Litigation Budgeting

Litigation Budgeting and the Tower of Babel

Michael D. Freeborn

(Reprinted with permission from the Illinois Bar Journal, September 1995)

If all of our attorney-client relationships were ideal, we would have no need for such things as litigation budgeting.

The ideal client would have no fear of the unknown, and feel no need to control the activity -- and thus expense -- of the lawyer. The client would be confident that the lawyer, an ideal lawyer, is thoroughly competent and unlikely to waste any effort on the way to a prompt and efficient disposition of the case.

Unfortunately, in the first few months of much litigation, three things often happen instead: the lawyer will begin sending bills to the client; the case will not even be close to over; and the client will have no clue how much more he will need to ultimately spend. It is small wonder that uncertainty and mistrust insidiously creep into the relationship.

Not all attorney-client relationships are undermined by these problems, of course. When the fee is contingent, no litigation budget is needed for the personal injury client (but it might be needed for your partners). The budgeting process is also simpler when dealing with high volume practices like uncontested divorces and minor criminal cases.

Even in more complicated cases, if the attorney and client have worked with each other for a long time the client may feel secure without a litigation budget. They have well-established expectations of each other, and some familiarity with the problems they've earlier solved together. But in today's legal marketplace, with its increasing complexity and specialization, and clients who hire a variety of lawyers, litigation budgets are becoming essential.

Although more clients are asking for litigation budgets, some lawyers regard such efforts, like other predictions of the future, so difficult and speculative as to be impractical. As Albert Einstein once remarked, "I never think of the future; it comes soon enough." Regrettably, few of us have Einstein for clients. Instead, our clients are more likely to paraphrase Walt Whitman: "The future [should be] no less certain than the present."

Despite Walt Whitman, making budget predictions can indeed be difficult. Confronted with a client who feels compelled to measure and count everything, an exasperated lawyer is sometimes tempted to simply ask, "OK, how much justice can you afford?"

One lawyer I know makes financial projections with a computer model into which he plugs "air numbers". Although he means numbers arbitrarily pulled from the "air" for illustration, some people have assumed -- perhaps from his results -- that he meant "err" numbers.

Another lawyer is considering (only half tongue in cheek), a boilerplate set of disclaimers to accompany any litigation budget he prepares:

Dear Client: I realize that you believe this litigation budget is the greatest thing since sliced bread, but let me remind you that any budget is just a method of worrying before you spend, instead of afterward. Show me a lawyer who actually thinks these things are useful and I'll show you an MBA masquerading as a JD. Nothing herein should be considered reliable in the event that:

1. Opposing counsel or his client is an irrational jerk.

2. The judge fails to follow the law as we understand it.

3. We discover any facts which complicate our case.

Since one or more of these things always happens, you can count on the accuracy of this budget right up until the time it becomes inaccurate. Later, when some pointy-headed bean counter asks you why the budget was exceeded, we will expect you to repeat this disclaimer until the bean counter tires of hearing it.

Apart from the uncertainty which always makes prophesy a risky business, litigation budgeting has been further complicated by inconsistent definitions and formats. One client wants a budget in one form, another wants to track something else. With so much inconsistency, vendors of time and billing software have had no standard to focus their efforts.

Like the confusion at the biblical Tower of Babel, when so many languages were spoken at once, many litigation budgets have been inefficient prototypes for one client at a time.

Fortunately, there is good news. A prominent group of lawyers, bar representatives and corporations have done us all a huge favor. After a series of meetings during 1994 and early 1995, they have recently reached agreement on the solution to one of the most vexing problems in the budgeting process: a standardized set of definitions and activity codes.

The ABA Litigation Section, the American Corporate Counsel Association, and a sponsoring group of major corporate law departments and law firms, coordinated and supported by Price Waterhouse LLP, have published the first-ever "Uniform Task-Based Management System Litigation Code Set."

This budgeting and billing system is designed to provide both clients and law firms with meaningful cost information on legal services. The system enables lawyers to budget and bill by litigation task, aiding client and lawyer in understanding, managing and conducting the litigation.

The Litigation Code Set is grouped into five basic phases of typical litigation, plus expenses:

1. Case Assessment, Development and Administration

2. Pre-Trial Pleadings and Motions

3. Discovery

4. Trial Preparation and Trial

5. Appeal

Within each phase there are a number of specific tasks. For example, within Discovery one finds Written Discovery, Document Production and Depositions. In total, there are 29 tasks which comprise the Litigation Code Set, and a comprehensive glossary of terms and definitions.

All work associated with a particular task is grouped in that category. Thus, Depositions (numerically coded as L330) would include all time spent on depositions, including preparation of notices and subpoenas, deposition scheduling and logistics, planning for and preparing to take the depositions, discussions about deposition strategy, witness preparation, attending and preparing to take the depositions, as well as any deposition summaries. The objective is to provide an accurate picture of the labor cost of each task. (Out-of-pocket expenses, such as witness fees and transcripts, are treated under Expenses.)

For each billing period, the time charges by each lawyer and paralegal are recorded by task. This allows for cumulation of the time charges and expenses, providing a comparison of the cost of each phase and each task for the month, for any specified budget periods, and for the litigation from its inception.

A budget can be prepared for each phase, and for the whole case. Monthly bills can then compare that month's total, and the cumulative total, with the budget. Through this process, an over-emphasis on one aspect of the case will be immediately obvious. For example, if a lawyer is spending too much time on one aspect of the Case Assessment Development and Administration phase, such as Fact Investigation/Development (numerically coded L110), at a time when he should instead be spending time in the Pre-Trial Pleadings and Motions phase, preparing Dispositive Motions (numerically coded L240), it will be apparent.

With this standardization, computer software vendors can provide time and billing packages which automate the process of grouping time sheet entries into the various tasks, and comparing actual with budgeted totals. VERY nifty.

Although the system has not been formally approved by either the Council of the ABA Litigation Section or the ABA House of Delegates, and therefore does not constitute official ABA policy, it represents a critical mass of endorsement by a wide variety of lawyers and clients. It seems likely to become a de facto standard.

There isn't room to reprint all of it here, but you can get your copy by calling the ABA Member Services Department at (312) 988-5522 and asking for Product Code No. 5310129. It will cost you $10 ($12.50 if you're not an ABA member).

Or, better yet, if you would like the full text on a computer disk just call my office (312-360-6502) and I'll send it to you for the price of a diskette and postage. Such a deal.