When a company undertakes a program of better managing legal spend and reviewing bills from outside legal counsel, often their motivation is simply to rein-in charges that conflict with their stated expectations. Adjusting line items typically produces direct savings from the outset and authorizes a valid reason to institute systematic bill review.
Yet there is a deeper value in store for the legal department that embraces invoice review, one that builds over time with consistent observation and enforcement of billing guidelines. That hidden quality is the indirect savings, or billing compliance resulting from behavior change, which often times produces the greatest value.
A learning process
When a company begins to review outside counsel’s bills line-by-line against its guidelines, it is safe to assume that those firms will be at their least-compliant point. After all, before this time they may have been unaware that tasks and services they included as line items were disallowed by the client, particularly if those points had gone uncontested and were paid.
In the first month or two of systematic checking, each line-item adjustment that lowers the billed amount is a direct, easily quantifiable savings. These early stage metrics allow organizations to easily establish a baseline monthly savings amount. Additionally, during these initial billing cycles, when outside law firms haven’t had time to change their behavior, it’s good to point out that that most, if not all savings, are achieved directly by correcting non-compliant line items.
Later in the program, the experience of having their bills adjusted awakens firm to conflicts between their former behavior and the ways they must carry out the client’s work in order to receive prompt payment and smooth their own collections. With a well-executed program, a company typically sees the number of line item adjustments it makes per billing cycle gradually decrease, because its law firms are learning from the process and their bills require fewer changes to comply with guidance. In other words, effective bill review leads to better compliance, preventing many non-compliant activities from being billed in the first place. Those easily measured direct savings, so pronounced in the first month of the program, are eventually replaced by indirect savings achieved through compliance.
An organization can quantify the indirect savings it generates in the form of compliance by extrapolating from the baseline direct savings rate it established after launching the program. Let’s say, for example, that in the first two months of its program a company reduced each invoice by an average of $100. After a year, the average direct savings is $60 per invoice.
While the direct savings has diminished, we can deduce that better compliance eliminated approximately $40 of nonconforming charges per invoice that counsel would have billed, had the program not motivated them to change their practices. Adding this indirect savings to savings from line-items adjustment, the ongoing review program continues to save $100 per invoice overall. Eventually, a large percentage of the program’s savings will come indirectly from compliance.
Compliance and optimization
A healthy bill review program is not a sprint, but a marathon in which persistence and endurance can enhance its benefits. Once the influence of the review process has all of the company’s outside firms delivering consistently high levels of compliance, leaders can begin to optimize the legal team for effectiveness, as well as cost efficiency.
Bill review gives the legal department data it can use to measure each outside firm’s compliance level and track how that level changes over time. When leaders are able to combine compliance level data with performance outcomes, they gain visibility into each firm’s effectiveness across a range of activities. Consistent benchmarking of invoice data and outcomes across all apples-to-apples comparisons and analyses can reveal relative strengths and weaknesses as well as degrees of compliance from one firm to another.
Imagine the advantages of knowing which firm (or even which attorney) would be most effective at handling a particular case or claim (or even task), based not only on their billable rate, but also the degree of compliance and likelihood of success. Is this less-experienced, market-rate firm the best choice for a particular low-risk case or claim, or would a specialist complete the work faster and at a lower overall cost, despite charging a higher rate?
Technology can make ongoing analysis easier, and business intelligence and visualization aids such as dashboards and off-the-shelf and ad hoc reporting tools can boost ease of use. These tools may already be included in the software and/or service package the organization uses for bill review, giving decision makers the insight, they need to allocate work for optimal performance across the panel.