Key Metric #1: Block Billing & How Your Legal Department Can Finally Defeat It

//Key Metric #1: Block Billing & How Your Legal Department Can Finally Defeat It

As the market for legal services continues to change and law firms push to increase billings, savvy in-house counsel and legal operations professionals are increasingly turning to data analytics to control costs.  As part of our series on key metrics that legal departments should be tracking, this post will focus on how to track, monitor and reduce block billing.

Seize Control by Defining Block Billing in a Manner that Makes Success Achievable

In a legal industry still dominated by an hourly model, billing precision is a leading driver of costs.  As a simple example, whether a timekeeper spends 60 minutes or 120 minutes on a task matters significantly.  Historically, legal departments have attempted to assure billing precision through policies forbidding “block billing.”

Although reducing block billing is one of the most effective ways an in-house legal department can use data to reduce it’s legal spending, most legal departments struggle in combating it for several reasons.  First, most legal departments simply lack the time and resources to review every single outside counsel billing entry to identify block billing.  Second. even those departments that have full-time bill auditing functions struggle because firms easily adjust their billing practices to sidestep block billing guidelines by massaging the narrative entries to not trip block billing policies without improving billing precision.  Third, and most significant, enforcement of block billing guidelines – even where improper line entries slip through from firms – involves impractical and ineffective conversations focused on reconstructing individual billing entries rather than a quantitative meaningful metric that can be benchmarked over time, across firms, and across partners and other timekeepers.

In other words, bill auditing is not sufficient for a modern cost efficient legal department.

Rather than painstakingly reviewing individual time entries, we recommend that in-house attorneys and/or legal operations professionals require that their outside law firms submit time entries in blocks of less than 4 hours, and characterize any time entry over 4 hours as “block billing.”  Even where a task requires more than 4 hours, timekeepers should be required to break up the entries into smaller time breaks to encourage greater discipline in reporting billing.  Then, using data analytics, legal departments can monitor which outside firms are engaging in less precise billing by measuring the percentage of legal dollars spent on entries over 4 hours.

In short, legal customers should focus first on the size of the billing increment. This is a more effective, more achievable block billing policy to improve and monitor billing precision than focusing on the narrative entry.

Interestingly, Bodhala has used this approach to uncover significant and systematic differences in block billing/size of billing increment tendencies across (1) similar practice areas (2) similar law firms and (3) even timekeepers at the same firm working on the same matters.  Frequently, Bodhala clients find that particular timekeepers and firms are responsible for a disproportionate amount of block billing, and will improve if they know they are being monitored and are being benchmarked against firms and timekeepers also used by the client.

Curb Block Billing by Monitoring it and Providing Feedback

To ensure compliance, legal department decisionmakers should be able to track the percentage of spend attributable to block billing by timekeepers and law firms and be able to filter those results by practice areas and the responsible in-house lawyer.  

If data analytics have been implemented properly, each member of the legal department should be able to quickly filter billing data to determine which of the firms he or she supervises engages in excessive block billing.

In-house attorneys should be able to quickly utilize filters by practice areas or individual legal matter to eliminate outlier matters that may skew the data.  For instance, some companies may permit block billing on a litigation matter that goes to trial or on an M&A matter that required around the clock work.  In-house attorneys should be able to quickly filter out such matters without the need for technical support or a custom report.  

Likewise, senior in-house lawyers should be able to seamlessly apply filters by responsible in-house attorney, so they can see which of their in-house lawyers are ensuring that outside counsel does not engage in block billing.

Additionally, the legal department should be able to regularly report this data back to the law firms, noting benchmarks and goals and progress over time. Bodhala recommends informing your law firm of the percentage of block billed time it has submitted on  a quarterly basis.

The visibility and accountability provided by access to such data results in significantly better management by legal departments of their outside legal providers.

2017-01-05T19:52:55+00:00

About the Author: