Legal Billing

Many many moons ago, when I first started out as a paralegal, the firm I worked with had a division that provided legal fee auditing services.

As we all know, law firms earn money by charging their clients for the time their staff spent on the client’s behalf. Each time those charges are presented for payment (just like most bills) there’s a need to ensure that effort and compensation are transparent and aligned with expectations.

As such, for most legal staff, time tracking is very important. I thought I’d mention a few basic items about legal time tracking/billing in this post.

Billing Arrangements

Since it’s really just an arrangement between the firm and its client, so long as both parties agree, case time can be tracked using anything from the latest cloud-based software to knots on a rope. But, realistically, there are about 7 ways in which a law firm may arrange their billables with clients:

  • Hourly : This is the most common method, whereby the client is charged according to the time spent by the firm’s personnel. Time can be tracked based on any pre-determined interval, but most firms default to rounding billable time to the nearest 6-minute increment.
  • Flat Fee : In this case, the client is billed for a set amount to complete a specific task. Regardless of the amount of time the firm ultimately spends on said task, the fee will not change (though in reality, there’s usually an additional arrangement should the time spent greatly exceed the original estimate).
  • Contingency : In this arrangement, the final billed amount is contingent on the outcome of the matter (taking a company public, winning as the plaintiff, completing a merger, etc.). The firm will end up with a percentage of an award rather than charging based on time spent on the case.
  • Retainer : The Fee is obtained upfront, and any work done is deducted from the retainer (sometimes up to the entire retainer amount regardless of the actual time/fee incurred). Generally, the retainer setup is used to establish an ongoing relationship between the firm and the client.
  • Pro Bono : the client is not billed, and instead the firm is repaid in goodwill and peace on earth, and maybe some publicity.
  • Statutory : some tasks (especially with Bankruptcy matters) have set fee limits, and the firm cannot go past them no matter how long the task may end up taking. The fee guidelines are set by statues.

Timekeeping

Regardless of the billing arrangements, for most legal professionals, the main point is to track and record their time properly. In that sense, there are 3 things that all timekeepers should keep in mind:

  • Block Billing : In most cases block billing is frowned upon. There may be the occasional client who doesn’t mind it, but most would prefer that tracked tasks are listed separately for clarity and easy analysis.
  • Consistency : This means consistency in terms and language so that the client is not confused by what is being described, and also consistency where multiple people are involved. A set of template descriptions for repeated tasks is often helpful to ensure clarity when creating task descriptions. And of course, if there are 5 people on a conference call, it would not do to have half the participants bill 30 minutes for the call while the other half billed 1 hour.
  • Uniform Tasked Based Management System (UTBMS) : And along the same line as “consistency”, the ABA recommends (and most firms have followed) the use of task codes to properly group legal tasks so as to better understand and analyze time spent on a matter. You can find the detailed task list here.

Legal billing is of course more nuanced than the above, especially if viewed from the perspective of the “client” side (otherwise I wouldn’t have had that fee auditing job). But this is a bare minimum that every legal biller should keep in mind. Maybe I’ll expand on this topic further in the near future.

Written by Andrew

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