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Economic Realities Force General Counsel to Take a Hard Look at Legal Cost Control

     By Accountability Services Inc Expert Testimony on Reasonable Legal Fees

PhoneCall Judith A. Bronsther, Esq. at (212) 245-0245

As the economy takes a tailspin, don’t expect your law firms to voluntarily lower their fees. Astonishingly, this year partner billing rates broke record highs, with one firm exceeding the $1,200 mark and another rising above $1,100 per hour. That’s just the outside edge of the rate envelope. Other lawyers, emboldened by those outliers, are sure to close the gap.
As the economy takes a tailspin, don’t expect your law firms to voluntarily lower their fees. Astonishingly, this year partner billing rates broke record highs, with one firm exceeding the $1,200 mark and another rising above $1,100 per hour. That’s just the outside edge of the rate envelope. Other lawyers, emboldened by those outliers, are sure to close the gap.

Appearing to defy gravity, 71% of law firms recently surveyed by the National Law Journal reported an increase in fees charged in 2008 and 98% of law firms surveyed said that their rates will be higher in 2009. It appears as if law firms expect to operate according to different economic rules from those governing their clients.

Like the tech bubble, the real estate bubble and now the credit bubble, law firms will soon realize that their boom is unsustainable. They will no longer see their incomes double every four to six years. The reality is that three-quarters of law department leaders are facing budget cuts for 2009 that average about 11.5 percent. The money has to come from somewhere and in-house staffs are already cut to the bone. Outside legal fees are on the chopping block but only if in-house general counsel are vigilant in controlling outside legal costs.

To realize reductions in outside legal fees, clients must push back and resist the increased billing rates. In fact, we are recommending that our clients demand temporary but immediate billing rate reductions of 10% applicable over the next 12 months. To date, all those who have asked for such reductions have received them from their outside counsel, without regard to firm size or geographical presence.

Clients must also look to control costs through staffing models and more solid controls on the allocation of resources. Contrary to what should be happening, the National Law Journal recently reported that many associates without enough work to do are performing tasks traditionally performed by paralegals1. And, in a cost-cutting move, law firms are making staff layoffs that could force attorneys to do more of the work they could formerly shift to their assistants. Accordingly, General Counsel must closely monitor their invoices, and if attorneys are billing for paralegal tasks reductions should be sought. As one court said, "Michelangelo should not charge Sistine Chapel rates for painting a farmer's barn." Law firms may try to resist this. I have even heard about one law firm telling its clients that their E & O carrier would not allow substantive work to be done by a paralegal. Clearly, this is a fabrication and simply a way to charge associate rates for work that should be billed by paralegals, often a disparity of as much as $300 an hour. With an equally vigilant eye, General Counsels must make sure that partners are not performing associate work and duplication of efforts are avoided.

But with all a General Counsel has to do, the police work of monitoring outside counsel compliance with company billing guidelines, if such guidelines exist at all, is left to chance or, as is more commonly the practice, not done at all. In-house counsel owes it to their companies to institutionalize the review of outside legal fees for compliance and efficiency.

As demand for legal services declines (as recent survey reports indicate), the temptation to pad bills may be even greater that it has been in the past. As Chief Justice Rehnquist once observed, “if one is expected to bill more than two thousand hours per year, there are bound to be temptations to exaggerate the hours actually put in.”

There are many tell-tale signs of bill padding. The California Arbitration Advisory 03-01 that was issued on January 29, 2003 entitled “Detecting Attorney Bill Padding” gives a great checklist to determine whether your legal bills are inflated. Among the things to look for are billing increments greater than 6 minutes (.10), standardized task descriptions where a timekeepers used the same task description day after day, block billing where the amount of time is shown for working on more than one discrete task, lack of detail in the task description and wrong times recorded for depositions or hearings.

So, before a General Counsel considers LPO -- legal process outsourcing to India or elsewhere – first make sure that your U.S.-based services are efficiently performed and properly invoiced. Our experience has shown that with the proper tools and vigilance, General Counsel can reduce legal bills by 30% and more without harming the relationship of mutual respect with their law firms.

1 Paralegal work involves the performance of specifically delegated substantive legal work, which work for the most part, requires a sufficient knowledge of legal concepts, that absent the paralegal, the attorney would perform the task. Specific tasks include draft pleadings and other documents, carry on legal research, both conventional and computer aided, research public records, prepare discovery requests and responses, schedule depositions and prepare notices and subpoenas, summarize depositions and other discovery responses, coordinate and manage document production, locate and interview witnesses, organize pleadings, trial exhibits, and other documents, prepare witness and exhibit lists, prepare trial notebooks, prepare for the attendance of witnesses at trial and assist lawyers at trials.

ABOUT THE AUTHOR: Judith A. Bronsther, Esq.
Ms. Bronsther is President of Accountability Services, Inc., a legal cost control specialist. Since its inception in 1991, Accountability Services has helped companies of all sizes, governmental institutions as well as individuals reduce their legal fees without harming the attorney-client relationship. Ms. Bronsther has written and lectured extensively on the subject of reasonable legal fees and cost control, has been qualified as an expert in many cases and has testified at depositions and trials.

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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related topics, please contact the author.

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