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Task Based Billing-Overcoming Fear
INTRODUCTION
Task based billing introduces a new element into the attorney client relationship. Its impact on law firm economics and client relationships is significant. Its best use is in the positive sense of planning, organizing and monitoring performance against projections. Its use should be instructive and constructive. Task based billing is a powerful and creative tool. Additionally, it is as an audit tool. However, to use it purely as an audit tool is to limit its value.
Task based billing is a system for billing and budgeting the time and services of lawyers and other timekeepers. It divides litigation into phases and defines those phases by tasks. A uniform system was recently adopted through initiatives of the Uniform Task Based Budgeting and Billing Subcommittee of the Section of Litigation of the ABA, the American Corporate Counsel Association and Price Waterhouse LLP.
The initiatives grew out of the desire of law firms and corporate clients to unify the method of record keeping, budgeting and billing lawyers' time in order to achieve better analysis and cost control. National and multinational clients frequently insist that their outside law firms use their respective billing systems. Many law firms were, and still are, required to employ multiple time keeping and billing systems. The number of systems in use is limited only by the number of clients that insist on the use of their own proprietary system.
The uniform task based system permits standardization. It is designed for use in the mass of litigation that exists today. The system is not a panacea for all litigation. Some clients and law firms may find it less than adequate in certain suits. The system is not designed around litigation of a particular complexity or value, yet it allows sufficient flexibility for adaptation even in the Abet the company litigation. Likewise, it allows clients engaging in a commodity type litigation to modify the system to suit their particular informational and reporting needs.
Task based billing and budgeting is similar to the system of financial statement reporting used by accountants. The objective is to provide information in an understandable and meaningful format that fairly presents the work performed for the client during a given period. The tasks or particular activities are the equivalent of a chart of accounts. The five phases are equivalent to the classification of assets, liabilities or equity, with a different import.
A unique feature of task based billing is that it allows finite and discrete analysis by task and phase. For example, the billing report for the discovery phase for a period will provide detail for each of the six tasks in the discovery phase. A separate report is made of all activities within each task. Services may be reported chronologically by timekeeper and the time and value of services for all timekeepers compiled for each task. Thereby, a "blended rate" can be determined. The blended rate is the total value of all time of all timekeepers divided by the total number of hours of service of all timekeepers.
Each phase may be reported in the same manner. Consequently, each billing report will take the reviewer from the daily detail, (the equivalent of a bookkeeping journal), through the tasks in each phase, (similar to ledger accounts), to the final summary (which is comparable to a financial statement).
The value and benefits of task based billing and budgeting are reflected in the two major components of a law firm-financial and human resources--the capital investment in people and property and the lawyers who perform the work.
1) Financial Resource Consideration
The system facilitates budgeting and the allocation of financial resources to specific aspects of a case. The task based system is a planning tool. Given that trial practice is an art and not a science, the extent of deviation from targeted goals may be greater than in other endeavors. Notwithstanding, the client and attorney, alike, have the opportunity at the outset of a case to determine how and in which aspects of the case the financial resources (money) will be spent.
Discrete categories or aspects of the litigation can be budgeted and routinely monitored. The frequency of monitoring, whether monthly, quarterly or otherwise, may be increased or decreased, depending on the needs of the client, the firm or the litigation. Through the budgeting and billing process, the lawyer and client can compare actual fees and costs to the budget. Business people run their businesses according to a business plan. The task based system is similar. It is the legal equivalent of a business plan for a particular case.
Let us take as an example a case in which the client's opportunity (the plaintiff) or exposure (the defendant) is $100,000. Most cases probably fall beneath this level of damages. It is relatively easy to limit the amount of money spent on a motion to dismiss or motion for summary judgment in a case such as this. Without controls, legal fees in a case of this size could exceed an amount deemed reasonable. Therefore, the ability to track fees in respect of either of these activities, and others, is of particular value.
The client (or attorney) may decide to limit fees for either of these activities to an amount such as $1,000.00. If fees exceed this amount, the managing attorney (in house or outside) should be alerted immediately to the need to undertake one or more of a number of alternative courses of action: supervise the file more closely; delegate the work among the professional staff in a different order; reassess the legal and factual issues under consideration; eliminate certain of the legal or factual issues from further consideration; make appropriate adjustments to the bill; or other suitable action.
The economic progress of a case is constantly monitored as it unfolds. Financial performance is regularly compared to the budget. Variances between plan and actual experience are readily revealed. Budget variances must be explored and understood, since deviations from litigation budgets can occur for a multitude of reasons. Many of the reasons may be beyond the control of the attorney or the client. The objective is to determine the real reason for deviation, whether controllable or not. If something is wrong, it must be fixed. If nothing is wrong and there is no matter to "fix," then the budget should be revised. The value of the "system" is, in fact, that it necessitates ongoing review of the work of the trial team by the supervising attorney and the client.
The system should be used to monitor the assignment of personnel to the trial team and the allocation of tasks between them. This is a part of the budgeting process. Here, the manager decides how to staff a case. The decisions include the selection of staff according to the skill level necessary to accomplish the desired result within the budget. There is no hard and fast rule as to which comes first, the case budget or staffing. A number of factors will indicate whether the budget is built from the bottom up (through the staffing model), or the top down (through the financial model). A case in which the entire controversy concerns a value of $100,000 will typically receive an allocation of funds and staffing will follow. That is, the case budget is set, staffing follows suit. There is not enough money involved in the dispute to begin the budgeting process with staffing considerations. Staffing and budgeting decisions are subject to change as the amount in controversy grows.
An overage in actual billing against budget may demonstrate that fewer lawyers or support staff should be assigned to a matter. Making adjustments within the legal staff during the course of a case is, to a large extent, a business decision and one that should be shared between the lawyer and client. It is the kind of decision that is involved in fine tuning the law firm's economic performance.
Clients can use the system to compare the efficiency of two or more law firms handling the same type of cases. The efficiency of lawyers and law firms can be readily compared using task based billing. Commodity type litigation, such as automobile and slip and fall defense, offers a good opportunity for comparison of lawyers and firms. Until now, litigation managers have been making that comparison mostly by intuition. Task based billing offers the opportunity to quantitatively analyze law firm performance. As the database of information grows, law firms and clients will be able to determine which lawyers within a firm handle comparable litigation most efficiently.
A major benefit of task based billing is that it isolates timekeepers and tasks for better analysis of individual performance. Task based billing promotes greater accountability between working lawyers and supervising lawyers. Individual performances are discretely revealed through the reports. The activities of each timekeeper are displayed for each task, and a summary of each timekeeper's work is provided for all tasks and phases with each report. The reviewer is no longer required to extract information for individuals or individual tasks from a chronological report. Time spent performing a particular task is readily apparent in the report. The report format together with the computerized ability to manipulate data makes analysis of individual performances more readily accessible than ever before.
Now that the work of timekeepers can be easily reviewed and analyzed, and because tasks are clearly defined into meaningful categories, attorneys are forced to work against the backdrop of the budgetary process. The breakdown of tasks into discrete categories makes it harder for firms to "throw attorneys at a file." Overlap and duplication will stand out. Doubling up of attorneys on a task will be revealed. The working attorney is forced to be more conscious of the time spent on a particular task because his or her work is susceptible to objective analysis. That higher level of consciousness should translate into greater adherence to the budget and budgetary process.
Task based billing facilitates the determination of effective billing rates. With all the detail provided, task based billing will readily disclose (1) a blended rate for a team of attorneys working together over a period of time; (2) the time necessary to perform routine matters in routine cases; and, (3) a range of values for performing repetitive work or handling commodity cases.
The efficiency of the trial team can be determined with task based billing. Here, the objective is to determine how senior, junior, associate and paralegal time is employed in a case. The portion of time spent on various phases by lawyers at different skill levels is readily disclosed. Whether a senior member spends too much time engaging in research, or too many lawyers have been assigned to a research project will be easy to determine. Those are the negatives. Historic performance is a guide to the future. With knowledge, for example, that the time breakdown between senior, associate and paralegal timekeepers is generally 20-70-10%, firms can use that information in setting fees, assigning staff members to the trial team, and gauging the efficiency of the team as matters are undertaken, worked to a conclusion and reviewed.
2) Human Resource Considerations
The uniform system is a planning tool to organize cases, assign personnel and monitor performance. Data compiled over a period of time concerning the performance of individual timekeepers and teams of timekeepers will enable the litigation manager to staff matters most efficiently. The litigation manager must make an analysis at the outset of the case about its nature and character and the characteristics of the lawyers and support staff who will handle the case in the most efficient manner. He or she may be guided by system tools that facilitate the review of personnel assignments retrospectively. The past provides information for future planning.
The task based billing system creates, encourages and instills internalized discipline by timekeepers. This intangible characteristic of the system is clearly immeasurable, yet is exists as a powerful feature of the system. Timekeepers are more acutely aware that their activities and the amount of time they spend in those activities can be readily scrutinized in a meaningful way and compared to the efforts of others. In house and outside litigation managers now have a system with which to compile data and compare individual performances. The uniform system makes this feature of supervision more effective and more apparent to the lawyers being supervised.
The uniform system is the first and the only standardized system that enables a quantitative analysis of the work of lawyers and law firms. It isolates the work of individual timekeepers as well as the tasks. It enables and facilitates economic evaluations and comparisons of lawyers, trial teams and firms. It is presently the ultimate evaluating tool available to litigation managers, in house and outside.
3) Marketing
Task based billing is a marketing tool. Because the system permits analysis of the economic efficiency of lawyers and support staff, its use by outside lawyers and in house litigation managers serves as a powerful marketing tool for law firms. Its use by outside law firms sends a message from the firm that it is prepared to withstand the scrutiny of its efficiency and be compared with other firms providing the same or similar services.
The protocol enables a one price for all timekeepers fee quotations. This fee structure is an interesting by-product of task based billing. Over a period of time it will become evident that groups of lawyers working together will perform at a blended rate that will fall within a narrow range. Staffing a matter with various levels of skilled personnel will result, over time, in the conclusion that the group of lawyers and support staff delegate the work between them in consistent proportions according to skills required. The mix will remain fairly constant. As a result, the firm can arrive at a "one price for all timekeepers" fee with a good degree of certainty.
The information provided by the uniform system facilitates the application of other alternative fee arrangements. The one price for all timekeepers fee arrangement is but one of a number to derive from task based billing. The data compiled will enable firms and in house litigation managers to arrive at other fee arrangements, other than straight hourly fees, that are suited to particular types of litigation. Commodity type litigation admits of fixed fees. Data compiled by firms will enable them to make informed decisions using a mix of reduced hourly rates or flat fees plus a contingency for results, whether plaintiff or defendant. The possibilities are many and varied.
CONCLUSION
The adoption of a uniform task based billing and budgeting system is as comparable to financial statement reporting of business operations as law firms can achieve. Every case is viewed as a business enterprise in and of itself. The performance of each case and the lawyers working on it are measured periodically. The system is the equivalent of balance sheets and income statements. It promotes fair and adequate analysis, the measurement of performance against budgets, and greater individual integrity. It is useable in its present form for most litigation and adaptable for those clients who demand it. It is ready for universal adoption.
