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This Wisdom of the Crowd (ACC member discussion) addresses how to dispute bills with outside counsel, under US law. This resource was compiled from questions and responses posted on the forum of the New to In-house ACC Network.*
 

*Permission was received from ACC members quoted below prior to publishing their forum comments in this Wisdom of the Crowd Resource.

Question

I recently became the first in house counsel for a startup that has used the same BigLaw corporate counsel for the past 5 years. We started researching a potential corporate restructuring and I just received a staggering June bill that was 10x the previous month's bill, with July still on the way. While a higher bill was expected given the specific research project, in private practice I would have been ashamed to bill so much for so little practical output.
While there's been some back and forth between the firm and the startup over bills over the 5 years prior to my arrival, there's never been anything this egregious. I've made clear in an email to the firm that, effective today, work on the project going forward must be on a pre-approved budget, but, for the present, does anyone have any advice on how to approach the June and July bills? I can critique the detailed entries as wasteful, but much of the billed time is pretty vague, which I suppose is one line of attack. I'm planning to not approve any additional work until this is resolved, but most of the research has already been done so I'm not sure how much leverage I have, particularly if the firm concludes I will fire them anyways (they're certainly not helping themselves right now.)

Response #1: So, you acknowledge that a "higher bill was expected?" Did you ask for an estimate ahead of time? Did you communicate your expectation as to what the research project would cost? I assume the answer to both questions is No. The next question is whether you have scrutinized the bill to see whether it is good time. Did they have two people doing the same work? Are the issues novel and complex, or straightforward? Also, have you spoken to the partner by phone? If not, why? Why use email only?

I was in private practice for sixteen and a half years and I have been in-house for a year and a half. During my time in private practice, every bill I sent to a client had good time, although because the billing process is not perfect, we occasionally had a mistake in what got included on the bill and I missed it in reviewing it. My clients occasionally complained about a bill, but they nonetheless trusted that it was good time and/or valid expenses. Since I have been in house, I have not had a billing issue with the many outside counsel I have worked with on both transactional and litigation matters. Do you trust this firm? If not, pay the bill, fire the firm and get a firm that you trust. Meet with the partner in charge of your account at the new firm in person. Buy the person dinner. Call them by their first name. Tell them you want this to be the beginning of a long-term relationship. When you want to communicate critical feedback, pick up the phone first and then if necessary, send an email. Don't ask them to give you an estimate ahead of projects. The reality is that many tasks outside counsel perform cannot be estimated with precision, particularly on a complex deal or litigation. Train your executive team to understand that estimating and budgeting outside legal cost with precision is very difficult, if not impossible. My Chief Executive Officer is a lawyer and thus he understands that. Many businesses do not, they want the legal services, but they don't want to pay the true cost for those services because legal is a "cost center", it doesn't make the company any money.1
Response #2: I am dealing with a similar issue, having been the first attorney to conduct a meaningful review of multiple sloppy invoices from outside counsel with a jaundiced eye of former insurance defense counsel. One tack is to write-down excessive and unreasonable entries (relative to the task performed), advise them of the proposed write-down, and negotiate a discount. If they push back, I would spend an afternoon at their office auditing invoices and the files (you might be pleasantly surprised at what you discover). Either way, you will have adjusted their behavior going forward - a substantial benefit to your employer.2
Response #3: You can try the approach advocated in Response #2, but taking such a tact with outside counsel, your supposed "trusted" advisors, is likely not going to further a relationship of trust and confidence. If you do not trust the firm and/or their invoices, pay the invoice and fire them and go engage a firm you trust. Writing down the time entries is an exercise in futility, why would you know better than the lawyers that did the work what amount of time the tasks should have taken? If you could have done things so much faster, why didn't you? Also, as to auditing the invoices and the files, don't you already have the firm's invoices and key documents from their files? I do. There is no need for me to audit my outside counsel's invoices or files since I already have the invoices and because I make sure they send me the key documents, including pleadings and other work product.3
Response #4: I have had this experience a number of times through the years. Of course, you should first be sure that you understand the nature of the work and it's difficulty. You should look at the number of people who have done work on each task and try to determine whether it is reasonable. Begin by calling the firm and asking any questions you have about the work and staffing. Just say you were surprised by the amount of the bill and ask your questions. If you are pleasant and ask about facts and they are rude or do not give you satisfactory answers, then take the information you do get and propose cuts to the bill. You may have to do some negotiation and you may have to fire them (try to find out if the partner is the brother-in-law of the Chief Executive Officer before you do). 

If the firm charges high rates, you may be able to negotiate a discount for the future. That might help. It might also help if you discuss staffing for each new matter.

While I have had some success in getting firms to send more reasonable bills after they have over billed, I have usually found that the bills continue to be a problem. I identify one problem and we reach an agreement that they will handle it differently in the future but then something else becomes a problem. I think some firms do this because I am hiring them to handle a single lawsuit and have sent them no other work. 

I work with a couple of big firms that do excellent work and have very reasonable billing practices and I have had small firms overcharge but I have found this is more a problem with bigger firms.4
Response #5: I agree with a lot of the other responses, but also come from having spent nearly a decade in private practice and seeing questionable billing practices from outside counsel. It is a failing on the part of both in-house and outside counsel if expectations aren't set up front on what you can expect something to cost. I definitely encourage you to pick up the phone and discuss with your outside counsel. If you don't feel comfortable speaking directly with the partner working on this project, a lot of firms will have "relationship" partners that can help act as a go between. I engaged our relationship partner shortly after going in-house because I didn't feel like the partners I was working with were responding to my requests to try and change the status quo.
As some others have stated, it's really important that you understand the firm's relationship with the company. My outside counsel has been doing our work for several decades and will require me to go through a lot of hoops to terminate the relationship for the work that I manage. Going through the relationship partner and engaging with the partners and associates to set expectations and let them know that things are changing has helped significantly.5
Response #6: I went through a similar struggle when I first came on board. My strategy was to completely rebuild the relationships with outside counsel.
I started by drafting a set of Retention Guidelines, which included very clear billing expectations. I actually prefer block billing, but I asked for time guesses for each element in the block. I put in things that we simply will not pay for, and things that require prior approval. I also made clear that we are trying to build long-term relationships, not just hire for one-offs. I kept it short, but tried to be absolutely clear on each and every element. (we are now on version 3, and counsel seems to be very clear on expectations at last).
Then I met with every attorney who has worked for us in the last 10 years. Most of them I took to lunch, but a few I just met at the office. I went through the Guidelines at a very high level, and made sure they were on board with it. Then, as a follow-up, I got new engagement agreements from every firm that expressly integrated the Retention Guidelines by reference.
Then I started policing invoices. If I found something that didn't fit the Guidelines, I called the billing attorney and asked about the discrepancy. Usually, they simply took the questioned billing off the invoice. In the case of one firm, we left it on - they had a good explanation for the issue and why they had not received preapproval, and (more importantly) I am very familiar with the billing practices within the firm and it would have hurt an associate to write the time off after the fact. There was a wink-and-nod, and the next bill from that firm was substantially lower than expected.
The bottom line for us was just communicating that we were looking for valuable business relationships, not just expanding our department. It has worked: billings were down by half in the first year, and have gone down this year as well, and we feel like we are getting tremendous value for each dollar spent.6
1Response from: Craig Capon, Senior Counsel, Alacrity Services (8/5/2016)
2Response from: Anonymous (8/5/2016)
3Response from: Craig Capon, Senior Counsel, Alacrity Services (8/6/2016)
4Response from: Adele England, Senior Attorney, NCH Corporation (8/6/2016)
5Response from: Anonymous (8/8/2016)
6Response from: Matthew Block, General Counsel, Ahtna, Inc. (8/8/2016)
 
The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
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