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Surviving a Down Economy and Succeeding: A story of managing litigation costs

Best Practices in Managing Litigation Costs

By John Murphy

Obtaining value, sticking to budgets, and controlling escalating litigation costs may mean more today than ever before.  According to Lawyers for Civil Justice (in a paper presented at the 2010 Conference on Civil Litigation), Fortune 200 companies reported a 73 percent increase in outside litigation costs from 2000 - 2008.  At nearly the same time, the economy went in the completely opposite direction.  As a result, whether a large or small company or in a manufacturing or service industry, there is intense pressure to accomplish more with less across the business, including litigation.

Law firms have not been immune to layoffs and financial declines.  Many of those stories have made the news, but suffice it to say these are game-changing times.  As chairman of Shook, Hardy & Bacon, LLP, a firm that derives over 95 percent of our revenue from litigation, I spend much of my time trouble shooting and problem solving to help ensure the imminent changes faced by our firm and clients are changes for the better and not the worse.  In our experience, success is attainable even in rocky economic climates when the firm partners with its clients to face challenges and develop innovative, mutually beneficial solutions.  While each client has unique goals and each docket has unique elements, three common “best practices” have emerged.

Communication is critical

An important point that frames the entire discussion of managing litigation costs is that communication is essential.  Although the concept seems simple, in practice, time and time again clients are dissatisfied and relationships decline due to failures in basic communication.  Law firms need to invest the time to understand clients’ challenges and goals.  Clients need to be candid about their expectations and brutally honest if those expectations are not being met.  In coaching its members on how to get started with its “Value Challenge” the Association of Corporate Counsel offers a straightforward plan:  “Meet, talk, act.” Outside counsel must embrace the opportunities this may present with current and, perhaps, future clients. The clients must also engage, even initiate communication—let outside counsel know your concerns and needs.  Partnering in an open dialogue provides an environment that breeds creative problem solving and, also, allows for a better understanding of both perspectives. When partners are equally willing to act for the good of the relationship, opportunities emerge, surprises can be avoided, and real progress can be made.

Alternative fee arrangements

Fees are obviously critical to the bottom line.  The key is to identify what works best for a given situation.  Fees that work for both clients and firms are almost always the result of good communication.  When evaluating the best approach, clients should talk frankly with firms about the docket or matters to be handled.  Candidate firms with experience handling similar matters will have a solid understanding of the staffing required and costs involved to handle the matters.  At Shook, we are fortunate to have practice administrators and financial professionals who assist partners in developing fee structures.  Depending on what you read, the billable hour is somewhat out of favor.  In many instances, however, the billable hour may be the best alternative.  Not every matter or every docket can be managed effectively under an AFA and the billable hour might be the most cost-effective method for the client.  That said, AFAs can certainly be an important component of an overarching plan to help control litigation costs and provide predictability.  At Shook, we have well-documented successes with AFAs. Nearly 30 percent of our current revenue results are from AFAs. We have been fortunate to work with clients that have pioneered the use of AFAs and have given us the flexibility to develop solutions that have helped them control litigation costs and exposure and have helped us remain profitable.  AFA options are abundant and are only limited by the creativity of those involved in the discussion.  A few popular choices include flat fees, blended fees and success bonuses.

Budgets are mission critical

Clients have a right to expect value from firms, and clients should expect firms to utilize their specialized expertise to deliver the best possible results in the least amount of time while staying on budget.  Litigation costs cannot be contained if there is no cap on the litigation spend.  Clients should share their historical experience and litigation spend, and firms should draw from their wealth of financial information from handling similar matters to cooperatively establish a realistic budget for the matters to be handled.  At this stage of the game, no one from either side should be guessing at what the litigation will cost.  Although unexpected events may arise that require the budget to be revisited, in most instances, there should be no surprises.  Again, communication is key to ensure a mutual understanding of the client’s needs and expectations and the firm’s capabilities to deliver while also making a reasonable profit.  Once a budget is set, ongoing communications in the case, including status checks at pre-defined benchmarks in the litigation, will keep clients in the loop and equipped to track case progress against the budget, making adjustments along the way as needed.

For more information on these and other litigation management best practices, contact author, John Murphy, at jmurphy@shb.com or 1 (800) 821-7962.