E-billing helps corporate counsel track spending on outside law firms

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In-house counsel have never had an easier time comparing the hourly and package rates of their outside attorneys — that is, if they’re using electronic billing to track and review costs.

Electronic billing, known in the industry as e-billing, has moved all invoicing onto computer-based systems, a change that has allowed companies to more easily analyze what they are spending on the legal matters they farm out to law firms.

The technology enables corporate counsel to review legal bills in a more efficient manner. When a law firm submits a bill, it comes through the system in a way that’s uniform with the bills from all the other law firms the company works with.

“I can quickly find out how much I’ve spent year-to-date on a matter with a law firm,” said Maureen R. Dry-Wasson, assistant general counsel for Allegis Group in Hanover.

“There’s a lot of information at your fingertips that was never there before,” she said.

Although e-billing systems differ, each allows the company to come up with a set of rules for the system to follow — for instance, the number of hours in a day a lawyer can charge for on a certain matter, or the fee allowed for making copies.

If a law firm submits an invoice that does not fall within the created parameters, the system kicks it out and flags the area of noncompliance, alerting in-house counsel to the problem.

In that way, the e-billing identifies areas of review that may have previously gotten by an in-house counsel, said H. Ward Classen, deputy general counsel of Computer Sciences Corp. in Hanover.

“There’s already been one set of eyes looking at it, even though they’re electronic eyes,” he said.

The technology can easily be used to pull data for comparison purposes, instead of someone manually punching billing codes and data into a spreadsheet.

Classen said he can quickly compare legal fees across the law firms his company works with, instead of having someone on his staff pull boxes of documents for manual review.

“Now we can see Firm A charges an hourly rate of $350 and Firm B charges a blended hourly rate of $400,” he said. “Assuming everyone’s work is the same quality, you can direct future litigation to those firms.”

It all adds up

Daniel J. DiLucchio Jr., principal of Altman Weil Inc., a Pennsylvania-based legal consulting firm, estimates that between 60 percent and 70 percent of large companies are using e-billing.

Most use it mainly to process invoices, he said.

“That’s why lawyers love it — because when they used to get hard-copy bills from outside counsel, honestly the last thing they wanted to do was go through those bills and process them for payment,” he said. “Was it accurate, did it add up? Now they’re all done automatically and electronically.”

According to the Association of Corporate Counsel, e-billing technology accounts for less than 1 percent of total legal spending per year. By making the switch, companies are saving, on average, 22 percent in annual outside legal spending due to improved bill review and 26 percent from budget tracking.

The savings can be greater among companies that are processing bills faster than before and getting discounts from law firms for paying early.

According to Classen, e-billing benefits both in-house counsel and their outside lawyers. The system lowers the company’s administrative costs by having bills reviewed electronically, instead of having bills faxed or mailed to the company and then scanned into a computer.

“It allows us to create our own internal data warehouse to get a good look at our legal costs,” he said.

The technology benefits law firms by getting them paid faster.

“I think it’s very reasonable to expect you can be paid within 30 days of sending the bill, whereas in the past I think it wasn’t, because of the administrative process of sending out the bill, receiving it, putting it through the system and then getting paid,” said Classen.

For Allegis, a staffing and recruiting company, the main benefit of implementing the e-billing system is the promise of hard data on the legal work being done.

“Knowledge is everything,” Dry-Wasson said. “It could mean the elimination of certain firms, it could mean certain firms get more work, it may mean shifting work to different firms because we find that they are more efficient on certain types of work.

“The whole purpose is to reward the firms that seem to be efficiently spending money with you,” she said. “Your ability to understand how you’re spending money with them is enhanced.”

Allegis has embraced the instant access to data that its e-billing system brings the company, but all that data has to get put together in reports to truly analyze the benefits — and any drawbacks — to working with each firm.

The company started using e-billing in late 2009, but it’s still wading through the numbers and will likely have full reports to review soon, Dry-Wasson said. Until the number-crunching is done, they won’t know the full impact e-billing has had on the company in the last two years.

To DiLucchio, the real value of e-billing is in the data, but he said about 30 percent to 40 percent of companies using the technology are not analyzing the numbers, and that’s a major shortcoming.

“The biggest negative I see is not maximizing or capitalizing on the full potential of the system,” he said. “The negative is not spending $70,000 for an analyst to really look at what millions of dollars of bills say to me over a period of time. To me that’s penny-wise and pound-foolish.”

He said many legal departments in big corporations are understaffed, just like their law firm counterparts, making it difficult to find the time and the manpower to analyze the data. And, he said, given the choice of hiring an analyst to review the numbers or having a lawyer do it, a typical general counsel would opt to hire another lawyer.

Cutting out clutter

To hear general counsel at some companies tell it, one of the biggest benefits of using e-billing is that it has limited the paper clutter for in-house attorneys.

“The system sends you notice that the bill has come through rather than it landing on your desk. If you’re like me, when you’re buried with paper, it’s wonderful not to have that,” said Charles Berardesco, general counsel for Constellation Energy Group Inc. in Baltimore.

At Allegis, Dry-Wasson said the company has decided to no longer review invoices for less than $1,000, as long as the bills get approved by the system. She estimated that it has cut down the amount of paper coming across her desk by 50 percent.

Weeding out bills of less than a certain amount will work for Allegis, but for a company like Constellation, which last year reduced the number of firms it works with on legal matters, $1,000 bills are rare and don’t get entered into the system, Berardesco said.

For now, Berardesco said he is happy to sign off on bills that his staff has reviewed, since the company only began doing e-billing in May.

“I do see a day coming where we would get comfortable enough with the system where we would set up purchase orders so that law firms send through their bills and we just pay it with the right to audit, as opposed to looking at every bill along the way,” he said.

That day could be a long way off, especially with Constellation’s pending merger with Exelon Corp. Since Berardesco does not know how the legal department at Exelon handles billing, more changes could be coming.

In the meantime, Berardesco said his legal department is taking advantage of a new financial modeling system to pick which law firm it uses for each matter. The lawyer would simply input the number of hours needed from the law firm — for example, 100 partner hours, 50 associate hours and 50 paralegal hours.

Under that scenario, Berardesco said, Firm X might charge $100,000, Firm Y $150,000 and Firm Z $200,000.

If the company thinks Firm Z would do the best job, the in-house counsel might approach the firm and ask for better terms based on the financial modeling numbers, or the staffer might go to Berardesco and explain why Firm Z is still the best firm for the job, even though it has the highest cost.

“This allows them to say ‘Am I balancing who can do the work best with the most cost-effective way of doing this?’ You may not choose the cheapest firm,” Berardesco said, “but at least you know what you would pay with each.”