Why is Third-Party Bill Review Necessary?
The process of managing outside legal counsel involves a series of steps, including the review of legal invoices. Although you might have outside counsel guidelines (OCGs) in place, that doesn’t mean you don’t still need to review the bills to evaluate the strength of the provider and the validity of the charges.
In addition to vetting and controlling costs, bill review provides the context surrounding future engagements. For example, if you observe a law firm spending excessive time on a process that you do not consider vital to a matter, you will need to address that issue or find an alternate provider.
What is Legal Bill Review?
Legal bill review is the time-consuming process of reviewing vendor law firms’ invoices for discrepancies and errors so that in-house legal departments can avoid overpaying for attorney fees and reducing their overall spend on outside legal counsel.
Best case scenario: Your legal team has clear and specific outside counsel guidelines (OCGs) in place to provide a framework for the invoice review process. If a line item or time entry within the invoice is not compliant with these guidelines, it will typically be considered a billing error. Here are some critical things to look for when reviewing a bill from third-party counsel:
Administrative work – Copying, scanning, and filing – should not be charged out. Instead, this is overhead that should already be included in the firm’s hourly rates.
Internal communications – If you observe that a large amount of the work on a matter involves internal communications in the law firm, this is potentially an unnecessary cost you should not be billed for.
Research – Any research performed should be agreed upon beforehand since less experienced lawyers might research a legal issue familiar to senior attorneys. Always ensure that research costs are warranted before paying them.
Duplicative work – Did several attorneys attend the same meeting, and each billed you separately for their time? Although this can be time-consuming to track, it is usually worthwhile.
Block billing – You are entitled to receive accurate and clear descriptions of how your law firm spent its time. When multiple tasks are lumped together in one line (block billing), this does not clearly represent how much time was spent on each individual activity.
If this sounds like a lot of work, it is. However, there are alternatives. For example, e-billing enables a corporate legal department to adopt industry standards for formats and billing codes. In addition, e-billing software that uses artificial intelligence (AI) captures and digests data for reporting and analysis. However, using AI-powered platforms to identify potential billing errors based on a set of unbiased rules is typically not enough to create an effective spend management program on its own. In response, many legal teams utilize both an AI-powered legal management system and third-party bill review by humans to:
Ease the burden of invoice review from internal staff
Reliably enforce outside counsel guidelines
Increase understanding of the work law firms are performing
Give in-house legal teams more time to focus on other critical responsibilities
Reduce the costs of bill review and spend on outside legal counsel
When in-house departments combine human expertise with artificial intelligence, they can understand, manage, and control their legal spend more efficiently than ever.
Why Do I Need a Third Party to Review My Legal Bills?
Corporate attorneys do not have the time or the expertise to review invoices, and it is not an efficient practice for in-house attorneys to review law firm invoices. Instead, the legal department should be focused on substantive legal matters and protecting the organization from liability.
Third-party bill review auditors are better suited to compare invoices from month to month, line by line, to discover overcharges, errors, and duplications. A third-party reviewer can also negotiate the adjusted charges with the law firm’s billing department so that in-house lawyers do not need to get involved in disputes. Here are some common billing errors that third-party bill review services catch:
Unnecessary time – a specific task takes an unreasonable amount of time.
Improper staff usage – attorneys perform work that should have been completed by an associate or a paralegal for a lower billable rate.
Administrative work – law firms bill at attorney or paralegal rates for tasks that should be performed by administrative staff.
Overstaffing – law firms bill in-house teams for work completed by three attorneys when only one or two were required.
Vague descriptions – a line item on a bill does not adequately describe the work performed.
Inconsistencies – time entries do not pair up with the task completed.
Duplicative effort – firms charge for the same task twice, sometimes spanning two billing periods.
Block billing – numerous unrelated tasks are combined under one-time entry without detailing the time each task took.
Internal communications – multiple attorneys in the law firm discuss a matter and bill the client for the time expended.
Recent research has indicated that a significant number of in-house legal teams have at least some concerns that their company is overspending on outside counsel. Many would like to track outside counsel spending metrics but lack the tools to do so and are currently making reducing outside legal spending a priority for their organization. Here are some typical comments gathered from in-house lawyers:
“We are not getting value for money.”
“[We’re] paying a lot but not getting closure.”
“[Outside firms take] excessive time to complete tasks.”
Based on these findings, there is a great likelihood that your outside counsel is not delivering sufficient value that matches the amount you are spending. Although AI can help ensure that your legal spend is under budget, human eyes can determine if you are overpaying for the legal services being rendered and whether you are receiving fair value.
Third-Party Bill Review is the Efficient and Cost-Effective Option
In-house legal departments increasingly utilize third-party bill review services to evaluate invoices from outside counsel for errors and discrepancies. Services that use attorneys to analyze every charge on every legal bill received from outside counsel not only help to ensure that each time entry adds fair value but also can negotiate bill adjustments when necessary, sparing in-house teams difficult billing conversations with their law firms. When the friction surrounding financial issues is gone, clients and attorneys can focus on improving their relationships and making solid legal arguments, not going over legal bills with an expensive fine-toothed comb.
