Lawyers are regularly underestimating litigation costs by as much as 100 per cent, putting their corporate clients at risk of breaching England’s recently implemented civil justice rules.
General counsel and other leading in-house lawyers claim that even experienced law firms are often woefully inept at accurately forecasting litigation costs, with the average disparity between budget and the final bill being nearly 40 per cent.
More worrying is that 14 per cent of in-house lawyer respondents to a recent survey said that in the last 12 months the widest divergence between forecast budget and final bill was between 80-100 per cent.
The dramatic findings emerged from exclusive research of senior in-house lawyers conducted as part of The Lawyer’s Global Litigation Top 50 survey, which is due to be published next week (9 December).
According to the researchers, nearly 30 per cent of in-house lawyers said that over the last 12 months the worst-case divergence between litigation cost estimate and final bill was between 20-40 per cent. Another nearly 20 per cent said final bills were 40-60 per cent above estimates.
The findings arrive at a tough time for litigation lawyers, coming in the wake of this week’s Court of Appeal ruling in the Andrew Mitchell MP defamation litigation (27 November 2013). That decision sent shock waves through law firm litigation departments when the judges limited Mitchell’s costs in his case against The Sun newspaper because his legal team failed to submit a budget on time (27 November 2013).
Strict cost budgeting timetables form a crucial plank of the recently implemented Jackson reforms to the civil justice regime.
Elsewhere, the Global Litigation Top 50 research exposed increasing anxiety at the rising costs of litigation advice generally. Some 37 per cent of respondents said litigation rates were expensive relative to fees for other legal services. And nearly 10 per cent said litigation rates were rising faster than those in other areas of law.
“A reckoning is coming,” commented an in-house blue-chip corporate lawyer, referring to separate reports that average partner hourly rates in at the magic circle had reached £850. “Hourly rates will eventually be refused,” he said. “Fee rates cannot continue to escalate upwards. There are other choices.”
The researchers also found wide support for alternatives to traditional hourly billing, with fixed fees by project and by project milestones the two preferred models. “Law firms could do a lot more to come up with fixed fees,” said one survey respondent, Neill Abrams, general counsel for on-line UK supermarket Ocado Group, “and not just for litigation but in all transactions. But they can absolutely do it in litigation.”
Another respondent – an intellectual property specialist in-house lawyer – agreed, saying that law firms had to be strongly pushed towards kicking the hourly billing habit. “We are not just trying to get firms to offer alternatives, we are achieving that,” he said. “There are many firms that will take litigation matters on using different types of billing arrangements. Indeed, we’ve conducted some litigation on literally a fixed-fee basis. The law firm takes some of the risk along with us.”
Commented one in-house respondent: “We expect to get value in nearly everything we do as a large corporation – and we’ve got to adopt that approach to legal services. The way it will work is that if we use a firm that does not provide value, we will never use that firm again.”