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Keying into the bill of costs

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Lawyers must consider how they will use IT in costs budgeting.

Information Technology (IT) has played a major part in the growth and development of law firms over the last two decades. The term “legal IT” is now commonly used and is going to shape the way in which lawyers and costs professionals work in the future as a result of the Jackson review.

Lord Justice Jackson published his final report in relation to the revamp of Costs and Litigation Funding in England and Wales during December 2009. The report highlighted the need for change in this area and how technology could be used to facilitate certain changes.  

Bill of Costs Must Change

Jackson LJ has a very clear vision of how technology can assist in the preparation of the Bill of Costs. One of his primary concerns in the report centres around the format of the existing Bill of Costs, which is contained within the schedule of precedents to the Costs Practice Direction of the Civil Procedure Rules (CPR). He flagged up the following issues:

“..The Bill is expensive and cumbersome to draw. It does not make use of the available technology. It is not easy for the reader of a Bill to digest its import. The Bill does not contain all necessary information…”

Jackson LJ then went on to discuss how technology can assist with the present issues and on page 457 of the report Jackson LJ stated the following:

“In my view, modern technology provides the solution. Time recording systems must capture relevant information as works proceeds. The Bill format must be compatible with existing time recording systems, so that at any given point in a piece of litigation a Bill of Costs can be generated automatically. Such a Bill of Costs must contain the necessary explanatory material, which is currently lacking from the Bills prepared for detailed assessment. Crucially, the costs software must be capable of presenting the Bill at different levels of generality. This will enable the solicitor to provide either (a) a user-friendly synopsis or (b) a detailed Bill with all the information and explanation needed for a detailed assessment or (c) an intermediate document somewhere between (a) and (b). The software must provide for work which is not chargeable or work which is written off to be allocated to a separate file”.

In this section of the report, Jackson speaks about “relevant information”. What exactly does this mean? In our view the answer to this is answered further on in the report, on page 458 where Jackson goes on to explain that Bills should be presented in the order “phase, task, activity”. 

Phases: The Bills would be broken down into five phases: (1) Case assessment, advice and administration; (2) pleadings and interim applications; (3) disclosure; (4) trial preparation and trial; and (5) detailed assessment.

Tasks: Tasks exist within a phase and it would be expected that a summary sheet would list the profit costs and disbursements in relation to each task within a phase.

Activity: An activity is the detail within a task; the individual activity elements that are conducted by lawyers through the duration of a case. We should not forget that it may be within the activities that any descriptive, detailed narrative is also captured.

The key point here is that a time recording system containing the right level of detail, captured in the correct format, can automate the process of creating the Bill of Costs. In fact if time is recorded in the correct format then it can also be used to prepare costs budgets and statements of costs for summary assessment, together with the ability to properly roll out e-billing, which corporate clients are increasingly demanding.

At present the majority of law firms send their paper files together with time recording print outs to their law costs draftsmen for the Bill of Costs to be prepared. The law costs draftsman will trawl through the files of papers and extract very detailed information before inputting the information into costs drafting software to create a Bill of Costs for Detailed Assessment. The preparation of a Bill of Costs can be a time-consuming and expensive process.

Time Recording Must Change

It is our experience that most law firms currently record time in electronic time recording systems using the following fields: 

  1. Date
  2. Activity (with or without description note)
  3. Amount of Time (Units)
  4. Fee Earner Name

Under the new regime, to produce an electronic Bill of Costs the following fields would be required:

  1. Date
  2. Phase
  3. Task
  4. Activity (with description note)
  5. Amount of Time (Units)
  6. Fee Earner Name

This is a seemingly small but significant difference as it would allow time to be imported electronically directly into the new format Bill of Costs.

So How Does Cost Budgeting Fit into This?

Costs Budgeting was one of Jackson LJ’s recommendations in order to control costs and is currently being piloted through Practice Directions 51D and 51G of the CPR. It involves the creation of a budget which details costs incurred and to be incurred which are broken down into phases as previously described. It is envisaged that costs budgeting will become mandatory for all multi-track litigation.

Going forward, information for the initial costs budget should also be captured and stored electronically. Capturing and storing the budget data in this manner would enable a budget to be monitored and compared electronically against actual costs stored in the time recording system.  Again this will only work if time is recorded as set out above.

Law firms that do not capture and store budget information in this manner will be at a serious disadvantage. When combined with the electronic recording of time, electronic budgeting is an efficient, cost and time saving process.

There are many ways to approach the storing of costs budget information. From a technology viewpoint however, it would make sense to store costs budget data in the same database as the time recording data. This makes it easier to create complex reports that have to combine both data sets.

Ensuring that this information can be extracted in the proper form is equally important by developing the correct reporting tools. Creating clear, concise reports that can extract summary or detail information as required should be given proper consideration.

Whilst commonly used applications such as Excel are widely available and cost effective, they are not the best format to use for storing large quantities of data that then has to be compared against data in other systems.

Association of Costs Lawyers (ACL) Working Group

As a result of the Jackson review the ACL set up a specialist group who published a report in October 2011 called “modernising Bills of Costs”. The report is well worth a read and can be found at  

http://www.costslawyer.co.uk/sites/default/files/11.10.11 Report.pdf

The report recommends a phased introduction of the new format of Bill of Costs to allow law firms to amend and implement the necessary software, with the new format being made compulsory after a period of at least 7 years. This timeframe is based on the fact that law firms change their practice management systems every 5 to 7 years.

The Law Firm and the Costs Professional Working Together

In order for all of the above to work then it will require significant input from the costs professional.

The costs professional should learn and understand the required changes in relation to time recording and look to work with law firms to ensure time is recorded in the correct format. This will undoubtedly be a difficult task as it will require lawyers to completely change the way in which they currently approach time recording. Those who invest time now will ensure that the law firm is ready for the future changes.

Encouraging collaboration and a sense of ownership amongst lawyers can help ease these changes through.

The Future Role of the Costs Professional in Relation to the Bill of Costs

Currently when preparing a Bill of Costs the costs professional manually costs the lawyers’ files of papers to create the Bill. If the above changes do come fully into play then the costs professional’s role will change. The costs professional will electronically import the law firm’s time recording data into the new format Bill of Costs. They will then need to vet the Bill of Costs, strip out unrecoverable time and ensure that, for example, the indemnity principle has not been breached.

It therefore appears that the new format Bill of Costs could be prepared without sight of the physical paper files and with law firms pushing more towards electronic document management systems, this seems highly likely.

The costs professional’s fee for preparing a Bill of Costs will therefore decrease, as less time will be required, but it will present a great opportunity for costs firms to increase turnaround times and pitch for new work.

Conclusion

Change will be required. Lawyers need to appreciate that the appropriate use of technology will provide them with the ability to effectively meet the requirements of the new form Bill of Costs and costs budgeting.

The technology changes should not be underestimated either. Assess your current systems and their capabilities and work out what needs to be changed. From here, calculate what kind of resource and investment is required to meet these demands.

Acting now is critical though, as the preparation required to do this properly takes time. Involving the right stakeholders (lawyers, costs draftsmen and IT teams) will reap efficiency and cost saving benefits in the future. 

Written by Andrew McAulay (Manager of Costs and Litigation Funding at Clarion).

Source: Litigation Funding (February 2012)

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