(or How to Lighten That Albatross Around Our Necks)
|God save thee, ancient Mariner!|
From the fiends, that plague thee thus!
Why look’st thou so? With my cross-bow
I shot the ALBATROSS. . . .
|Ah! well a-day! what evil looks|
Had I from old and young!
Instead of the cross, the Albatross
About my neck was hung.
|The Rime of the Ancient Mariner, Samuel Taylor Coleridge|
DRAFT ADDITIONS FOR REVIEW
[Institution X] Outside Counsel Guidelines, September 2017
Section II(A)(4) Invoicing
(i) The following details are required for each invoice line item:
• Date of the activity;
• Date of the released time entry;
• Name and title of timekeeper who performed the activity;
• Hourly rate;
• Time billed, in 6-minute (.10) increments;
• Fee line item subtotal;
• UTBMS Task and Expense Codes are required for all Litigation matters; and
• Detailed description of the activity.
(ii) Client will not pay fees for any time that is released by the timekeeper more than [five (5)] calendar days after the date the work is performed.
(iii) [for additional consideration] Client will pay for such time is if the timekeeper uses a pre-approved time tracking system that enables the timekeeper to release time based on real-time monitoring of billable activities. In such cases, Client will pay fees associated with time that is released no more than [seven (7)] calendar days after the date the work is performed.
Section IV. Dashboard/Metrics
Data is powerful. We know that our outside counsel generate and track a significant amount of data about their clients and the matters on which outside counsel works. On at least a quarterly basis, we ask our outside counsel to prepare and send to our Legal Operations team a dashboard or report of various metrics highlighting your relationship with our legal team and [institution]. The dashboard should include, at a minimum, the total invoiced amounts across all matters, the timekeepers staffed to matters, the total number of hours per timekeeper, the time lag for each timekeeper on our matters, and the mix of AFAs provided. Outside counsel should include any other metrics that they believe would demonstrate the value of services provided to us and the effectiveness and efficiency of outside counsel services.
[Institution X] Outside Counsel Panel Request for Proposal
Section IV. Fees
. . . .(5) For each timekeeper you propose to staff [Institution] matters, include their annual time lag average from 2015 to present. If your firm currently delivers legal services to us, provide the time lag associated with our matters for each timekeeper.
Section V. Use of Technology
. . . .(4) Do you use software or other technology to automate the capture of legal tasks and activity to assist timekeepers with the review and submission of accurate their time entries. Please describe.
Now that I have your attention . . . .
Tracking time is an unfortunate burden that many legal professionals have to bear. Although the practice is primarily the province of law firm professionals, there are a number of in-house professionals who also track their time. Unlike a painting contractor who may simply punch the clock on a daily basis, legal professionals typically track their activities in fractions of an hour.
Time lag is the delta between the time legal work is performed and the time that that work is released in a time entry system. As time lag increases, the accuracy of the recorded time necessarily decreases. Timekeepers may spend their Friday afternoons or weekends trying to recall what they did over the week, entering the details and time estimates of what they remember. Results vary from the incomplete to the inaccurate, all while delaying submissions and the aggregation of hours and matter value accrued.
The practice of law is an art; the business of law is a science. Creative thinking is best leveraged when lawyers anticipate and resolve legal issues. Clients derive less value when those skills are focused on the reconstruction of time entries in an electronic diary. In an environment where law firm and department professionals need to understand the cost of legal service delivery with greater precision, reliance on the potentially flawed, yet integral, time entry element is disconcerting to say the least.
Time lag raises accuracy, trust, and overhead issues for legal professionals. This article is addressed to law firm leaders and timekeepers, general counsel, and other in-house legal professionals. I suggest that they have a common interest to reduce time lag in all law firm time entries through transparent exchange of time lag data for all timekeepers. I discuss each issue in turn.
Keeping track of time is #1 on the list of the twelve most common mistakes beginning lawyers make:
The key to effective time-recordkeeping is minimizing the interval between the work done and the entry of the time record. Those lawyers who complain least about time-recordkeeping are usually those who note the time spent on a matter at the moment they switch to a different matter. … Even as early as the next day, it is often impossible to accurately reconstruct how you spent your time.
Poor time management hygiene follows many legal professionals throughout their careers. They reconstruct their activities days, possibly weeks or a month after performing the work. The longer the time period between the task and the release of the corresponding time entry, the greater the probability that this entry will be inaccurate. Individual timekeepers may miss 50–70 hours a year through poor timekeeping practices. Consequently, law firms may “leak” an average of $20,000 to $40,000 annually, per individual.
Sadly, legal professionals are not alone, as professional services companies may lose $50,000 per year per timekeeper in revenue. Unsurprisingly, professional services timekeepers who complete timesheets at least once per day are more accurate than those who fill them out once per week or less frequently.
Given these meaningful impacts, law firms and in-house departments have a vested, common interest to take the guesswork out of time entry to ensure that they understand and report the true cost of legal service delivery.
Beyond this fundamental temporal accuracy issue, “upbilling” may be a greater concern for in-house professionals. Recent reports indicate that “21% of lawyers ‘upbilled’ for their time in 2015, rounding up their hours worked to the next hour or half hour.” Legal departments could be overpaying approximately $7,200 per quarter per timekeeper (~$29,000/timekeeper) if monthly bills are off by just 3 hours. Consider the number of magically rounded hours appearing on a recent invoice to help you guesstimate how may tenths or quarters of an hour add up to that three hour total.
Although prohibited by outside counsel guidelines, 40% of lawyers still submit block billed time entries. Given that block billing may inflate time by 10-30%, in-house teams remain motivated to enhance outside counsel invoice reviews. All the while, rates continue to rise — the average year-over-year rate increase for associates was 7.3%, double the 3.6% rate increase for partners. Expect the impacts of block billed and other inaccurate time entries to amplify over time.
Some legal departments are use eBilling technology or third party services to manage undesired billing behavior. Unfortunately, many in-house departments still lag in their efforts to manage these impacts.
In parallel, law firms meet with varying success trying to persuade timekeepers to comply with clearly articulated daily time entry policies, providing incentives (e.g., $25 Starbucks gift cards) or disincentives (e.g., $100 penalties per day; restrictions on year-end bonuses) to change behavior.
At a time where clients and law firms prudently increase their focus on value pricing and alternative fee arrangements (AFAs), trust remains a critical component to make these arrangements work. In order to collectively shift our fee approaches, renewed focus on time entry practices is critical:
A chronic source of mistrust between clients and law firms is skepticism (openly expressed by clients and tacitly acknowledged by lawyers) about the accuracy of timekeeping. Any tool that served to convincingly increase the accuracy of this very fundamental metric could only be welcome as a step towards closing that gap and reducing challenges to firms’ bills based on posited inaccuracy.
Constant, regular communication builds healthy relationships between in-house professionals and their outside law firms. For better or worse, monthly invoices, accrual reports and budget updates are regular communications. The removal of friction around these invoices and reports is likely to foster trust, particularly in light of occasional reports of overbilling.
In-house professionals need more accurate time entry reporting because they do not like surprises. Clients track accruals of outstanding legal work to run their businesses. Accurate, timely accrual submissions present a clear picture, while late and misaligned time entries obscure the true cost of the work and its impact on the bottom line.
Consider this from the client perspective. In-house legal professionals build trust with their internal finance and institutional partners, in part by relying on outside counsel reports. Accurate invoicing and reporting from outside counsel supports their in-house legal colleagues in this regard. By contrast, reports that some law firm timekeepers think that their timesheets are “accurate over time – it all evens out” strongly suggests that these lawyers do not understand the needs of their clients or their financial management obligations.
Our time lag albatross is not simply worth ninepence; there are real costs involved. Looking at the “overhead” costs alone for law firms, time entry activity can take 3.1 hours/month or more per individual, suggesting an imputed cost of $16,294 per person per year. Law firms also incur additional “soft” costs in the pre-bill process.
Law firms and departments confront meaningful, additional overhead costs reviewing, rejecting or writing down late and inaccurate time submissions. These legal professionals also suffer additional costs associated with the resulting accounting, reporting and forecasting changes.
In-house teams generally require law firms to submit “accurate invoices” that reflect the actual time spent by a timekeeper in specified allowable incremental rates multiplied by an agreed-upon hourly rate. Beyond these generic terms and various prohibitions, the only restriction targeting the accuracy of time entries is the prohibition on block billing given the inherent inaccuracy of such entries. Sharing timekeeper-specific time lag data will be a welcome addition, reducing the overhead experienced by all legal professionals as they regulate inaccurate, untimely time entries.
There may be some initial overhead as law firms and departments add time lag calculations to the eBilling process. However, sharing time lag data will help law firms change behavior (because the client demands it). As a result, those firms and their in-house counterparts will derive greater business operational efficiency by reducing the churn associated with the creation, review and revision of time entries, invoices and financial projections.
For sailors, the albatross was a symbol of good luck, with their appearance suggesting the ship would have the necessary wind to reach the desired destination. Since its first sighting in the 1960’s, the billable hour may have evolved into more good fortune than luck, at least from the law firm perspective. Although it is unlikely that we will eliminate the need for incremental time entries in the near term, we can lighten the burdens that our current time entry practices place on law firms and departments and their institutional clients.
Accurate time reporting is a necessary, material element that enables legal professionals to manage effectively ongoing and future hourly based matters. Despite (hopefully mutual) desires to shift to value pricing and AFAs, accurate time reporting also remains highly relevant for matters that are not priced by the hour.
Even if you think AFAs (alternative fee arrangements) are the wave of the future, the need for accurate timekeeping doesn’t disappear. Indeed, the more critical and complex it becomes [for law firms] to be able to project profitability of a matter under AFAs, the more important accurate and “real time” hours tracking becomes.
Law firms have their profit motive, while law departments want to pay accurate prices for services delivered and more fully understand the full cost of their operations. Law firm leaders and their in-house clients share a common need to run the practice of law as a business. They also share common desires to minimize overhead and engender trust as they work together to deliver value and results. In an era where clients demand greater value for lower cost, the sharing of time lag data will help all legal professionals improve the foundation currently used to measure the cost of legal services. In turn, this will help all legal professionals effectively price legal services.
This article originally appeared on LinkedIn on April 6, 2017. Interested readers are invited to (1) use a link below to share this article on LinkedIn, Facebook, Titter, etc. and/or (2) visit the article on LinkedIn to share the article or their comments.
©2017 Peter Krakaur