Bills come under scrutiny as GCs reveal widespread padding concerns

In-house lawyers are widely sceptical of their external advisers’ bills, according to one of the largest-ever surveys of in-house counsel undertaken.

According to the findings, which were gathered from research carried out earlier this year by The Lawyer in association with YouGov, 69 per cent of in-house counsel surveyed have experienced someone padding bills. However, this figure rises among more senior in-house lawyers who regularly oversee bills. According to the research, 73 per cent of general counsel have experienced their external lawyers padding bills.

In-house lawyers are more likely to have experienced the issue compared with the profession as a whole. When that question was put to the 2,852 practising lawyers in the survey – including private practice solicitors (both associates and partners), in-house counsel and barristers – the figure was much less, at 49 per cent.

However, there is room for debate over the term ‘padding’, which was not defined in the survey. The numerous in-house counsel contacted by The Lawyer do not on the whole take padding to mean that their external lawyers are trying to defraud their clients. However, they do complain that they regularly have to challenge interpretations of time devoted to transactions by their external advisers.

One in-house counsel complained: “I’ve been billed for a conversation between colleagues. And I’m not paying for a junior to learn the ropes.”

T-Mobile legal director James Blendis agreed, saying: “There’s a lot of time on bills that gives general counsel the impression of padding because too much junior training and learning time is billed and not written off.”

Other in-house counsel said the blame lies with supervising partners. Catherine Regan, general counsel at Riverstone Management, said: “Because of the pressure on partners to market, as well as to be legal advisers, they don’t often monitor the bills closely enough, so junior staff might be going off on wild goose chases that the client will be billed for.”

Scrutiny of bills and the demand for transparency is what lay behind Barclays’ decision to implement strict management of legal spend through the launch of dedicated technology.

As reported by The Lawyer (19 February), the bank is partnering with US electronic invoicing provider DataCert to monitor the exact composition of law firm bills. It will record comparative data on how law firms staff their deals through capturing information on hours recorded by partners, associates, trainees and paralegals – and whether they marry with panel requirements.

Barclays general counsel Mark Harding said last month that the system would “provide better control over the processes for originating legal spend, ensuring our law firm panel guidelines are complied with”.

The flaw with law firms’ billing regimes lies with chargeable hours targets, said the in-house counsel surveyed. Indeed, 95 per cent of in-house counsel with an opinion on the issue agreed that chargeable hours targets encourage padding. Sixty eight per cent of law firm associates who gave an opinion and were surveyed at the same time also agreed. However, that proportion drops when it comes to partners, with 50 per cent of partners with an opinion agreeing with that proposition.

AOL Europe general counsel Tony Wales said: “The pressure imposed by law firms on associates and assistants, and on partners themselves, to meet billing targets seems as great as ever. So it’s hardly surprising that they record every moment they can on a client’s file and it’s hardly surprising if this amounts to padding the bill.”

Although in-house lawyers on the whole dislike hourly rates (67 per cent of in-house counsel with an opinion agree that hourly rates are outdated), senior personnel in law firms are more wedded to the concept; only 39 per cent of partners think hourly rates are outdated.

When asked what the single best alternative to hourly rates is, more than two-thirds (68 per cent) of in-house counsel said project-based billing. Flat-fee arrangements were the second most popular, but only had an approval rating of 20 per cent.

AOL’s Wales said: “Most general counsel would like to move to project-based billing, at least where there’s a discrete project that can be billed on a standalone basis.

“With this approach you can give your finance director a more useful – and accurate – projection of anticipated legal spend. When it comes to forecasting, CFOs [chief financial officers] tend to be unimpressed with the ‘how long is a piece of string?’ approach that we get from law firms.

“If a firm’s really good it will know how long the piece of string actually is, or at least how long it should be.”

De Beers group manager for corporate legal services Merlie Calvert sounded a word of warning, saying: “In-house counsel need to make it clear that padding or other practices are not looked on favourably. “Since costs and pressure to justify spend on external advice are increasingly subjects for boardroom discussion, in-house teams are looking for advisers who’ll work with them and not against them.

“And let’s remember, competition to provide legal advice, including flexible payment arrangements, is pretty strong among law firms, even at the magic circle level.”

The YouGov research was conducted using an online interview. The sample is a list of 2,980 subscribers to the publication or to the daily news alert service. 506 of the respondents worked as in-house lawyers and 59 per cent of them had been qualified for more than a decade.

Questions were supplied by The Lawyer and modified by YouGov to work with best practice market research methods.

An email was sent to those on the list inviting them to take part in the survey and providing a link to the survey. The results were then compiled by YouGov and analysed by The Lawyer.