several years. The question is, what concrete steps should firms take to be successful in this evolving legal market?

The answer to this question lies in the Report’s analysis of static and dynamic firms. Dynamic firms are those that fall into the top quartile of performance based on revenue per lawyer, profit, and profit margin. Static firms fall into the bottom quartile.²

The relative success of dynamic law firms is not a function of size, leverage, rate increases, or expense reductions. Instead, the dynamic firms are succeeding by taking a fresh approach to pricing and investing in technology that will help improve their efficiency, profitability, and data analytics. Below are three key takeaways from these firms’ strategies.

1. Focus on Communication, Not Discounts

Dynamic firms had substantially higher billing realization than static firms, meaning they discounted less and had fewer write offs. They also collected their fees more quickly than Static firms. The reason? Dynamic firms had better up-front communication with clients about costs.³

These results reflect a fact that all lawyers know but are not enough are addressing: clients react poorly to bills they did not expect and do not understand. Firms can help solve this communication gap by presenting pricing proposals that are clearly scoped at the outset.

2. Embrace Alternative Fee Arrangements

The percentage of revenue derived from alternative fee arrangements (AFAs) was comparable for both static and dynamic firms. However, their approach to AFAs was very different. 75% of the dynamic firms actively pursued AFAs with their clients, while 70 percent of static firms only offered AFAs reactively, in response to client request.⁴

Successful AFAs involve planning, project management and profitability analyses (which are hard and take time) as well as clear communication with clients about scope, staffing and risk (which can be uncomfortable). It is no surprise that firms willing to tackle these challenges head-on are thriving, while those that take a less systematic approach to AFAs are not.

3. Invest In Technology

Responding to client needs requires investment, and the dynamic firms’ investment in technology outpaced that of static firms by a rate of almost 3:1. Moreover, the dynamic firms’ technology investments are focused on increasing their workflow efficiency and enhancing their ability to analyze data and assess profitability.⁵

Conclusion

Dynamic firms are rising to the top because they are willing to examine their processes, adopt new technology, and change their ways to better meet the demands of their clients. While this has been true for some time, the 2018 Report indicates that the pace of change is accelerating, and the divide between firms that “get it” and those that do not is widening.


  1. Georgetown Law Center for the Study of the Legal Profession and Thomson Reuters Legal Executive Institute and Peer Monitor, 2018 Report on the State of the Legal Market, Jan. 2018, at 17.

  2. Id. (citing Thomson Reuters Legal Executive Institute, 2017 Dynamic Law Firms Study, Nov. 2017). 

  3. Id.

  4. Id.

  5. Id. at 17-18.

AFAs Have Arrived: Is Your Law Firm Ready?

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Last month I participated in an AboveTheLaw panel discussion that addressed the question, “Should law firms still use the billable hour in 2017?” During that conversation, I urged firms to work on new pricing strategies but answered "yes" to still using billable hours because, in my opinion, "most firms (and clients) aren't where they need to be to make a sweeping change to alternative fees only."

A few weeks later, Microsoft announced its Strategic Partner program for outside counsel. One highlight of this initiative: Microsoft hopes to move 90% of its legal work to alternative fee arrangements (AFAs) within the next two years (to find out more, check out the LinkedIn post by Microsoft's Deputy General Counsel, David Howard, here and a Corporate Counsel article on the Microsoft program here).

The Microsoft Strategic Partner announcement has generated firestorm of press on alternative fees, including an article by Miriam Rozen on the Microsoft firms' "jittery" response. It also has shined a spotlight on GlaxoSmithKlein, another Fortune 500 company that has taken huge strides towards moving off the billable hour. See http://www.law.com/sites/almstaff/2017/08/10/how-pharma-giant-gsk-got-tough-on-fixed-fees/. GSK's groundbreaking work on AFAs has been documented in an excellent Harvard Business Review case study by Heidi K. Gardner and Silva Hodges Silverstein.

The Microsoft and GSK initiatives are powerful examples of big companies and top-tier law firms that are figuring out how to make AFAs work, even in complex cases. Their programs send a strong signal that it can be done, and - in the case of Microsoft - it appears that thirteen mega-firms have very publicly agreed to try. Whatever your stance on hourly billing, this is a big deal and could have a significant ripple-effect in the industry.

In light of these recent events, I would like to modify my answer to the question posed to the AboveTheLaw panel back in July. While I stand behind the bulk of that response, I would add the following advice to my lawyer colleagues: If you aren't actively working on ways to improve efficiency and structure profitable, competitive alternative fee arrangements, START. RIGHT. NOW!

Digitory Legal has built these considerations and more into its easy-to-use litigation budgeting tool. Our detailed reports, average costs-per-task, and easily updated framework is the perfect solution for clients who are tired of hearing “but it’s litigation...“

How to Hire the Right Lawyer at the Right Price

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Cheaper is not always better, particularly when it comes to hiring a trusted advisor. But price is always a factor in legal hiring decisions, and legal bills can spiral out of control quickly if you don’t get a clear handle on costs at the outset. So, how do you hire the right attorneys for your case at the best possible price?

Many companies are tackling this problem by using a competitive Request for Proposal (RFP) process to choose legal providers. According to BTI Consulting, the percentage of corporate counsel that issue RFPs to law firms jumped from 45% in 2014 to 56% in 2015. The use of RFPs for legal work has now reached a 15-year high. (See,www.bticonsulting.com/themadclientist/2016/1/27/client-rfps-hit-15-year-high)

The RFP process is a good first step to achieving value-based pricing. However, the process loses its power if the firms only provide top-line numbers or rates instead of creating a detailed budget. A detailed budget is critical because all lawyers will arrive at their forecasts differently, so it’s important to understand where the numbers came from before you hire the firm.

To get the most out of your RFP, make sure the firms you are evaluating provide all the information you need to assess the true cost of the matter, including:

  • Who is staffed to the case and what is each of their roles?

  • How many interviews/ gigabytes of documents/ depositions/ motions/ court days/ etc. is the firm assuming will be in the case? and

  • What is the average cost of each task?

This level of granularity will reveal who is pricing the case fairly (as opposed to low-balling the initial number to get business), while average costs-per-task will help you – and your lawyers – control costs when the anticipated scope of the case changes.

In addition to giving clients better visibility into costs, the RFP process should reveal each firms’ value proposition. Thus, RFPs should require team bios, relevant experience, the firm’s preliminary thoughts on strategy, and – of course – an interview. The interview is critical because you should trust your legal team completely when you hire them, and that trust cannot be forged on paper.

What’s Missing In Legal Tech Today? “Budgeting Tools that Transcend Excel”

SAN FRANCISCO - June 16, 2017

At yesterday’s LegalTech conference in San Francisco, Neel Chatterjee of Orrick, Herrington & Sutcliffe (Law 360’s IP Group of the year) was asked what he thinks is missing in legal tech. He responded, “Budgeting tools that transcend Excel.” He went on to discuss how it seems like lawyers are still “sticking a finger in the air” to get budgets and need help finding the right number and adhering to it. “We need tools that mine the firm for analytics” and can tell you things like, “how much does a motion cost?”

Neel’s comments launched the group into a larger discussion of the need for better budgeting by legal vendors because lawyers get blamed for vendors’ cost overruns. Given the amount of time the panel dedicated to this topic, it seems clear there remains plenty of room for innovation — and for tech adoption –in the legal budgeting space.

In addition to being a great trial lawyer, Neel is a straight-shooter and one of the first people I approached when I started doing “proof-of-concept” market research for my company, Digitory Legal. His insights taught me that it was important to create a system that includes costs-per-task because these metrics can help law firms manage their teams to budget and reward efficient lawyers.

Budgeting for Excellence

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SAN FRANCISCO - May 20, 2017

With all the pressure to reduce legal spending, it is easy to lose sight of the importance of excellence in legal practice. Excellent legal service takes time and money to achieve; however, it should not require a blank check. Here are three tips to managing legal costs while leaving room for truly superior legal work.

  1. Task-Based Budget Plan.

    Your budget plan must be flexible enough to allow lawyers to prepare throughly and pursue outside-the-box strategies while still maintaining cost accountability. The key to striking that balance is task-based budgeting.

    While is not possible to predict exactly how a complex litigation will go, it IS possible to map out the tasks involved (interviews, depositions, motion to dismiss, summary judgment, etc.) then provide realistic estimates of how much time a given task should take and which team-members will be involved (partner, associate, paralegal, etc.). Ask your lawyer to provide these task-based metrics at the beginning of the case along with their best estimate of the number of tasks the case will require (number of gigabytes, number of motions, etc.) While the number of tasks will change, keeping within the average cost per task should be something the lawyers can live with.

  2. Collaboration.

    To often, only the relationship partner understands the client’s budget expectations. This is a recipe for disaster.

    Legal teams need to collaborate internally on managing to budget. To do this, all the team members should understand (and, hopefully, agree with) the budget, their role in the case, and the expected hours-per-task. With that knowledge, each attorney on the team can be responsible for meeting the client’s expectations or – if that is not possible – flagging cost overruns before the client receives the bill.

  3. Realism.

    It may be a cliche, but generally you get what you pay for.

    Clients looking for excellent legal work should expect a lot of time will be spent on each task and should leave plenty of room in the budget for analysis/strategy. For example, a former partner of mine once told me he will spend twice as long as his colleagues preparing for oral argument. I have seen him argue motions, and clearly that extra prep time was worth every cent.

The Litigation Dilemma: Managing Costs When Circumstances Change

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Businesses need certainty. They rely on budgets to function. And because they have to, lawyers reluctantly will provide clients some form of litigation budget to win the business.

So what’s the problem? The problem is, this is what lawyers really think of those litigation budgets:

  • “Completely f***ing not accurate.”

  • “Total junk.”

  • “May as well be throwing darts at a big board of numbers.”

I will never reveal the sources of those statements, but I assure you they are real.

What happens when (not if) reality ends up being nowhere near budget? Too often, the answer is a blank check for the client and/or a big write-off for the firm. This happens because the budget wasn’t detailed or transparent enough, which means there is no way to manage the lawyers – or the client — to budget when the circumstances change. Once the “we didn’t anticipate X,Y,Z” statements start, the initial budget gets thrown out altogether and the client becomes frustrated with ever-growing bills that they cannot control.

Here’s an example of how this dynamic works. Client asks for a budget. Law firm says “you never know what will happen in litigation” but they expect the case will be $1MM. Lawyers may also give a number for each phase, e.g., $100,000 for initial investigation, $200,000 for pleadings/summary judgment; $400,00 for discovery; $300,000 for trial. However, the budget does not say how many depositions, gigabytes of documents, experts, court conferences, discovery motions, trial days, etc. the lawyer expects or how much each of those individual things is expected to cost. Next thing you know, something unexpected happens (which it always does) and the client receives a bill that is 2-5x their expectations. Hours upon hours will be wasted in back-and-forth over what happened, and the law firm will end up having to write off some percentage of the time.

In other words, everybody loses.

To prevent this downward spiral, start with a clearer, more detailed budget that allows everyone to see what the firm’s assumptions were and how those assumptions affect the budget. This detail creates accountability on all sides. For example, if the lawyer says “we weren’t expecting 50 depositions”, the client can see if that is true and also calculate for herself how much that extra work should cost based on the original budget. And if the client insists on scorching the earth, that additional expense associated with that strategy will be obvious as well.

In other words, everybody wins.

3 Tips For Getting The Best Budget From Your Outside Counsel

SAN FRANCISCO - March 19, 2018

Here are a few tips to getting more realistic numbers out of your outside counsel:

Use a Detailed Budget Format and Compare Apples-to-Apples. 

Pick a detailed task-based budgeting format that leaves no room for “BS” and ask all your counsel and prospective counsel to follow it. This may mean your initial budget proposals will cause “sticker shock”; however, they will also be more accurate.

Identify and Quantify Cost-Driving Variables. 

It is true that you can’t predict what will happen in litigation. But when the anticipated scope changes, it generally means there are more of a certain task than the budget assumed: more depositions, more gigabytes, more motions, etc. If your lawyers clearly identify their assumptions about these variables and quantify the average cost-per-task, you will be able to predict how changing circumstances will affect the bottom line (e.g., 10 unexpected deposition notices = $100k; 20 extra gigabytes of documents = $300k).

Insist on Frequent Updates. 

Changed circumstances should not lead to blank checks. Your lawyers should be updating their budgets when the schedule gets set, the rulings come in, the discovery gets served, etc. — that’s the best way to know if they are maintaining efficiency and keeping average costs-per-task down no matter what happens. To make this happen, schedule a cost-management call with your relationship partner every few weeks and get an updated budget before each call.

Digitory Legal has built these considerations and more into its easy-to-use litigation budgeting tool. Our detailed reports, average costs-per-task, and easily updated framework is the perfect solution for clients who are tired of hearing “but it’s litigation...“

Legal Budgeting 101: How Litigation Budgets Are Made

Leaving a top-tier law firm to start a software company may seem like a risky move, but in fact I am a very careful and deliberative person. So, before starting Digitory Legal, I spent a lot of time researching how other lawyers handle budgeting to make sure I was not missing anything. In this post I share some of the insights I learned from that research and explain the budget-making process from the litigator’s perspective (approx. 90 seconds to read).

Lawyers Budget Like It’s 1999. I wrote my first litigation budget in 1999. Since I was a second year associate with no clue what I was doing, I asked my mentor for advice. His words of wisdom: write down everything you can think of and how long you think it will take, then double it.

Seventeen years later, not much has changed.

Every lawyer I know creates budgets in Word or Excel. Some firms have created elaborate Excel spreadsheet templates to help standardize the process, but most individual lawyers make up their own format and then repurpose the same spreadsheet or word document again and again. As a result, even budgets from the same firm will come in all sorts of different shapes and sizes.

Given the high-tech age we live in, you would think legal budgets would be based on sophisticated data analytics from past invoices. Nope. There are basically two methods lawyers today use to get budget numbers (described below), and neither of them are particularly scientific.

Method 1: Percentage of Time Model. 

Sometimes called the”burn rate” or “supply side” approach, this is the easiest and most pervasive budgeting method by far. The lawyer writing the budget (hereinafter, the “budget master”) decides who will work on the matter, approximately how long the matter will take, and the percentage of time each timekeeper will dedicate to it over time. For example, if the budget master expects that case will take about a year and a timekeeper will spend 50% of their available time on it, they will budget about 1100 hours for that person (assuming 2200 billable hours per year).

Once the budget master has the total number of hours for each timekeeper, those numbers get sliced-and-diced to fit into whatever format the lawyer likes or the client asked for — generally a spreadsheet with quarterly spend and/or the five phases of litigation set by the American Bar Association (Case Assessment, Pleadings, Discovery, Trial, Appeal).

Based on my anecdotal research, the percentage of time method can give you an impressive-looking budget, but the final numbers will be a LOT lower than the actual cost. Accuracy improves if the budget is for small chunks of time in the near future (e.g., the upcoming quarter) rather than a full matter.

Method 2: Task-Based Model. 

Some of the lawyers I spoke with told me they create task-based budgets. This means they define the tasks in the case (e.g., 10 depositions, 3 discovery motions, etc.) and estimate how much time each timekeeper will spend on each task.

Overall, I was most impressed with the budgeting prowess of the lawyers who systematically consider the tasks involved in matter. This is a more time-consuming process than just estimating percentage of time per timekeeper, but these lawyers were less haunted by budget horror-stories.

Clients Are In Control. On this all lawyers were unanimous: lawyers will provide whatever form of budget the client wants. This should not be surprising; after all, the amount of time and money law firms will spend to win business is staggering. So, clients, if you want to get more detail in your budget, all you have to do is ask for it.

Digitory Legal’s software incorporates the best of both models by combining a detailed, task-based budget structure with timekeeper summaries. We provide sample budgets and numerous copy and customize features to speed up the process and provide guidance on the cost metrics.

Buyer Beware: “Low Ball” Legal Budgets

SAN FRANCISCO - May 4, 2016

Businesses need certainty. They rely on budgets to function. And because they have to, lawyers reluctantly will provide clients some form of litigation budget to win the business.

Mid-market companies are particularly likely to receive low-ball budgets because, while they often have significant one-off cases, they do not have enough recurring legal work to secure volume-based fixed fee deals from big firms. In addition, their inside counsel may not be familiar with the tasks and costs associated with the specific matter at issue.

Low-ball budgets are bad for clients and hurt the profession as a whole. But there is a straightforward solution: clients should demand – and lawyers should provide –more detail in their budgets.

Lawyers need to provide detailed budgets to demonstrate why their numbers are realistic but the competitions’ are not. For example, a friend of mine recently told me the most experienced M&A lawyer in his office knows that a deal will cost $200-$400k and will tell clients that a budget lower than this isn’t real. Unfortunately, this response is not terribly helpful for a General Counsel who needs to understand and explain to management why the company should hire a lawyer that looks far more expensive than the other contenders.

By contrast, if the lawyer’s budget provides information about the tasks involved, who will be doing them, how long they will take, what the average costs-per-task will be, and the variables/assumptions that affect the budget, then the GC has all the information she needs to make the right decision and justify it.

Here’s the rub: creating a detailed, realistic budget is hard. It takes time to do it right. But giving clients what they need to make an informed decision is the key to winning the business AND keeping a happy, loyal client.