If your organization is spending seven figures each year with external legal service providers, chances are you sometimes struggle to spot legal billing violations.

This is understandable given the volume of invoices to be reviewed, the density of information on each invoice, and the lack of time in-house teams can devote to the task. But these violations can easily add up to 10% or more of the total invoice amount — even if you’re using a traditional e-billing system or invoice review vendor to manage compliance.

To get a better sense of where your next cost savings opportunity could be hiding, here are five legal billing violations that we frequently see eluding even the most diligent legal departments.

Work in excess of 8 hours per day

The Brightflag team’s all-time favorite legal billing violation is a customer being invoiced for 26 hours of work by a single timekeeper — in a single day. (Must have been a great multi-tasker!) Most organizations now impose a limit of eight to 10 hours of work per day per timekeeper, both to ensure that quality of work remains high and to avoid incentivizing a culture where billable hours are maximized at all costs within their partner firms.

Enforcing this simple guideline can be deceptively complex. Invoice line items may not be presented in chronological order, requiring the reviewer to turn back and forth to count the number of hours per day. There are also likely multiple timekeepers on each invoice. Then, some law firms may insist on submitting narrative descriptions that span multiple days of work.

All these factors contribute to a tendency for reviewers to settle on a number that’s “close enough.” On larger invoices, though, that latitude may translate to thousands of dollars in unnecessary expense.

Modern e-billing systems can now address this issue by automatically comparing each timekeeper’s hours per day to your organization’s agreed limits, identifying violations you can act on. Ideally, these tools enable you to approve the invoice with reductions, or reject the invoice to be corrected, without any human intervention. As a result, you genuinely can maximize legal billing compliance while minimizing administrative work.

Ratio of partner to non-partner time

Corporate legal teams invest considerable time and effort into conducting panel reviews. One common area of focus is agreeing on appropriate hourly rates for each timekeeper. Far less attention, however, is given to the ratio of partner time to non-partner time on any particular matter. So while an organization may have negotiated hourly rates with a particular blended rate in mind, this target can be difficult to match in practice.

As with the previous example, spotting this legal billing violation manually would require a significant amount of data entry (and creative maneuvering) in Microsoft Excel. Many legal teams end up ignoring the problem, as a result, except in extreme circumstances. This is another missed opportunity to better manage costs. But just as important, the lack of visibility into who is doing the work now will make it tougher to make informed resourcing decisions in the future.

Most invoice review systems summarize work performed by timekeeper seniority, with the best tools tracking trends over time and alerting you to invoices on which the ratio of partner time to non-partner time is unreasonable. From there you can start to benchmark law firm performance by blended hourly rate.

Excessive internal communication

It’s understood that law firms need to communicate internally in order to deliver quality results for their clients. At the same time, some law firms seem to be far more efficient in their collaboration than others. For this reason, most organizations cap billable internal communication at 10% of each invoice to incentivize the right behaviors.

But while “internal conference with R.G. and C.T.” is easy enough to spot on an invoice, calculating the percentage of fees that this represents and comparing it to your billing guidelines is cumbersome at best. The problem only compounds when law firms find — shall we say — creative ways to describe internal communication. At this point, even traditional e-billing systems have a hard time keeping up.

A.I.-based approaches are starting to find more success in identifying and correcting this common legal billing violation. Machine learning can identify obvious examples of internal communication (think keyword searches for “internal”) as well as less obvious examples that otherwise would be missed. The result is significant cost savings through stronger enforcement of the intended rule.

Multiple participants in meetings

One benefit of outsourcing matters to law firms is gaining their expertise and experience in a very particular practice area. As a condition of the higher associated hourly rates, clients have a reasonable expectation that the lawyer assigned to the matter will be largely self-sufficient. So their billing guidelines tend to permit only one participant in each meeting or call to bill for his or her time (usually the most junior timekeeper).

In cases where law firms have multiple participants in meetings, the corresponding narrative descriptions rarely follow one another on the invoice. This means that reviewers have to keep track of the descriptions they’ve read, referring back to earlier line items and pages to cross-reference. And if each timekeeper happens to use different wording to describe the same meeting, even a diligent reviewer can miss the duplication.

Once again, A.I.-based invoice review solutions offer new hope. Because machine learning doesn’t depend on matching exact words or phrases, it’s far more likely to correctly identify meetings with multiple participants. These systems can then apply an organization’s guidelines to invoices automatically by, for example, removing fees associated with all but the most junior timekeeper’s line item for the meeting.

Incorrect tax applied

Legal services are subject to taxation in most every business territory. Naturally, organizations will want to pay not too little, as this would be a risk to the business, and not too much, as this would be an unnecessary expense. Most reinforce this desire with billing guidelines that require their law firms to submit invoices with taxes correctly calculated prior to their being paid.

This process is a steep challenge for legal teams operating in multiple jurisdictions. It’s all too easy for a law firm to apply an incorrect tax rate, or for an invoice to be reduced without the tax being recalculated.

These simple errors can introduce significant friction into the relationship between the legal and finance teams. And in this scenario, your software may not come running as readily to your rescue.

Most e-billing implementations are centered in the United States — a country in which legal services aren’t subject to taxation. As a result, many tools on the market still lack basic functionality for managing global tax compliance. Those with a more worldly perspective, on the other hand, are now able to synchronize tax rates with finance systems of record, check legal invoices automatically for compliance with these rules, and return non-compliant invoices for correction.

Short-term advice

Now that you know the ins and outs of each type of violation, here are five actions you can take to stop errors from slipping through your system:

1. Organize your invoice review workflow so the people most familiar with the work performed are given an opportunity to spot discrepancies. Think beyond seniority level.
2. Discuss variations in accounts payable practices with your finance team. For example, some regions may require corrected invoices versus short-paying invoices.
3. Set clear expectations with your law firms regarding billing enforcement and dispute resolution processes. Structure will help sanity prevail.
4. Use an e-billing system that’s customized to your organization’s own legal billing guidelines — ideally one that goes deeper than basic keyword matching.
5. Monitor billing behavior by generating regular reports on invoice compliance and discuss the results with your law firms. They may appreciate the data more than you think.

Long-term perspective

Controlling spend is one of the clearest indicators of operational efficiency within corporate legal departments. It’s also a continuous fight that won’t be won with a single tactic. By focusing first on stronger billing compliance, though, you’ll position yourself for faster progress.

Whether spotted violations spare you $100 or $1 million next month, any cost savings are a positive result your colleagues can recognize. At the same time, law firm partners will value the predictability that comes from precise rules and consistent responses.

From GC and CFO to in-house attorneys and outside counsel, you’ll start creating powerful advocates for legal ops innovation.

About Brightflag
Brightflag’s solution for better billing starts with A.I. trained to interpret the true nature, cost, and value of work described in legal invoice narratives. The results are then automatically compared against your billing guidelines to reveal potential cost saving opportunities. Over time, this creates a collection of data-backed insights you can use to inform everything from pricing negotiations to quality of service evaluations.

More is being asked of the modern day corporate legal department than ever before. General Counsel are required to function like a business within a business, optimizing people, processes, and technology to serve the company effectively and efficiently. Legal operations excellence is no longer an option; it must be top of mind.

Whether you’re in a startup or in a mature organization, building a sophisticated legal operations program from scratch can be a daunting task. It takes time away from day-to-day legal duties and requires a heavy focus on business principles. To get it off the ground, many questions must be considered: Why is it necessary? When should you start? Who do you hire? What should you build and buy? How do you manage change and measure performance?

The CLOC Core Competency Reference Model provides a cycle to walk you through the steps in building an effective legal operations function. The CLOC 2018 Conference keynote outlined below focuses on these critical and impactful competencies as pillars when developing your legal operations function, as well as other competencies as you grow the function.

• Strategic Planning
• Technology Process & Support
• Cross Functional Alignment
  & Communication

• Financial Management
• Vendor Management
• Knowledge Management

It’s time to build a legal operations function that bridges your legal department to the rest of the organization

What’s the first thing you need to think about? Start with the big picture and what you’re looking to accomplish in your legal operations function. Your primary goal in building the function should be to enable the business.A well-defined legal operations function follows twin paths of organizational and functional maturity in its growth. Functional and organizational maturity are symbiotic and depend on each other for balance.

• Organizational Maturity: How mature is the organization in relation to people, process, technology, and measurement? A mature organization operates with predictability, process, and precision. Are you reactive or proactive? Organizational maturity includes building out your team and your legal operations organization in a fashion that can serve the legal department.
• Functional Maturity: How mature is your organization based on the prevalence of specific functional areas? As you grow, functional areas may include legal finance, knowledge management, technology implementation, vendor management, etc.

The more mature your organization is along the organizational maturity X-axis, the more opportunity you have to achieve areas of functional maturity. Likewise, increased functional maturity along the Y-axis will allow you to make a better business case to add more people to your organization. It’s challenging to develop both levels of maturity at the same time; however, it’s critical to keep both of these areas in mind as you develop your legal operations department.

In the beginning, as you develop your legal operations function, you may be all by yourself. It’s just you trying to achieve a lot of different goals. As you grow in organizational maturity, you can begin to think about hiring additional functions, like an eBilling specialist. Then, as you develop your organizational and functional maturity, you can hire for additional functional areas.

The CLOC Core Competency Reference Model is designed to show functional maturity in a cycle. Starting at the top with strategic planning, you need to work with your GC to set the strategy for the legal ops function and determine how you will build out that function. Once the processes are nailed down, you can start implementing technology to automate those processes.

Steve Harmon, Cisco, “In my opinion, everything revolves around the hub of knowledge management. You need to have at least a basic level of competency in order to establish the building blocks to address various issues. A robust knowledge management exercise is critical in creating a repeatable, scalable model that will standardize process across the organization.”

Executing Your Kickoff

In the strategy phase, you need to meet with all your key business partners. This is the time to start asking questions in order to understand the issues and pain points faced by each of your strategic business partners. Supporting your business partners is a critical component of your job and you will achieve the greatest success by working in a collaborative, cross-functional way with all the business units.

Ask questions that will enable you to understand each of your stakeholders’ priorities. This will help you determine how the legal operations function will drive the overall business.

Sample questions:

1. General Counsel: Who are our clients?
2. Practice Area Leaders: What are your key processes?
3. Finance: Who are the legal department’s business partners?
4. IT: What is the universe of legal technology in place?
5. HR: How can existing talent serve operations goals?

Leverage Additional Resources
Leverage and identify talent throughout your organization who can help you. Even if you don’t have headcount, there are resources that you can leverage in other departments. Think creatively in terms of who you want to hire for your new roles. The person you hire may not have a legal operations background, but is passionate about operations and about changing the industry.

Lay the Foundation of Your Operations Organization
Laying an effective foundation will vary by organization and by priorities. Each of the pillars you select as your foundation will have underlying components. It can be overwhelming at first, but by focusing on the fundamental pillars in the CLOC Core Competency Reference Model, you can make manageable changes.

Mike Haven, Gap, “The 3 pillars for me were legal finance, partner management, and technology, with an overarching umbrella of strategy. Remember, it’s not a sprint, it’s a marathon and you need to focus on the pillars and mature gradually.”

The hardest part of the job is managing change. Things can become more painful before they get better. You might be going live with a new process or technology before the end users have fully adopted the idea. The key to change management is communication, engagement, and credibility.

• Communicate. Explain to both your stakeholders and end users what you are doing and why you are doing it. They need to understand “why” in order to fully engage.
• Engagement. Bring your stakeholders and end users on board with the change early and often. Get their feedback and ideas and make them a part of the change.
• Credibility. Build your credibility early in the process. Start with some quick wins that show value right away.

Examples of Quick Wins:

• Invoice Review: Take the first pass out of your attorneys’ hands to ensure compliance with policies and flag potential substantive issues.
• Workflow Automation: Firm matter, timekeeper onboarding, rate reviews, settlements processing.
• E-Signature: No more “Print, Sign, and PDF”.

Measure Your Traction as You Mature
There are a number of components you can use to measure your success. Spend, timekeeper rate management, invoice review, key matter status, and law firm performance are just a few of components that can be measured. When you first come into a legal department, make sure you measure your baseline, or starting point, for your most important initiatives. As you evolve, establish milestones to show your progression and prove your success.

Acknowledge that you are a service organization to a service organization. Why do organizations have law departments at all? The sole reason for their existence is to enable businesses to design, build, and sell products in a legally appropriate way. Ultimately, legal services must drive results.

How do you decide where you’re going to allocate resources in your department?

One way to allocate resources is to use the Core vs. Context Resource Allocation Model. This strategic method of allocating resources will allow your company to focus on what you do well and outsource the remaining activities to 3rd party firms.

First, determine which activities are mission-critical vs. non-mission critical. Second, decide if the activities are context or core. Finally, determine what percentage of your resources should be allocated to core, mission critical activities and which should be outsourced.

• Mission Critical: Activities that, if performed poorly, pose an immediate risk.
• Non-Mission Critical: Activities that, if performed poorly do not pose a risk
• Context: Activities that are necessary, but not tied to competitive advantage.
• Core: Activities that contribute to competitive advantage.

Examples of Typical Legal Operations Activities

• High stakes litigation compliance: Mission-critical and Context -> Out-task.
• IP Rights: Mission-critical and Core -> In-task.
• Smaller litigation: Non-mission Critical and Context -> Outsource.
• Routine transaction processing: Non-mission critical and Core -> Self Service.

Tools, Process, and Culture Trade-off

The three fundamental components of culture, process, and tools must be balanced when launching your legal operations function. In order to achieve your desired outcome, you need to understand your organization’s current processes and its culture.

Start with process definition. Understand how things are being done in your organization now. Define processes and map them to desired behaviors. Establish measurable metrics that are proxies for those desired behaviors. Process is going to be influenced by both tools and culture in your organization. You need to be nimble and be ready to iterate as new challenges arise.

Then, address the most challenging piece – the culture. How do the people in your organization make decisions? Culture is usually set and hard to change, especially in legal departments. You’ll need to create some motivating reason to persuade people to change the way they do work.

We recommend that you don’t start with tools/technology. It’s very tempting to just throw technology at the problem in order to achieve a quick solution. However, in the beginning we recommend that you focus on the narrowest set of tools that will solve the issues you face. By understanding your process and culture environment, you’ll be more successful implementing the right tools that will solve issues in the long term.

Key Takeaways

• Don’t make this a tools problem. Go through the exercises and develop a strong foundation.
• Start with process definition. Determine what matters to your organization and drive toward measurable results.
• Recognize that you’re not going to be successful until you address the cultural challenges.

Attend a CLOC Institute to learn more about this, and many other topics of interest to legal operations professionals. Are you an in-house legal professional? Join CLOC as a member and be part of the discussion!