Uniform Task-Based Management System (UTBMS)

Table of Contents

1. Introduction

2. The Benefits of the Law Department

3. The Benefits to the Law Firm

4. Implementation Strategy

5. Moving Beyond UTBMS

6. Alternative Billings – What do Clients Want?

7. The Obstacles to Non-Hourly Billing

8. The Alternatives

1. Introduction

For the last three years, the American Corporate Counsel Association has sponsored conference sessions dealing with Uniform Task-Based Management Systems (UTBMS) more often referred to as Task-Based Billing. The spring 1997 meeting of the Canadian Corporate Counsel Association featured a panel on standard (or task-based billing) codes. Those law departments and law firms in attendance were intent on finding out what UTBMS was, how much money it could save the law department and how it could affect the law firm. Last fall, 12 law departments and representatives of eight law firms totalling 1,500 lawyers formed a task force under the auspices of the Conference Board of Canada to see if the pain was worth the gain.

The Canadian Corporate Counsel Association and the Canadian Bar Association had observer status. The task force quickly decided that the project / transaction and the counselling code sets could be used with only minor changes from the U.S. model. The bankruptcy code set was inapplicable and discarded. Instead, the group set out to customize the litigation code set and to sort out the implementation challenges for Canadian law firms and law departments.

A group of 100 U.S. law firms and law departments produced four different sets of alphanumeric codes, complete with corresponding terms and definitions that describe the universe of legal work in a given area: Litigation, Project / Transaction, Counselling and Bankruptcy.

For litigation cases, each file is broken down into five different phases:

• L100 Case assessment, development and administration
• L200 Pre-trial pleading and motions
• L300 Discovery
• L400 Trial preparation and trial
• L500 Appeal

Each phase is then divided into tasks. For example, the 9 tasks for the Case assessment, development and administration phase (L100) are as follows:

• L110 Fact investigation / development
• L120 Analysis / strategy
• L130 Experts / consultants
• L140 Document / file management
• L150 Budgeting
• L160 Settlement / ADR
• L170 Billing
• L190 Other case assessment, development and administration

The 24 remaining tasks for litigation are distributed across the other four phases.

2. The Benefits to the Law Department

Both corporate and government law departments must do more with less. But the law department has no time to update its practices on working with outside counsel, to update engagement letters, not to mention preparing formal requests for proposals, and to analyze billing alternatives.

Sophisticated purchasers of legal services are looking for predictability in service and results, risk-sharing in price, and appropriate rewards for legal services.

Traditional billing deficiencies according to the law department include poor financial control over the amount and the nature of firm billings, no centralized management of litigated files, key information frequently not available, and no real-time ability to assess the quality and cost-effectiveness of the services provided by counsel.

Jeremy Hill is with the Department of Justice and head of the Agents Affairs Unit, the in-house consulting service to the Department's 1,200 lawyers. His focus is on the 250 law firms retained by the Crown across Canada. With 5,000 invoices received each month, Mr. Hill and the department are exploring how UTBMS and task-based billing can help compare costs for internal and outside counsel, for different kinds of files, for various firms on one type of file, and for firms in various regions of the country.

3. The Benefits to the Law Firm

One speaker at last year's LegalTech conference itemized the benefits of strategic task management for the law firm:

• a reduction of 5% to 15% in write-offs because the quality of work improved
• an incentive to delegation of work to lawyers and paralegal staff at a level requiring less experience
• a reduction in cycle times for bill preparation by the firm and bill payment by the client
• improved results because all the steps are identified and the best resources are better deployed
• a marketing edge created by a record of better results
• better communications from the outset with clients

There are a number of distinct advantages for a law firm to adopt UTBMS and task-based billings on a firm-wide basis, initially for all the litigation files and eventually for all other areas of practice. The first is to identify internal best practices within the firm, including better planning and communication of professional work with the client, active file management, and reduced administrative tasks. The second is to create a marketing advantage for the firm, principally through innovation in resource management and technology. The third strategic advantage is the economic and competitive position that can be created because of cost reductions up to 15 % and because potentially more profitable fixed-fee and value-based billing arrangements are easier to propose and implement.

4. Implementation Suggestions

U.S. law departments pioneering with UTBMS claim that the initial reactions from law firms were stone-cold. The ice began to melt when law departments decided to share the data, the graphs and comparative analyses with all of their outside counsel providers. In a few cases, the General Counsel arranges outside counsel conferences so that lawyers from different firms can compare best practices. Thomas Sager, Associate General Counsel, for E.I. duPont de Nemours and Company (US) explained that part of his company's Convergence Program requires that Dupont's 34 primary firms across the country be able to share work product, eliminate multiple data bases, and promote collaboration so that each lawyer can benefit from the experience of every other lawyer, even if they are in different firms. He convenes the managing partners from all of his supplier law firms once a year.

Uniform task-based management codes reside in the law firm's timekeeping system, often feeding the financial and billing systems. Law firms now have the ability to mask their firm's internal time-keeping codes to UTBMS-compliant codes. Experienced firms strongly advise that timekeepers learn to enter their own time (sometimes a judgment call is required) according to the codes or categories, to reduce the risk of error and to avoid time-lumping. The codes work to their fullest potential when used in conjunction with case management systems, and electronic reporting and analysis systems. The corporate law department should itself be able to receive and work with UTBMS-compliant data and billings.

5. Moving Beyond UTBMS

Lawyers in law firms want client respect, the opportunity to prove the quality of their services, no second-guessing and higher profits. Established clients want improved accountability, predictable and provable quality of legal services, a major role in making decisions, and lower legal costs. The challenge is to find a middle ground that entails mutually respectful relationships, profitable business for the firm and the client, no surprises, and winning case strategies.

Dupont's concept of partnering with its outside firms is built on restoring a higher level of trust, communication, technology sharing and risk-sharing. The approach moves away from a line-by-line review of legal bills. Petro-Canada's Associate General Counsel, Alf Peneycad, recently concluded a three-year alliance arrangement with Milner Fenerty in Calgary for its outside counsel legal services in Alberta.

Trying to balance innovation, expense management and results, Petro-Canada wants its preferred law firm in Alberta to provide efficient and effective legal services, principally by means of case / project management, streamlined billings, and sharing of work product. The alliance itself is designed to act as a permanent stimulus for innovation in all legal services provided to the company's strategic business units, principally by means of internal reporting, technology, dispute resolution, risk sharing and results management.Using value-added concepts, a progression of strategies is emerging for working with outside counsel:

• on the strategy front
• on collecting data for case management systems
• on the technology front with the use of the Internet and the intranet and the use of groupware.

The goals are to increase communications, facilitate teamwork, enhance productivity, and reduce costs. A partnering or alliance relationship between a law department and a law firm can mature, and then progress on the productivity spectrum:

Rate reduction — Reduction in number of outside counsel — Shared Technology — Work process re-engineering — Performance Measurement — Value-based billing

Sharing of technology, re-engineering work processes and measuring performance (Steps 3 to 5) require a seamless two-way data flow between law firms and their substantial clients, using:

• office systems
• case management systems
• timekeeping systems
• financial systems, including billing
• decision-support systems
• reporting and analysis systems

Uniform task based management systems, when supplemented with case management, strong analytical tools and alternative billing arrangements constitute the architecture for stronger relationships between law departments and law firms.

6. Alternative Billings – What Do Clients Want?

Every lawyer is acutely aware of the awkwardness, if not the resistance from clients, regarding billing rate increases. More accurately, the real issue is the size of the bill, rather than the rate. Lawyers in private practice face increasing competition from lawyers and other professionals, diminishing profits for partners, more demand for specialty services, a daily challenge to find new clients and to become entrepreneurial. In the face of all this, the business of running the law firm is consuming more time and talent than ever before, and one is supposed to then balance professional and personal obligations. What do clients want?

Today's law firm reality calls for less reliance on rain makers. Clients are concerned about costs, the work can be shopped around, and bills are audited. As long as hourly rates are offered, rate comparisons will continue even though the more sophisticated clients are keenly interested in alternative billing arrangements customized to the projects or issue, in a way that is compatible with the client's business imperatives. In general terms, all clients want dependability of service, no surprises on price, and consistency in the law firm team. Clients want a limit to the growth in their costs for legal services.

A recent Prentice-Hall survey revealed that 80% of General Counsel want fee discussions to take place in the first meeting, 88% do no want the lawyer to wait until the client raises the question, and 92% do not want fees resolved only when the file is completed. In addition, 78% want a detailed explanation justifying the fee calculation. This author's benchmarking studies show that most corporate and government law departments must do more with less, but that most have no time to update their standard letters of engagement, to prepare requests for proposals for legal services, and to analyze billing alternatives. Still, when it comes to bills for law firms, clients want certainty, predictability and some measure of risk sharing.

7. The Obstacles to Non-Hourly Billing

Like many professionals, lawyers delay or resist the billing process. In part, this is a reaction to the inherently large amounts or because the clients will have some difficulty to pay the bill. In addition, few lawyers truly understand law firm economics such that they can explain the direct and indirect costs to provide legal services. Alternative billing arrangements are essentially a different way to set the price for services. The costs of service must be understood and controlled before deciding on their price, and certainly before estimating the price. There are a number of obstacles at this point.

• the law firm usually has very little accurate historical data on hand for similar legal work
• lawyers are risk averse and are rarely interested in sharing financial risk with the client based on the successful outcome of the case or rapid completion of the project
• some law firms partnership agreements call for profit-sharing between the partners based on hours produced, rather than the amounts billed or collected
• most established accounting systems do not have data and search capabilities to support the required comparative analysis
• lawyers are only now beginning to have desktop capability with on-line access to the accounting database, supplemented by file/ project specific budgeting and variance controls

In short, law firm structures, skill sets and cultures are only now beginning to evolve to support alternative billing arrangements.

8. The Alternatives

A 1996 Price Waterhouse survey examined client views regarding billing alternatives and revealed that 55% of corporate clients preferred a discounted rate, 40% accepted fixed fees, and 46% replied they preferred that litigation be billed promptly at key phases in the case. The survey also revealed that 56% of clients wanted a detailed budgeted plan. A surprising 41% claimed that they would issue formal requests for legal services proposals.

A survey commissioned for the corporate counsel section of the New York State Bar Association summarized what clients do not want: rate changes in mid-file, work benefiting more than one client, billing for technology or experience, turnover in the law firm team, and conflict between legal and business imperatives. Instead, they want sharing of risk, sharing of the efficiencies, and sharing of the results. How does a law firm do that?

There are three basic approaches to billing for legal work and each carries several associated methods with it. They are the hourly methods, the fixed-fee methods, and the methods which are tied to the results achieved in the file or the case. The hourly methods have few productivity incentives but are preferred by law firms for work with many unknowns or where the firm has little related experience. The fixed-fee methods include retainers, payment fees, some government files and hourly rates with a maximum quantum. The results-driven billings include contingency fees, depending on the province, and set amounts that depend on the outcome of the file or project.

Choosing the best method should take into account the client's expectations and what the law firm's competition is offering. The billing method can affect the volume of hours generated, the profitability of the file, the law firm's market share for the work, and the image of the firm. These four factors must be kept in balance when choosing the billing method. The advantages and disadvantages of certain alternatives follow:

The hourly method includes these variations:

Hourly Rate

• Rate multiplied by number of hours
• Allows comparisons
• Encourages inefficiency
• Does not do justice to value of work

Discounted Hourly Discount on the hourly rate

• Useful in client negotiation
• Can stimulate growth in number of hours
• Labour intensive for client

Blended Rates

• Negotiated in advance
• Encourages delegation
• Complicates internal credits
• Simplifies RFPs and billing
• Hides personal contribution
• Can stimulate volume growth
• Linked to staffing profiles

Rate by Volume

• Can stimulate a greater volume of hours
• Allows the firm to focus its resources and to develop its systems
• Could cause a drop-off in services

Partner Rate

• Rate negotiated to include salaried lawyers and paralegal time
• Good for special projects and transactions
• Inhibits delegation
• Not often found in law firms
• Not easily supported by law firm accounting systems

The Capped Rate

• Maximum rate by lawyer (see government rates)
• Maximum hours by task
• Good for recurrent work
• Easy to manage but needs efficient systems in the firm
• The best lawyers are not always available

Task-Based Budgeting

• By phase of litigation or project
• Based on U.S. and new Canadian systems
• Depends on file strategy
• Easy to administer and bill review is straightforward
• Requires good data and planning
• Useful for litigation
• The fixed fee-related methods include

Fee by unit of work

• Pre-set hours by task
• The client must define the work in sufficient detail
• Could be more costly for the client

Fixed Fees

• Preferred for similar, repetitive work
• Encourages efficiency
• Easier with clients providing good volumes
• Simpler to negotiate with many clients
• Not easy with unusual mandates
• Encourages delegation
• The results-related alternatives include

Cost plus

• Basic hourly rate with a supplement proportional to the result or speed of
• Resolution
• Earnings efficiency
• Expenses are proportional to the file
• There is difficulty in anticipating the real costs
• The negotiation process with the firm can be less than agreeable.

Bonus

• Pre-set amount for rapid resolution or cost savings
• Rewards results
• Inhibits budgeting
• Eliminates the known unit ( hour ) of comparison

Percentage

• A percentage of the savings or 100 % of the standard hourly rate
• The percentage varies ± depending on the result
• An incentive for efficiency
• No payment without results
• Requires a sharing of risk with the client
• The file is introduced by the law firm

Retainer

• Fixed monthly amount
• Easy to budget and to bill
• Work can appear
• Little control by the client

The two most popular alternatives to the hourly method are the discounted hourly method and the fixed fee. From the client's point of view, the fixed fee reveals the cost in advance. The true advantage for the firm and the client however, is that the fixed fee moves away from the mentality of selling / buying time to one of selling / buying value. Non-routine files or projects do not lend themselves easily to fixed fees. Rather, files which are routine, even if complex, that can rely on paralegal employees and call upon sophisticated technologies will support fixed fees. Fixed fees can be used, even for phases of complex litigation when experience and systems permit the client and the firm to define the scope of the work and when some risk can be shared with the client.

Hourly billings are not about to disappear, but they are diminishing with law departments and other recurrent users of legal services. Law firms and their clients are becoming more knowledgeable about the alternatives, there is training in estimating costs, project planning, time keeping, delegation, supervision and communications. Law firm compensation structures are moving away from production-driven targets and individual hourly rates to team incentives and an emphasis on new clients.

Law firm technologies can now integrate project / matter planning and budgeting, with professional resource allocation, time keeping and billing systems, and client e-mail. The law departments, for their part, must be prepared to concentrate more volume with fewer firms or a larger duration. Above all, the client must be prepared to share both the risk and rewards with the law firm proposing to bill value and not time. In return, law firms will improve their planning, their communications, manage files more actively, reduce administration tasks and anticipate client needs.

Richard G. Stock, FCIS, C.ADM., CMC is the founding partner of Catalyst Consulting, a firm with offices in Montréal, Ottawa, Toronto and Calgary, specialized in advising law firms, corporate counsel, and government law departments on strategy, performance and profitability.