Bill padding: shocking, maybe, but what will you do about it?

Kerfuffle (n): An organizational misunderstanding leading to accusations and defensiveness.

I think it is safe to say a kerfuffle arose after DLA Piper sued a client over non-payment of legal fees. The client contended the law firm did unnecessary work and overbilled for it. Pre-trial discovery by the client uncovered multiple e-mails by firm lawyers that would have been best left unwritten. In one, a lawyer noted that a colleague had “random people working full time on random research projects in standard ‘churn that bill, baby!’ mode.”

Things became very interesting when the New York Times published a story entitled: “Suit offers a peek at the practice of inflating a legal bill.” There was widespread interest and immediate response in the business and legal media with many expressing shock and dismay at DLA Piper’s alleged misconduct. Here is a small sampling:

• The original article generated more than 460 online comments.

• The New York Times followed up the next day with coverage about the firm’s response. DLA Piper asserted that while the e-mails were “unprofessional,” no overbilling took place, explaining the e-mails were simply an “offensive” attempt at humor.

An opinion piece in Forbes lambasted the firm and its crisis management and communication teams: “I don’t know who Piper’s crisis PR team is, but I’d hire a new advisor.”

• The corporate counsel for Kia Motors stated in Law Technology News: “Confirmation of bias is an underappreciated source of joy. I relish any piece of information that reinforces my preconceptions.” His bias: hourly billing incents many law firms to pad their bills.

• An op-ed piece in the New York Times by a former partner in a large law firm addressed the “tyranny of the billable hour” and the fundamental problems it creates in the legal system. Sadly, he also concludes “the present outcry will probably pass and the billable hour will endure.”

• A similar op-ed then appeared in Forbes entitled, “Law firms and overcharging: the system itself is rotten.” The author (the CEO of Axiom) detailed structural problems in traditional firms, blasted the “perverse” incentives of the hourly billing system, and asserted the solution is to “fix the game, rather than [wait] for the players to behave differently.”

The outcry about law firm bill padding reminds me and others of the classic scene in the movie Casablanca where the captain closes the café and states he is “shocked to find gambling is going on in here” even as he receives his winnings. As Patrick Lamb has noted, “nobody but the most naive or those who choose to deliberately ignore the world around them can claim this type of billing does not occur.” This is not to say everyone does it, but the incentives exist.

However, shocked or not about bill padding by law firms, the fundamental issue is not what law firms do or allegedly do. The question for in-house counsel is what will you do?

There have been similar outcries about the hourly bill for at least 20 years and it still remains the default billing mechanism for many although the use of alternative or value based fees is on the upswing.

One definition of insanity is to keep doing the same things and expect a different result. By that definition, the in-house community should be receiving treatment. If we do not like the billable hour and its incentives then we must do more than complain. In a previous column I suggested setting some specific (and public) goals such as reducing legal fees by 25 to 33 per cent and obtaining predictable costs.

There are many good law firms and lawyers who will eschew the hourly bill and will work for a fixed fee. If that is too big a change for you then at least consider strategies such as a detailed project plan, a meaningful budget, dividing the project into phases, clear delineation of what gets done (or not done) and responsibilities, monitor and review bills. Much has been written about alternative fees and better ways to purchase legal services. To learn more you can start with the materials developed for the ACC Value Challenge.

In-house counsel control budgets and we select law firms. If we want change, real change, and not just another kerfuffle, then we must purchase legal services differently. It is up to us on the “buy-side” to make change happen. If you do not, then you have no one else to blame when you receive a padded bill.

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