legal services

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.

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.