The internet age pulled back the curtain and encouraged disruption in many specialized industries, and the legal field is no longer an exception. Lawyers used to be allowed more latitudinal discretion, but greater transparency in legal billing has become the letter of the day.
In fact, a recent article in Inside Legal documented that law firm billing practices are under more scrutiny than ever before. Tightened budgets and cost control measures have led this charge, but advancing technology has also made for savvier clients.
But is that actually such a bad thing?
The Growing Demand For Standardization in Billing
Horror stories of flagrant billing practices have been percolating for many years. As Richard Zitrin and Carol M. Langford reference in their book, The Moral Compass of the American Lawyer, high profile cases of billing abuse are familiar to many lawyers.
For example, Webster Hubbell was convicted of stealing upwards of $400,000 through shady billing practices. There’s even a case of a lawyer at a top Chicago firm who claimed to average 5,941 hours per year.
If a Chicago’s lawyer’s billing records are taken as true, the lawyer was working enough to bill roughly 16 hours a day, seven days a week, 52 weeks a year. The general rule lawyers follow is to bill for approximately 70% of their total worked time. This means the lawyer never had time to sleep or spend time with family or friends outside of work.
What is perhaps most shocking is not only the outrageous embellishment but also that this lawyer was able to invoice these hours and make money like this for four years.
Fortunately for clients, around 20 years ago, a multidisciplinary consortium sought to make billing practices more standardized and transparent. The Uniform Task-Based Management System (UTBMS) along with the Legal Electronic Data Exchange Standard (LEDES) were devised to address and corral some of the nebulousness of legal billing.
For those unfamiliar, UTBMS creates categories of specific legal tasks and expenses and then assigns codes to those discrete tasks and expenses. This coding framework allows clients and law firms to track their legal work based on the specified categories. This, in turn, allows for greater data analysis, reporting, and fact-based decision making.
Similarly, LEDES is a set of standard formats for invoices. Using standardized formats allows different clients in disparate industries to accept electronic invoices, allowing for greater ease of review and speed of payment. Electronic invoicing in standard formats allows for greater data analysis, reporting, and fact-based decision making.
Clients and Courts Dictate the Direction
It’s no surprise that clients are interested in getting the best service they can for as low a cost as possible. This has driven legal services in a much more client-dictated direction over the past 20 years.
In fact, Frank G. Millard and Professor Robert E. Hirshon suggest that the practice of billable hours may come to an end altogether. Although alternative billing arrangements have become more widely used, hourly billing can actually provide greater cost control and efficiency than any other compensation methods.
Since the time that the UTBMS and LEDES standards were released, technology has leapt forward. Building on the UTBMS and LEDES efforts, clients can “capture meaningful billing information and data in an easier, more digestible way.”
Performing simple data analysis is now much easier with uniform invoices following the LEDES standards. In addition, having all time and expense entries categorized and coded following the UTBMS standards, clients can now compare legal billing in ways unavailable even a decade ago.
The days where clients will blindly pay invoices with block billing, excessive amounts of time, vague service descriptions, and other imprecisions are a thing of the past. Discrepancies in billing are no longer hidden, and despite inevitable human errors and attempts to finesse, the smallest inconsistencies have become much more glaring.
The drive toward greater efficiency is also coming from the court. Lawyers have been penalized in fee petition proceedings for not making use of technology that could dramatically reduce the time associated with completing certain legal tasks. Carole Pedersen, co-lead of the national cybersecurity, privacy and data management group at a top Toronto law firm notes the significance of this shift:
“What we are seeing from the bench, at least, is that the courts are mindful of the use of [automation] technology and are grappling with what it means for the litigation process.”
Law Firms Benefit From Standardization of Billing Data
Standardizing UTBMS coding and LEDES formatted invoices is great for discerning clients, and useful for courts adjudicating a proper fee award. But the process can be burdensome for lawyers complete.
The rise of UTBMS coding and LEDES formatted invoices brought clunky user interfaces to billing systems, making an already monotonous activity more frustrating. In addition, bringing billing data into compliance with the UTBMS standards is tedious. Moreover, even after expending the effort, manual selection and entry of codes exponentially opens up the potential for clerical and human error.
Add this to the fact that billing is already a time-consuming endeavor that is itself not billable, and firms can find themselves losing out on quite a bit of time and money. There has to be a better way, and now there is.
Thanks to automated technology, computers can now help law firms standardize their billing data, and make it more useful. New advances in machine learning and automation allow law firms to easily take advantage of and learn from their previously billed and paid data.
This helps law firms pinpoint exactly where their lawyers can improve, and where their processes can be streamlined. And because the coding and standardization can be done by machine, the likelihood of idiosyncratic and human error is eliminated.
“Tried and True” Made Better with Technology
Most lawyers understand that they need to monitor their billing and collections data. If a law firm is stuck using outdated billing practices, without any analysis of billing and collections data, the results can be damaging to the firm’s profitability, and could even prove catastrophic to the firm’s long term viability.
As implementation of more efficient technologies continues to grow, firms now have more actionable data easily at their fingertips. By combining standardized billing data with work product for the related matters, law firms and law departments can do even more.
Properly coded and standardized billing entries can translate billing information into actionable insights. By revealing exactly how much effort was expended on certain types of tasks, law firms and clients alike can create meaningful internal reports identifying where inefficiencies exist, and how they can perform more profitably in similar future engagements.
The significant costs of establishing, staffing, and maintaining a law firm often used to present an effective barrier to entry. Now, the majority of the back-office costs may be avoided with computer-assisted billing applications that bear the brunt of legal support tasks. Practices with fewer attorneys may soon be able to keep up with much larger firms, creating a paradigm shift.
For larger established firms, reducing or eliminating the tedious aspects of the legal practice for timekeepers and support staff alike, while actually increasing the quality and efficiency of work product is a dream come true. This is exactly what AI and machine learning can do for law firms, as boring tasks no longer distract from important ones.
In addition, clients can more quickly and easily evaluate their outside counsel invoices, streamlining and reducing the efforts and burdens such activities used to require.
The internet has irrevocably changed the landscape of knowledge-based professions of which the legal field is no exception. Ignoring the potential benefits of standardized billing data, and what it can do to improve profitability, is just bad business.
This article was first published in Law Technology Today on 6/4/2019.