Failure to communicate billing issues may have dire effects, in-house counsel warns law firm

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Current and former in-house counsel said lack of communication by outside firms, particularly when it comes to billing and legal strategy, can damage the attorney-client relationship beyond repair.

John C. Ryan, who joined Duane Morris last September after spending eight years in-house at Aramark Corp., where he most recently served as deputy general counsel, said that while the recent push by clients for better value from their outside counsel is partly a reaction to the recession, it’s also a reflection of a new generation of more sophisticated in-house lawyers, many of whom have previous law firm experience.

In-house attorneys today are “very well-educated, savvy consumers of legal services and that’s driving a lot of the demand for efficiency,” Mr. Ryan said.

Mark Bullock, senior vice president of government and legal affairs at Mercy Health System, compared in-house counsel’s expectations for outside counsel regarding billing practices to health care consumers’ expectations for providers.

“The big push in health care is for ‘pricing transparency,’” Mr. Bullock said. “At the end of the day, it’s the same concept [for law firms and clients]. Nobody likes to be surprised by a bill.”

Mr. Ryan said sending out a large bill with no warning or explanation shows a fundamental disregard for the difficult jobs in-house counsel have.

“Surprises are very difficult to deal with and it’s the last thing [in-house lawyers] want,” he said. “That can both really sour a relationship and really show you don’t understand the challenges a GC faces.”

Mr. Ryan recalled that, during his time at Aramark, he would have to go to the company’s finance group to sign off on invoices. Submitting a higher-than-anticipated bill for approval without good reason reflected poorly on the legal department, he said.

“When we got surprises, it made us look like we didn't have control of what was going on,” Mr. Ryan said.

Mr. Bullock said the old method of doing business where a firm would send a client a bill and then in-house counsel would have to haggle with their outside counsel over each disputed charge simply doesn't work anymore. In-house lawyers do not want to be placed in an adversarial position with their outside counsel, he said.

Mr. Bullock said those situations can largely be avoided by outside counsel both taking the time to map out a strategy with the client at the start of a matter and frequently consulting with in-house counsel as the matter progresses.

As part of that initial strategic discussion, Mr. Bullock said, the outside lawyer should be able to give in-house counsel some idea of how much work the matter will entail and what the cost is likely to be.

He added that he also believes the outside lawyer, not in-house counsel, should be the one to initiate a dialogue about possible alternative fee arrangements during that conversation.

“Too often, I’m the guy saying, ‘Well, can we think about another way of handling the finances around this?’” Mr. Bullock said.

“What it’s really about is budgeting,” Mr. Bullock said. “If I have a large transaction, I’m accountable to the executive suite to make sure work gets done on a budgeted amount.”

Mr. Ryan agreed, saying the best approach an outside firm can take when first meeting with a client to strategize a matter is to simply ask, “How much do you think this should cost?”

Mr. Bullock said outside lawyers should also make it their responsibility during that discussion to identify potential pitfalls that could drive up the cost of a matter. He said one of his “biggest frustrations” is when a costly problem arises that outside counsel should have anticipated as a possible risk at the start of a matter.

“The likelihood of it happening may have been small, but let’s at least talk about it at the beginning,” Mr. Bullock said.

Still, Mr. Ryan said clients are not wholly unsympathetic to the fact sometimes completely unexpected snags happen. When a potentially costly issue does arise, however, transparency on the part of outside counsel is key, he said.

While in-house lawyers said they want to be promptly alerted by their outside counsel when a matter is in danger of running over budget, they added that they also increasingly expect firms to be willing to take some of the financial hit when that happens.

Mr. Ryan said he believes firms in recent years have had to adapt to the “profit-and-loss model” of running a business, which entails setting budgets and being prepared to eat some losses when things don’t go exactly according to plan.

“The best firms are willing to absorb some of those risks,” he said.

Likewise, in-house lawyers said outside counsel should avoid making clients foot the bill for their more routine expenses.

Mr. Bullock said, “Nothing frustrates me more” than firms that insist on passing along all of their operating costs to his company. “I’m getting billed for [outside counsel’s] use of Web-based Internet legal research,” he said, referring to the fees firms pay to use services like LexisNexis and Westlaw. “As far as I’m concerned, that’s your cost of doing business. Don’t start charging that back to me.”

Samuel Mason, general counsel of Environ, said outside counsel should be ever-vigilant about making sure they’re working efficiently and investing time where it’s warranted.

Keeping the lines of communication open, he said, ensures that both the client and the firm are always in agreement as to how time and money are being spent.

“I’m in favor of a very collaborative relationship,” Mr. Mason said. “If you’re collaborating, decisions can be made on what you need to do and what you don’t need to do.”


Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI. To read more articles like this, visit www.thelegalintelligencer.com.

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