Legal audits + technology = savings

As a matter of policy, city and county governments apply common business accountability standards when purchasing construction services or new equipment. They issue RFPs, review responses, require budgets and projections, and otherwise carefully monitor performance by any company they hire.

Yet, cities and counties often do not review outside lawyers’ bills. In many instances, local governments do not have (or do not enforce) fee and expense guidelines for legal services. Nor do they bid out legal work or require law firms to adhere to agreed-upon cost limitations.

If local government would hold outside law firms accountable, the savings to taxpayers would be immediate and significant. After all, lawyers are vendors, too. The value and benefit of their products and services can and should be measured by traditional auditing and other cost-control techniques.

When considering hiring a law firm, city and county governments must ask questions that are similar to those they would ask any local government contractor: Do you have the necessary expertise and experience? How much will it cost? Can someone else provide the service more cost-effectively? Is the product or service necessary?

Routinely auditing outside counsel’s fee and expense invoices, or at least performing audits on certain matters that are expected to exceed budgeted costs, almost certainly will help control outside legal costs. Numerous firms throughout the country specialize in this area. They can provide useful analyses of law firm invoices to identify overcharges, duplications of effort, inefficient staffing, excessive billing rates and other inappropriate activities or charges. Audit firms generally charge a small percentage of the total amount of fees and expenses contained in the invoices they review, regardless of the amount of overcharges they uncover.

The mere retention of an auditor by a municipality will have an immediate “deterrent” effect on law firm overbillings, putting the lawyers on notice that their work must be clearly documented. Specific reimbursement guidelines, established in writing and specifying the municipality’s expectations, represent another important tool that local governments can use to manage and reduce legal fees.

When working with an outside law firm, a local government should insist on an engagement letter that explains the firm’s fee and expense agreements regarding the representation. Fair and clear reimbursement policies foster long-term, mutually satisfactory attorney-client relationships.

The American Bar Association’s issuance of the Uniform Task Based Management System (UTBMS) has made it easier to monitor legal costs. Similar to the health care field’s Diagnosis Related Groups reimbursement codes, UTBMS is a coding system that allows for the breakdown and analysis of everything a lawyer does into separate tasks and activities. Billing information contained in a lawyer’s invoice can be organized and analyzed in detail.

Numerous companies offer software incorporating UTBMS; some packages enable law firms to submit invoices electronically. By using such software, local governments can develop historical, benchmarking data to help them determine the typical costs associated with certain legal tasks and activities, and which outside firms are the most cost-effective. Absent an in-house legal department, a properly trained accounts payable or administrative department can provide the electronic monitoring.

The UTBMS codes, in conjunction with affordable technology and effective use of auditing, make it inexcusable not to monitor legal bills. Governments that do keep tabs on legal bills will reduce costs and make taxpayers smile.