What Law Departments Need to Know About Billing Guidelines: A survey suggests that many departments have plenty of questions and concerns

Thursday, August 31, 2017 - 14:41

Linda Hovanec is a senior director in product management, global business intelligence and analytics at Wolters Kluwer ELM Solutions. Lately, she has been devoting a good deal of time to studying law departments’ billing processes. A recent survey that ELM Solutions collaborated on revealed that companies aren’t all that happy with the billing guidelines they use to manage their law firms, and they aren’t doing very much to make them better. As Hovanec sees it, they’re missing a big opportunity to simultaneously strengthen their guidelines and enforcement, while also improving their relationships with their law firms. Her remarks have been edited for style and length.

 

Your company and Gartner put together a survey recently about billing and staffing guidelines. What did you hope to learn from that survey?

Linda Hovanec: Well, we really wanted to understand how corporate legal departments were using billing guidelines with their law firms. And then how well their law firms were complying with the guidelines. We surveyed more than 50 large and mid-size companies, and 62 percent said that they currently had billing and staffing guidelines in place.

Are detailed billing guidelines important to them? And how do most corporate law departments use them?

Hovanec: They're extremely important. Billing guidelines are a primary way that you communicate to your outside counsel about how they can deliver the value that you're looking for from them. Nine out of 10 of those surveyed said that the guidelines should be detailed and specific. What we learned is that the most common use of billing guidelines was really about controlling costs; that was the highest percentage – over 75 percent. Ensuring compliance with their processes was also a high priority for corporate legal departments. That was up around 60 percent to 65 percent. Creating consistency across their outside counsel relationships was also a priority.

Was there anything in the results that came as a big surprise to you?

Hovanec: It was a little surprising that only 31 percent were satisfied with their guidelines. And none actually said that they were completely satisfied. They're not working as well as they could be. The other thing was that they're not looking at them regularly. Less than a third said that they updated their guidelines annually. We know that they're not including emerging topics like data security or diversity and inclusion. We were surprised that the updates were not happening regularly. The other thing that was interesting was that around 36 percent don't know who is responsible for overseeing the guidelines, which kind of leads back to why they're not making the updates – because more than a third of them don't know who really owns the guidelines and enforces them.

Were those the biggest challenges that law departments faced with their billing guidelines – the ones that you just outlined?

Hovanec: Well, I think the biggest challenge was ultimately how do they enforce compliance? Part of that is the actual review of invoices. That just is not happening as frequently as you might think. Or if it is happening, the percentage of actual adjustments or corrections or responses back to the law firms is very low. That was pretty surprising.

In light of that, how can legal departments make billing guidelines more of a focus, and what can they expect if they do?

Hovanec: They can certainly engage with a professional invoice analysis service, like LegalVIEW BillAnalyzer from ELM Solutions. It combines artificial intelligence and experienced legal professionals to maximize the effectiveness of their billing guidelines. That's definitely an area where they can see some very strong results. We help them ensure that, first of all, their guidelines are clear and communicated well to their law firms, and then that they're being enforced. For those that do have defined guidelines, we help them get better control. Ultimately, they'll see better cost control and better relationships with their law firms, once the firms have learned how important compliance is. The other kind of real value is that those people who may have been tasked with reviewing invoices internally can focus on things that are a little more important – like practicing law.

What do professional bill analysts do to improve overall law department performance?

Hovanec: Our LegalVIEW BillAnalyzer leverages a team of specially trained attorneys, paralegals and clerks aided by advanced machine learning. They'll break out billing guidelines into very specific, very granular rules that are applied to invoices. Then our reviewers go through a process of codifying all of the rules and creating standard messages to accompany each invoice adjustment. It's a very clear and concise message when there is noncompliance with a rule so that both the client and law firm understand exactly what happened. BillAnalyzer then applies machine learning to review these rules and prioritize line items that are most likely to need adjustment. It's a very principled process that ensures that the invoices comply with the client’s guidelines.

The analysts will then review each prioritized line item. They are focused on those line items where there may be noncompliance. What is unique is that we also allow the law firm the opportunity to come back and explain or correct what happened. Again, it's focused on creating a good relationship. Our analysts will even be on the phone, talking to these law firms to make sure it's very clear as to why there was any kind of adjustment or why there's a noncompliance issue. BillAnalyzer also provides very clear metrics, which clients often share with their firms, on how compliance is trending and what the biggest challenges are.

The BillAnalyzer software incorporates machine-learning technology – artificial intelligence. Can you tell me more about that? I know artificial intelligence has been on the minds of many law departments and law firms that hope to leverage the technology. And maybe they are also a little wary of it?

Hovanec: I don't blame them. I think there's a lot of hype around artificial intelligence. What is so exciting for us is that the machine-learning engine – that is a type of artificial intelligence – finds patterns and insights that humans just can't recognize efficiently. It's exciting because we can actually see the results of this machine learning. Our billing analyzer uses the vast stores of invoice and matter information in our LegalVIEW database, which is the world’s largest source of legal spend data. By applying machine learning across tens of thousands of invoices, BillAnalyzer provides additional cost controls and improved productivity across the board.

How can law department leaders determine whether this software will really improve their departments’ performances?

Hovanec: ELM Solutions offers a customized proof of concept report at no charge for any corporate legal organization that is considering engaging the BillAnalyzer service. Any corporate legal department can take advantage of this. All we need is a sample of their recent e-billing data – usually we take about a month’s worth – and their billing guidelines. This gives us a baseline for how much value their current invoice review process is adding.

We dissect those guidelines and codify them, then run the invoice data through our machine-learning and human analysis. We deliver a report that shows the estimated savings that BillAnalyzer would have secured on those invoices with every adjustment recorded. Our staff explains exactly how the process differs from their existing invoice review practices and answers any questions that they have. Our results show an average potential savings of over 10 percent of submitted invoice totals, which is significantly higher than most in-house review processes can achieve. 

Some of our clients have used this information to make a successful business case for BillAnalyzer to show that the solution often pays for itself while improving in-house efficiency and outside counsel relationships. We think that's important. It's not just about cost savings. We really believe that we can improve their relationships with outside counsel by taking that conversation out of the hands of their own legal professionals and putting it into the hands of a dedicated team of invoice analysts.

You mentioned earlier that many law departments don't review their billing guidelines as often as they ought to. And this means that they're not updating in areas that could include diversity. How does your service help them resolve that kind of missing piece?

Hovanec: With every client, we review their guidelines. We have experts who have been in the legal industry for many, many years who provide recommendations based on an understanding of their strategic goals for the legal department. If diversity is a strategic goal, we help not only to get it in the guidelines, we also help them ensure enforcement. As part of an annual health check that we do with our clients, we're able to review those goals with them. We have metrics reporting that goes along with our service, so we can really pinpoint those areas where maybe we need to provide more clarification to firms around guidelines. We can identify where we need to provide a little more detail or set better expectations. It's really an ongoing process.