“Should we be paying for this?” is a common question we receive when discussing billing guidelines with clients. Billing guidelines are used by many organizations to assist in controlling costs and expenses. Every company handles guidelines in their own way and most law firms do not question them. But, there are a few areas that tend to prompt questions from clients who want to make certain their guidelines are consistent with current trends. These areas include: computerized legal research, travel (local and out-of-town), and third-party services.
In 1993, the American Bar Association’s Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 93-379, Billing for Professional Fees, Disbursements and Other Expenses (1979). This opinion discusses that lawyers “may not charge a client for overhead expenses generally associated with properly maintaining, staffing and equipping an office.” It goes on to note that lawyers may recoup expenses reasonably incurred in connection with the client’s matter for services performed in-house such as photocopying and special deliveries. Since expenses can often range from 10-30% of an invoice, we encourage our clients to specifically address any debatable expense issues directly in their billing guidelines.
Computerized Legal Research
Computerized legal research is one area where clients often ask what is trending in the industry. In a 2014 article, “Still Charging Clients for Legal Research? You Might Want to Rethink That,” author Laura Olsen summarizes the American Bar Association’s Legal Technology Survey Report. The report indicates that charging for online legal research is decreasing. She also notes the downward trend in clients paying for legal research. Additionally, in The Wall Street Journal article, “Law Firms Face Fresh Backlash Over Fees,” the author discusses some creative ways that companies are using to reduce charges for online legal research. Johnson & Johnson maintains its own subscription for an online research tool such as LexisNexis or Westlaw. The law firms are asked to use their accounts when doing work for the company.
Today, many legal research services such as LexisNexis and Westlaw have an option of flat rate billing for online research services. Most law firms opt for these flat rate options. As many firms move away from using their hard-copy libraries and toward online research, should you pay for online research costs if you were never charged for the cost of their hard-copy library? Courts in several states now consider online research an overhead expense. In our experience, clients do not allow for the cost of using an online legal research tool in their billing guidelines.
Another area of concern for clients is local and non-local travel time. In this expense category, there seems to be little consensus among our clients as to how firms should bill. Some clients opt to pay an attorney’s full hourly rate for local travel. They reason that the attorney could be using that time to bill, but cannot since they are using it for the client. These same clients usually pay half the normal hourly rate for non-local travel. Other clients feel that local travel and mileage to the courthouse should already be calculated into the hourly rate as an overhead expense. Instead of defining travel as local or non-local, some clients make the distinction between working and non-working travel, paying half the hourly rate for non-working travel. We’ve also seen others pay 100% for non-working travel.
Considerations should also be made for how the attorney is allowed to travel. Many companies require that an attorney fly coach but will pay for business class if it is an international flight. Some stipulate that airline tickets are booked 14 days in advance or risk a reduction in the reimbursement rate. Guidelines often spell out a per diem for meals and request that they stay in hotels where the company may benefit from an agreed upon rate.
The use of third-party vendors is another area where we are seeing a trend in client billing guidelines. Large clients tend to have greater negotiating power with vendors and can secure much more favorable rates for their services. Many billing guidelines now require firms to use specific third-party vendors for items such as court reporting, record retrieval, and copying services. In some cases, the guidelines outline that the vendor sends one invoice to the client at the end of a billing period or, alternatively, the firm shows the vendor charges directly on the firm invoice.
Billing guidelines are important because once they are in place, the organization has a document available that explains how the relationship with firms will be managed. In order to avoid any concerns over how the law firms will be reimbursed, make certain to discuss any issues upfront with the firms. Additionally, if you are working with a legal spend management vendor, use the results of their reviews to assist you in finding areas in your guidelines that need improvement or more specificity.