Billing Bliss

Kevin Harrang has no doubts about whether an e-billing system is worth implementing. As deputy general counsel at Seattle-based Microsoft Corp., Harrang was charged with ensuring the legal department complied with Bill Gates' objective of creating a paper-free company. One of Harrang's first steps was to set up an automated billing process for the department in 2002. That was no small task--Microsoft's department comprises 800 employees, including 200 attorneys who employ 600 law firms around the globe. After implementing an e-billing solution from Houston-based DataCert Inc., Harrang spent three years trying to meet the corporate mandate.

Today, not one of Microsoft's law firms or legal vendors submits a paper invoice. Even more impressive, though, is the amount of money the company saved in the process.

"In the first year, we identified several million dollars in law firm overcharges, so the system has already paid for itself several times over," Harrang explains. "We are still saving about 2 percent annually."

And that is not counting the man-hours a department can save by not having to sift through paper bills anymore.

"Lawyers are in business to manage legal issues, but they're increasingly being asked to be financial managers too," says Kurt Swanke, director of marketing at CT TyMetrix Inc., a Connecticut-based e-billing and matter management vendor. "Carefully checking each invoice is not always the most important issue to them, so there's a chance for human error. Previously you would bring a third party or an administrator to do a spending report or a rules audit, but now an e-billing system can do all that for you."

In the second part of our three-part series on legal technology solutions, InsideCounsel looks at how to go about choosing and implementing an e-billing system while avoiding some of the common pitfalls along the way. Make the right choice and you could end up saving a lot of money. Make the wrong one and you will end up wishing for the good old days of bankers' boxes full of paper invoices.

Team Building

Legal departments usually turn to e-billing for one of three reasons: invoice processing has become agonizingly slow and cumbersome; it's difficult to track budgets and analyze the department's annual legal spend; or managing attorneys have heard about the benefits from colleagues at industry seminars.

Some companies add an e-billing system to an existing matter management system to improve its analytical capabilities. Others use e-billing as a stand-alone solution to simplify the invoicing process and better manage their departments. Regardless of the application, determining the right e-billing system takes time.

"The biggest mistake legal departments make is not understanding their business requirements," says Janet S. Nelson, a legal technology consultant with Chicago-based Simpson Neely Group. "What's driving the project? Are you simply looking to automate the bill paying process? Or are you looking to bring invoice data in at a detailed level, build a data repository in a matter management system and use it to generate trend analyses and analytical reports?"

Harrang's initial goal, for example, was to make receiving, reviewing, approving and paying legal department invoices a paperless function. But at the same time, Microsoft also was implementing a matter management system, and Harrang wanted the e-billing solution to work with that system so he could analyze the legal department's spending.

The first step then involves gathering a team of major stakeholders, including attorneys, legal secretaries, law firm representatives, legal technology consultants and representatives of the corporate IT, finance, accounting and accounts payable departments. Doing so ensures you identify everything you want your system to do at the outset and promotes a buy-in from all affected stakeholders, some of whom may not even be part of the legal function.

Once the team is in place, you need to map out your existing invoice procedures. Take your time with this step because you've got to address every stage of the process, from the mailroom to accounts payable and everything in between. Stakeholders must carefully outline all the steps their departments take in detail, taking into account issues such as currency conversions, refundable VATs on international invoices and internal charge-back numbers that accounting departments use to post invoices to the appropriate business unit. The analysis must be painstakingly thorough if an e-billing vendor is to replicate your processes.

"For a law department in a large, global corporation, taking inventory of the technical systems alone is a major undertaking," says Jonathan Bellis, director and co-chair of the law department consulting practice at New Jersey-based Hildebrandt International. "A corporation may consist of five different companies that were brought together through M&As, and have 20 different accounting systems that may not be compatible. You have to establish at the outset how many systems you have to work through to make an e-billing system work."

System Building

You've also got to establish what kind of reporting capabilities you need in an

e-billing system. Again, take your time and focus on the basics. The primary driver for e-billing is cost control. After all, every corporate function, including legal, is being squeezed to reduce spending.

As Harrang's experience demonstrates, an e-billing system's invoice-auditing function alone can save substantial dollars simply by ensuring that law firms are following the

department's billing rules. The auditing function captures and reports line item billing errors. An e-billing system will automatically flag time charged to the wrong matter, the wrong timekeeper, or at rates that exceed those established for the timekeeper.

Furthermore, GCs can use e-billing to drill down into invoices and create a variety of reports, including monthly and quarterly accruals, analyses of fees and expenses, lists of top time keepers, rankings of top law firms by billings and reports on pending invoices that are past due. By listing law firms and vendors by matter, GCs can monitor spending by location, rates, hours and billings. This analysis can help GCs identify top-performing law firms and assign them more work. That, in turn, improves the efficiency of the legal spend by fostering higher quality legal services at lower preferred-supplier rates.

An easy way to get a handle on your technical and reporting requirements is to look at what others are doing. Touch base with your law firms, as well as other legal departments that already are using e-billing. After all, these folks live with the technology full time. Larger law firms can help you compare systems because they usually have clients using most, if not all, of the systems on the market.

Harrang, for example, had consultants assemble a list of 10 "peer" law departments that employed e-billing--including Cisco Systems Inc., General Motors Corp. and General Electric--and then conducted a handful of on-site visits to view their systems first-hand.

"We wanted to get the lay of the land and do it quickly, so we identified law departments most like ours, and talked to them about their best practices," he explains. "What we came away with was that for a department like ours, e-billing's real value is in the analyses you can perform when it's integrated with a matter management system."

Atlanta, Ga.-based United Parcel Service (UPS)--which implemented an e-billing solution from DataCert back in 1999--came to the same conclusion. The UPS legal department employs about 40 attorneys worldwide, including 25 in Atlanta. Nearly 95 percent of its annual spend goes toward outside counsel fees. While it employs up to 150 law firms globally every year, 25 core law firms represent more than 80 percent of its costs.

After putting a matter management system in place in 1998, UPS opted to expand the system's financial-analysis capabilities by adding the e-billing system a year later. With each attorney overseeing hundreds of matters across multiple law firms, the department wanted to identify cost-saving opportunities by making its spending more transparent, says Cyndie Cox, the legal department's technology manager. What surprised everyone, Cox says, was the number of such opportunities the system uncovered.

For example, the system flagged an increase in a core law firm's billings for general litigation work. A first-year associate handled the work, but a review revealed that the firm had promoted the associate and, in turn, had increased his billing rate. In response, UPS had the firm move the responsibility to another first-year associate, who billed at the original, lower rate. The experience also prompted the department to begin measuring all law firm rates by matter type for future analyses.

"We did some analyses early on, but we didn't realize how valuable the data would be, or how much we would come to rely on it," Cox explains. "Today, we know more than just how many cases are active, or how much we're spending each month--we know what we're spending on each case and what's driving those costs."

Vendor Selection

In both Microsoft's and UPS' cases, the legal department selected a vendor that not only could fulfill its e-billing needs, but also could integrate e-billing functionalities into an existing matter management system. If you do your homework early on, the vendor selection process should be relatively painless. In fact most e-billing systems are relatively intuitive, at least in comparison to matter management systems.

Also, keep in mind that many vendors are application service providers (ASPs), which means the e-billing system resides on the vendor's server. In some cases, a law firm sends an invoice to the vendor's site for the initial rules audit. The vendor then sends it to either an e-billing or matter management system residing inside your corporate firewall.

Regardless of the configuration, your IT department will play an important role here as well, especially when it comes to ensuring the vendor's security measures are adequate.

Finally, be advised: vendors will propose an array of payment options, including a percentage of your billings, a flat monthly fee, a per-matter fee, or a per-invoice fee.

Others will offer to charge your law firms a monthly or per-invoice fee, or a percentage of their billings. Since a law firm will invariably charge those costs back to you, a flat fee appears to be the most popular option.

"Most vendors wanted a percent of our billings," Cox says. "That didn't make sense to us, because the service is the same whether the invoice is for $1,000 or $100,000. So we chose a flat monthly fee."

Once you choose a vendor, Nelson says it will take six weeks to six months to get the system up and running, depending on the complexity of the system, its interfaces, the reports to be developed, the number of law firms you employ, and the time and resources you have to devote to the project.

Microsoft, for example, took six months to get its primary law firms up and running, and another 18 months to bring the rest into the fold. However, the law department at Texas-based Concentra Inc.--a health care solutions provider that installed Bottomline Technologies Inc.'s Legal eXchange system last spring--took half that. While its legal department consists of only eight attorneys, it employs some 60 law firms nationwide.

"We needed an e-billing system that could interface with a new matter management system," says Richard Parr, Concentra's executive vice president and general counsel. "We had both up and running within 90 days, but a lot of that involved moving historical data into the matter management system. We could have done e-billing in 45 days."

Admittedly, bringing any technology solution into a busy law department is a hassle, especially because most attorneys would rather not be a part of it. But once they experience first-hand the time and cost-saving benefits e-billing provides, most will embrace it.

"It's not like giving birth to get this done," Parr says. "We wanted an e-billing system that was easy to use, but one that could also be customized. And that's what we've got. We have a very small department and everyone has to multi-task. E-billing saves a lot of wear-and-tear on the team."

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[Sidebar]

E-billing Utopia

Less than 10 years ago, e-billing systems were so costly that only large legal departments could afford them. But vendors have begun to introduce affordable versions for legal departments with smaller budgets.

Chicago-based Trizec Properties Inc. is a real estate investment trust with 49 office properties in seven cities. Trizec's GC, Ted Jadwin, manages 10 attorneys working in six locations.

To centralize and streamline his invoicing function, Jadwin chose a Web-based e-billing and matter management solution from Washington-based Serengeti Law. Previously, Jadwin's secretary spent a week each month processing paper invoices. Now Jadwin's attorneys use the system to keep their files and billings current. That reduces the time it takes Jadwin to review invoices. In addition, he can easily generate spending reports.

"One of our regional lawyers wanted to hire a paralegal and our chief operating officer asked me if it was justified," Jadwin explains. "He wanted to know what we spend in that region and whether the paralegal would reduce our outside counsel costs. I told him we have a flood of bills each month and no way to analyze them. I also told him an e-billing system would tell me everything he wanted to know in about 10 seconds. He said, 'Then you should have it yesterday.'"

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