A Deep Dive Into Legal Billing Guidelines
Legal billing guidelines represent a set of standards given by a client to its law firm to determine what will be acceptable and what will be expected in the presentation of the bill for services performed. It allows the firm to work within the constraints provided while maintaining their own standards and responsibilities.
Firm adherence to guidelines allows for a better working relationship with the client, and a smoother payment process – less time having to correct or explain inaccurate entries or other details.
The guidelines outline the rules for timekeepers and tasks, billing formats, charges related to expenses, and terms of payment .
There is always the concern of overbilling (i.e. excessive amounts of time related to a task, or exaggerated costs for materials used). If the guidelines establish a format to follow, such as an approved list of tasks and the corresponding codes, overbilling is reduced. Clients are less likely to be surprised by the costs presented because they are well aware of the fees involved.
The guidelines can be affected by the size of the firm, geographic location, industry, type of staffing, and even the type of service involved. What works for one firm may not be suitable for another.
The Major Elements of Legal Billing Guidelines
A good set of legal billing guidelines (LBG) enables a firm to maintain a level of consistency across the board, and gives them an ability to audit outside counsel data to ensure that they are getting what they paid for. But not all legal billing guidelines are created equal. Legal billing guidelines chart the course by which firms are able to measure the efficiency and effectiveness of their outside counsel. For this reason, it is important that they include some key elements: Time tracking. Great legal billing guidelines will explain the type of information they require firms to track as part of timekeeping. This could include how much time was spent in preparation of documents versus document review, whether or not travel time is billable, and if such travel time is billed separately (or, if not, how it is incorporated into the relevant time entry). Billing entries. Legal billing guidelines should describe what each time entry must include. For example, what should be included in a "fill in the blank" field such as "date," "task description," "service provided," "timekeeper," etc. While the level of detail that each time entry must include may vary by firm, a well drafted set of legal billing guidelines will indicate their requirements. Invoice descriptions. A padlocked briefcase doesn’t stop a thief from stealing your "contents." In the same manner, a poorly written expense entry that fails to indicate the purpose of the underlying activity fails to mitigate against the potential for overbilling. Good legal billing guidelines indicate exactly what is required to be included in each invoice description. For instance, what kind of description is required for a brief and who can approve the cost? What kind of description is required at the outset of electronic discovery ("i.e., collecting emails") and what kind of description is required for its delivery ("i.e., Bates numbering, redacting and converting to TIFF format")? Cost agreements. All firms are not created equal. Similarly, not all costs are paid in the same manner. While all firms will typically make advance client approval of e-Discovery and court filing fees and costs, there may be variability on how and when overhead is charged. As such, good legal billing guidelines will describe how these costs and expenses are paid within the law firm and what kind of approval is required at each level.
The Common Legal Billing Models
Legal billing models are a key ground path that every law firm needs to master, especially with payment processing growing faster than print and ship monthly billing. Here are the four most common billing models used in law firms today.
Hourly Billing
Hourly billing involves the client paying a base fee for the lawyer’s service based on hours worked. This is the most common and most traditional billing model used by law firms. It’s most commonly used for contingency and hourly billed cases, where the client pays for the lawyer’s time, either upfront or after-the-fact.
Pros: Simple to administer since most law firms have the mechanics of hourly billing already in place. In addition, hourly billing tends to enable the most profitability if the law firm has enough volume. Hourly billing is the least risk for the law firm and the most low risk/low reward for the client.
Cons: The billing model can result in a great deal of subjectivity in its implementation, since each attorney will bill for their time in a different way. Clients can get a bad perception of value if they receive high bills for what they perceive to be low quality legal work. Plus, if the law firm accounts for billable hours properly, it’s difficult for clients to understand what they’re being charged for, especially on complex cases.
Flat Fee Billing
Flat fees are the second most common fee structure. With this model, the law firm provides services for a fixed fee. Flat fees have become more common (and more acceptable) in the last ten years as the public at large has been exposed to fixed pricing from vendors like Amazon, eBay, and GoDaddy for basic services.
Pros: Flat fees are easy for the client to calculate and understand. Furthermore, flat fees give the law firm predictability when it comes to cash flow, whereas the unpredictability of hourly billing can make cash flow difficult to manage on the law firm’s side. Flat fees are ideal for routine matters in areas of law that are well understood. The law firm bears the risk of time overruns, but that risk isn’t as big a deal as it is for hourly billing since the firm knows what they’re going to get paid either way.
Cons: In this case, the law firm bears both the risk and reward. The flat fee model allows the client to save when they get lucky and the case takes less time than anticipated. On the flip side, the firm can be on the hook for costs if they underestimated the time it would take. While this model can be used for a wide variety of cases, it’s not a good fit for complex, non-routine cases.
Contingency Fees
A contingency fee arrangement is an attorney-client agreement that means the lawyer only receives a fee if there’s a recovery awarded to the client. A contingency fee can be a set amount for each case, or a percentage of the award the client receives.
Pros: Contingency fees are a great way to level the playing field for clients with low incomes. They also work well for clients facing litigation, since the client always believes that their case is the strongest case. However, these benefits are double-edged swords, since in some cases it can lead to a contingency fee attorney taking cases they wouldn’t take at an hourly rate because of the reduced potential return of a settlement.
Cons: Contingency fee arrangements can create a high level of stress for the lawyer, since the lawyer does all of the work and only gets paid if they win. Lawyers who take on too many "surefire" cases may regret that decision down the line when the "sure winners" don’t turn out in their favor. On the client side, the downside of a contingency fee arrangement is that it tends to result in the lawyer getting a hefty portion (usually 25 to 35 percent) of the final award.
Hybrid Billing
Having a combination of contingency fees and hourly billing may be beneficial for your clients and your law firm. With a hybrid billing structure, you can establish a flat fee for the entire case (or at least for the majority of it), with payments contingent on the client meeting certain benchmarks.
The Ethical Implications of Legal Billing
As legal billing guidelines have become more prevalent, we’ve also seen a rise in questions relating to ethical compliance. This is great, as it means that law firms are paying closer attention to the rules and standards governing their practice. However, this has also resulted in less frequent answers to many questions, and a fair amount of accepted assumptions that aren’t necessarily true.
For example, some issues regarding legal billing guidelines are purely ethical in most jurisdictions. Surrounding billing issues are rules that find their way into the RPCs of most states. While there are arguments that billing practices should be discussed on an ethical level (instead of as a matter of policy), the problem is that these rules and regulations have been around for years, and are written in complicated terms. The ensuing confusion leads to overbilling by some firms and lots of questions for others. That’s why we’ve put together some of the most important ethical considerations for law firms to keep in mind when billing their clients.
First and foremost, attorneys should never pad hours in order to meet the limits set by legal billing guidelines or otherwise. Hours should accurately represent the time spent doing specific work. Padding hours, in breach of a contract regarding what constitutes a reasonable rate of charge, is unethical and will also diminish your firm’s credibility going forward . Clients tend to remember when a firm charges more than the agreed upon rate, and this can have negative repercussions well into the future. Your clients will view this as an attempt to rip them off, regardless of whether or not you intended to overbill. Nevertheless, if even one slip up occurs, clients will question whether you are intending to overbill, or if it was "just" a mistake.
Second, lawyers should not charge for clerical and administrative tasks. Generally, these duties are assumed to be included in the hourly rate charged by the attorney. This is sometimes seen as the equivalent of billing for copying or other services usually provided at no extra cost. Many legal billing guidelines also specifically forbid billing for clerical work of this kind, so check the legal billing guidelines in your jurisdiction to be sure.
Finally, it must be said that attorneys should never bill their clients for unnecessary work. So long as this is clear to both parties, there is no problem with billing more time, as your client has agreed to pay the fee. However, clients will not generally tolerate work that they do not believe is needed, or that is not explained to them in detail before being performed.
In short, abide by legal billing guidelines, and your firm will be seen positively not only by your clients, but also by the courts.
Technology Impacts to Legal Billing
The advent of modern technology has made a significant impact on legal billing practices and procedures. Many firms have long sought to improve billing through a combination of best practices and technology, availability and application of each often dependent on both firm and client specifications. Client pressure on billing is now pushing legal billing into the 21st century. The industry no longer views billing simply as an account receivable process. Organizations are increasingly treating it as a process linked to efficient, continuous capture and documentation of billable time. In addition, billing is being integrated with billing systems that can optimize how revenue is collected and deposited. Technology and legal billing combine to provide firms with tools such as case management systems with built-in timers, as well as time recording software for billable hours. Efficient timekeeping software makes it easy to convert time entries into a standard billing format. And automated systems can help avoid the time-consuming and inefficient task of manually keeping up with recent changes in billing guidelines, such as when new codes are added, removed or altered. Cloud-based technology and document management software allow firms to standardize invoices via customizable templates that are easily shared with outside clients. Automated billing systems provide valuable audit trails. They allow billing to be more easily reviewed, and make it much easier to identify billing issues.
Billing Guideline Best Practices
After a law firm takes the time to create effective billing guidelines, the final step in ensuring compliance is implementing and managing them. There are a number of best practices a firm can establish to ensure that its billing guidelines are not only being followed, but are actually being used to achieve stated billing and collection goals.
Perform regular audits on a sample of bills to ensure they are compliant with the guidelines. This will help a firm catch any potential infractions before they become major issues. Conduct regular trainings for billing departments on the firm’s billing guidelines, as well as any updates to the guidelines. Both legal and non-legal staff should be included for training , as everyone plays a role in keeping the guidelines up to date and making sure they are adhered to. Communicate the importance of the guidelines to both firm staff and clients, so they understand the role they play in the billing process and the reasons for the guidelines. Processes and procedures for monitoring compliance with the guidelines should be put in place, whether it is a member of the billing department who is responsible for tracking guideline adherence or an automated system through your legal billing software. Enforcing the guidelines is what will bring them value. Solicit feedback from billing staff, clients and legal staff on the guidelines. In doing so, a firm can find out what is working and what needs to be updated, giving them the ability to make the necessary adjustments.
