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Litigation: Two approaches to objectively evaluating the effectiveness of outside counsel

How to analyze law firm billing techniques and efficiency

Since the early 1990’s, my firm has worked on a multitude of cases addressing issues relating to litigation management, the necessity and reasonableness of attorneys’ fees and the ethics of hourly billing. Two critical tools in our litigation management arsenal are what we refer to as the Phase I and Phase II audits. We also frequently employ a “hybrid” of the two approaches, which is also designed to measure the reasonableness of fees and costs.

The “Phase I Approach” —Quantity, Structure and Form

The Phase I approach focuses on the amount and the components of time that a law firm has billed to the client. This approach is designed to determine whether attorneys and other professionals have complied with generally accepted billing practices as well as the applicable billing guidelines. The analysis frequently results in recommendations for deductions for activities that fail to comply with industry norms.

The Phase I approach focuses on metrics of compliance and efficiency. Thus, it is important to establish reliable, straightforward protocols before undertaking such an evaluation. These might include determining the minimum time increment used to warrant deducting an inappropriate billing entry.

The practice of “block billing,” also known as “bulk billing” or “aggregate billing,” is often an area of major concern identified in  Phase I analysis. “Block billing” is the practice of combining two or more tasks into a single billing entry. The author does not allocate time between the tasks and states a single total amount of time for all tasks contained within the blocks. Confronted with time that is block billed, the client or fee‑paying third party is effectively prevented from making a meaningful determination of the time actually spent on any of the individual tasks listed in the block.

Vague entries also may be problematic. Courts require precision in evaluating the reasonableness of fees billed by counsel. We typically express concern and flag for discussion “vague” entries where the description makes it difficult to determine the nature and/or scope of services actually performed.

Billing by attorneys and paralegals for “clerical” or “secretarial” tasks is also inappropriate. These activities are generally considered part of a law firm’s overhead expenses, which already are factored into the firm’s hourly rates for professional services. Similarly, non‑substantive, computer‑related and database charges should not appear on an invoice at professional rates.

The Phase I approach also analyzes the fronted costs and expenses. At a minimum, in-house counsel should always require back‑up documentation, above a certain threshold, for the costs incurred. As with attorneys’ fees, the test for evaluating disbursements is that of reasonableness and necessity. General overhead expenses are not appropriate to bill to the client as the rules of ethics state that such charges should be factored into the attorneys’ hourly billing rates. Items of elite or conspicuous consumption, such as first‑class airline travel, luxury meals, expensive wine or personal items may also be inappropriate.

The Phase I approach also frequently reveals unapproved billing rate increases, incorrect math, or even invoices or tasks charged to the wrong matter. Items such as these should of course be deducted off the top.

The Phase II Analysis—Substantive Review and Analysis of the Bills and Work Product

The Phase II analysis is designed to question and validate the overall strategic approach implemented by the law firm in the litigation. When we conduct this analysis, we focus on a comprehensive analysis of the work product, including the case docket, correspondence, e‑mails, discovery requests and e‑discovery materials as well as critical motions, status conference statements and other pleadings. This is the appropriate starting point as an analysis of the work product juxtaposed with the billing entries frequently results in the identification of wasteful practices, duplicative staffing and questionable strategic decisions.

A key barometer of law firm performance is how the law firm handles discovery, particularly e‑discovery issues. A firm’s ability to quickly sift through vast quantities of documents, particularly in sensitive special investigations, is a key performance benchmark. In government investigations, this is particularly important as counsel must interface and cooperate with numerous agencies and rapidly produce the documents requested, but at all times thoroughly protect necessary confidences and applicable privileges. In these situations, the client is relying on counsel to quickly find the facts and key documents that prove or disprove core allegations and expeditiously stabilize the situation.

When evaluating a firm’s e‑discovery capabilities, the Phase II approach analyzes the following:

  1. The type and capabilities of the consultants and/or experts retained by the law firm to assist in the initial document retrieval and analysis
  2. The timeliness and accuracy of the document review effort
  3. The initial search directives as well as modifications to the case strategy. With the correct vendor and strategy in place, a search logic can often be applied across the entire document collection, providing outstanding leverage
  4. How the law firm handles tricky issues of confidentiality and its effectiveness in responding to agency inquiries

Optimally, the Phase II review is focused on objectively evaluating the quality of the law firm’s work. This results‑oriented approach looks to factors including the case’s ultimate disposition. It asks whether the client could reasonably have achieved a more beneficial result for less money and the value achieved for the client.

Where the Phase I approach can be fairly categorized as an “overview” of the bills, the Phase II analysis examines each entry, in its greater substantive context, if necessary, simultaneously across multiple firms and billers. The approach analyzes for examples of efficiency as well as irregularities and wasteful practices.

Conclusion

The Phase I and Phase II reviews are different tools that can be applied depending on the desired goals and objectives. Where significant issues or problems are identified in the Phase I analysis, this can point to larger problems of efficiency indicating that a more thorough analysis may be in order. A hybrid of the two approaches is also possible. The two approaches combined efficiently assess and correct the quality of service, often resulting in maximum value for a company.

Contributing Author

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David McMahon

David McMahon is the Managing Partner in Barger & Wolen LLP’s San Francisco office. His practice focuses on large complex litigation. He has worked on...

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