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Tracking legal costs: an innovative approach
Practical Law UK Articles 9-616-5938 (Approx. 3 pages)
Tracking legal costs: an innovative approach
by Nicholas d’Adhemar, Apperio
| Published on 25 Jun 2015 |
Nicholas d’Adhemar of Apperio discusses the difficulty of controlling legal expenditure and proposes a potential solution.
In-house legal teams are coming under increasing pressure to control their external legal budgets, yet face the perennial problem of trying to control something that they cannot foresee.
It is difficult for a general counsel or finance director to know, with any degree of certainty, how much they will spend in a given year on external legal fees. Understanding total legal spend at any given point in the year is not as obvious a task as it may sound. With different departments each appointing lawyers across multiple firms that, in turn, use different time-recording systems, finding out an accurate view of total spend can take several weeks of administration. It will involve chasing law firms for reports and then collating and standardising data for comparison across multiple data sets. Worse still, this administrative burden takes in-house lawyers away from their day job of providing the business with high-value legal advice.
The challenge of controlling costs
Most clients have a war story about an invoice from their external lawyers that was much higher than they were expecting to receive. In fact, it is quite common for clients to have experienced a fee dispute that affected their desire to work with that particular law firm in the future. Lawyers, and often their clients, find it difficult to talk about fees and it can be tempting to leave this conversation until it is forced by the arrival of the invoice. Clients have tried to use fixed and capped fees to combat this issue, and with some apparent success. However, it is often the case that fixed fees will be renegotiated at least once. In other words, fixed fees are often not fixed at all.
When attempting to control costs, it is also important to look at and compare the performance of the different law firms across a variety of factors. However, most clients do not have the time or data to be able to see how each of their law firms has been performing. Instead, they often rely on piecemeal information from within the business or, worse still, ask law firms to provide information on their own performance, which usually results in a marketing report with some numbers thrown in. When deciding who to work with or how a panel of firms is performing, clients really should be looking to data instead of relying on word of mouth or gut feeling.
How Apperio works
One potential solution is an online platform called Apperio, which aims to cut dramatically the administration burden of collating data by connecting directly into any law firm’s time-recording system and taking real-time feeds of time recorded. When a client logs into the platform, they can see an accurate, real-time view of their law firms’ recorded and estimated fees. The dashboard view shows the total spend to date and a snapshot view shows all open projects, making it easier to identify any potential problems and address them with the relevant law firm before they get out of hand.
Instead of relying on even more administrative trawling through reports and law firm marketing materials, the analytics view allows clients to assess quickly and easily the value derived from each law firm relationship against key metrics. Clients can see fee distribution, cost recovery, team composition and a number of other objective metrics that they can use to track their law firms.
As work in progress is indicative and law firm partners are likely to write off time before invoicing, tracking costs as work progresses is really about giving clients reassurance that their matters are staying on track. If clients see that costs are going over budget, they can raise this proactively in a conversation with their law firm as soon as it arises, as opposed to fighting reactively when they receive a surprisingly high invoice. Users can log into the platform or wait for prompts from Apperio’s alerts to let them know when certain spend thresholds have been hit. Alerts go to both the client and the law firm, which encourages lawyers to proactively contact their clients about any unforeseen increases in costs.
Benefits of tracking costs
Law firms often end up writing off millions of pounds’ worth of work due to poor communication with the client, and in-house legal teams frequently experience disputes over unexpected bills. Tracking enables full transparency of spend as it accrues, which allows trust to build on both sides and so conversations can focus around legal matters rather than money.
Historically, law firms are known for being reluctant to provide this level of transparency about their costs. However, more progressive law firms see technological innovations as a way to elevate and differentiate their client services, and many are now keen to demonstrate the extent of their transparency to their clients.
Tracking helps clients to understand, control and ultimately reduce external legal spend. However, tracking also drives behavioural change within law firms. As lawyers know that their clients will have a window into their matters, the lawyers’ time-recording accuracy and efficiency increases. Most people struggle to remember exactly what they did this time last week, so more contemporaneous time-recording presents a more accurate picture of the actual time spent on a matter.
Nicholas d’Adhemar is the CEO of Apperio. Further information about this online platform can be found on the Apperio website (www.apperio.com).