Ellis Grant

An Integrated Approach to Costs Management

Introduction

1.1           This paper sets out a proposal for an integrated approach to costs management in civil litigation from estimating, through time recording to budgeting review and assessment.  It is believed that if such an approach can be achieved, this will bring great benefits in terms of:

(a)            increased accuracy and clarity of costs estimates to litigants which can inform them in the decisions they make in respect of any piece of litigation;

(b)            providing meaningful costs estimates, schedules and bills of costs to the court so that cases can be managed efficiently and proportionately; and

(c)             where the actual costs vary from the estimate, allowing litigants, their lawyers and the courts to see clearly where the variations have  occurred .

2.              Problems

2.1           Estimates have been an increasing feature of litigation for some time.  However, they have yet to become authoritative or reliable.  There are many reasons for this, including to some degree the inherent unpredictability of litigation.

2.2           The central problems though are of both form and (lack of) common methodology.  The rather amorphous nature of estimates and bills of costs as currently submitted creates difficulty in  comparing estimates with actual costs incurred on a like-for-like basis.  This is particularly felt in the majority of cases that do not reach trial when there is no easy way to disassemble an estimate to trial to show how it properly compares to the costs incurred up to settlement or other early disposal.

2.3           A major obstacle is the absence of a consistent system of identifying cost categories from estimate to time recording through to assessment.  This proposal seeks to address that problem.

2.4           Solicitors tend now (and in part are required under the CPD) to set out estimates and prepare costs claims grouping items by  activity (eg drafting, attending, telephoning) rather than by the tasks to which those activities were directed (eg , preparing a witness statement, compiling client’s disclosure documents).  Unfortunately this leads to most estimates and bills of costs being  opaque and uninformative.

2.5           A more logical form of grouping  is based on task first and activity second.  It is also useful to further group tasks into “phases” or “aspects”.  If each set  of related tasks are attached to an aspect (eg the aspect disclosure might be formed of the tasks including client’s disclosure, opponent’s disclosure, inspection etc) there is immediately a higher level available for measurement, comparison and analysis, allowing a view of the wood rather than the trees

3.              A standardised set of tasks

3.1           Central to the approach proposed in this paper is to identify a standardised  set of tasks (ideally specified under the CPR) for each piece of litigation so that:

(a)            the estimate can be prepared;

(b)            time and other costs can be recorded; and

(c)             the claim  for costs can be prepared and then assessed;

by reference to such tasks.

3.2           Only with such a standardised set of task descriptions can an effective comparison be made and any proper analysis be taken between:

(a)            the comparative costs (whether estimated or actual) of each party; and

(b)            the estimated and actual costs of a single party (for example to assess the reasonableness of costs claimed and to improve the estimating process for the future).

Developing an agreed standardised set of tasks is thus key to this process.

3.3           Such a standardised set of tasks will have to cater for:

(a)            all parties to the litigation, whether they be claimant, defendant, respondent, interested party or others; and

(b)            all types of litigation, to include for example normal Part 7 claims, Part 8 Claims, judicial review and appeals.

3.4           For convenience (for example to facilitate time recording by reference to the standardised set of tasks), each task will be ascribed a standard code.

3.5           There is some tension between a set of tasks optimised for estimating and a set optimised for time recording and assessment of actual cost.  In respect of the former, it is necessary (or at least useful) to identify specific and discrete tasks in respect of which the fee earner can anticipate the likely amount of work involved.  The more generic the task descriptions, the harder it is to calculate a reliable estimate.

3.6           By contrast, with time recording, where the task has to be identified with each item or work undertaken, overly specific task descriptions become burdensome and it can be difficult to determine properly into which task a piece of work can be properly placed.

3.7           Accordingly, a unified and standardised set of tasks to cater for estimating, time recording and assessment of costs must represent a balance between these competing requirements.

3.8        

4.              The proposed approach

4.1           It is proposed that costs management in litigation proceed through the following steps.

(a)            Preparation at the outset of the case a plan and estimate on the basis of standard (or at least common) assumptions and standardised task codes

(b)            Disclosure of estimates and assumptions to the other side and the court

(c)             Consequent case management by the court

(d)            Fee earners on the case (solicitors and counsel) record time by reference to standard task codes

(e)            Periodic review throughout the case of actual cumulative costs incurred to date and if necessary a reformulation of estimates

(f)              On any costs awards, a review of the costs sought against the estimate

(g)             A review at end of the case of estimates against actual costs with a view to informing and thereby improving the reliability of estimating in future.

Preparation of a case plan and estimate

4.2           Estimating the likely costs in litigation remains at present somewhat haphazard and can be unsophisticated.

4.3           For the reasons outlined above, it is suggested that the following steps be adopted by a party to a piece of litigation in respect of an estimate.

(a)            The party identifies the assumptions in respect of which the estimate in prepared.  In time these assumptions, as developed in practice,  may too become standard

(b)            The party prepares a case plan and costs estimate.  The estimate will set out the anticipated amount of time expected for each fee earner on the case and other costs to be incurred for each relevant standardised task in the case.  For larger cases It is advisable to use appropriate case planning software for this.  Ideally, reports should be produced which not only set out the likely costs for each task in the case, but also an estimated monthly cost of the case going forward.  This provides a useful and early check for the client as to whether actual costs are exceeding the estimate.

(c)             The assumptions and the estimate are submitted to the court and other side, in the first instance at the initial case management conference.

4.4           A number of steps can be undertaken to improve the accuracy of an estimate.  Setting out at an early stage the assumptions on which the estimate is based is useful in this regard.  However, other guidance can be given (which may in time be  built into the case planning software), based on experience, to improve the accuracy of the estimate.

Time and cost recording

4.5           Most solicitors now record time spent on fee earning matters on sophisticated practice management systems (“PMSs”).  In order the facilitate the approach suggested in this paper, a means must be found to record for each time entry the task in respect of which the work in question was undertaken.  This is a challenge which should not be beyond legal technology.  Many PMSs have available spare fields for data entry.  Alternatively, PMSs invariably allow for a text narrative field for each time entry.  This can simply be used to enter the code for the task immediately before the usual time recording narrative.  For example:

“4.2 Attending with Graham Smith in preparation of his witness statement.”

4.6           Counsel also record time with some form of narrative.  Again, this could be recorded by reference to the standardised task codes. 

4.7           The alternative to recording this information pro tem, is for there to be a retrospective allocation of work done to the different tasks on the case.  This is likely not only to be less accurate but also more time consuming – adding an unwelcome layer of expense to the process

Periodical comparative review of cumulative actual costs to date with the estimate

4.8           At periodic intervals, as determined by the court, it will be necessary to compare the cumulative actual costs to date with the estimate.  If the approach set out above has been adhered to, this becomes a largely automated process and meaningful analyses can be quickly and efficiently produced.  At Appendix [], there is a sample comparison of estimate vs actual.

4.9           It is outside the scope of this paper to consider

(a)            the appropriate frequency of this periodic comparative review (whether on a solicitor/client basis or between the parties and before the court); and

(b)            the consequences of any material discrepancy between estimated and actual costs

Assessment of costs

4.10        Where there is an assessment of costs after an award of costs, one factor which should be taken into account is the comparison, on the basis of the standardised tasks, between the estimate and the actual costs incurred.  This will plainly be of the greatest application in respect of full detailed assessment at the end of the matter.  Whether this approach would also be at all applicable in respect of a summary assessment of costs or a detailed assessment in respect of part of a matter (for example, where detailed assessment is ordered in respect of an interlocutory application) is perhaps something which can be kept under review

4.11     

4.12        The developing use of information technology ought over time to enable many of these more sophisticated documents to be generated as reports from either bespoke software, reconfigured PMSs or popular office productivity applications. 

Posted via web from Feesability

“Well Andy, the empire strikes back!”

This is how the the Legal Director of a major media group greeted me recently and this was what he was referring to.

Critics say the timing is an attempt by the Labour government to soften the newspaper publishers’ attitude to them during this pre-election period.  Naive though it might be to ignore short-term political motives, this clampdown has been coming for a while and to those of us at the sharp end of costs in publication cases it signals the end of an extended term of one-way traffic.  Ten years of the unfettered recovery of success fees and ATE premiums and finally a hint of access to justice for defendants.

Carter-Ruck (for they are the most prominent CFA claimant factory in publication cases) should be wary of blaming the media lobby for this overdue clipping of their wings.  I am reminded of the old adage; whenever you point your finger, three point back at you.  The hat trick of own goals I believe they have scored are;

1. Frequently overstating risk in their CFAs
2. Uplifting fees that are already based on lavish base rates and eye-watering claims for time spent.
3. Using the encouragement given by the courts to stepped success fees to ramp up to 100% too early in proceedings.

The next unpleasant dose of reality to arrive at St Andrew Street is likely to be costs management as it evolves through the pilot scheme and presents an important opportunity to keep a grip on the stable door of base costs before that shire horse has bolted completely. 

Posted via web from costs2

Congratulations to Nick Bacon of 4 New Square.

I had wondered whether it was time for a second costs specialist silk so today’s announcement came as no surprise.

Who’s next I wonder?  Alex Hutton or Ben Williams would be my guess.

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Our first notable costs result of 2010 fell short of a contested hearing.

Brief facts:

Libel claimant recovered nominal damages of £12,500 plus an apology.

Bill came in (including success fees and ATE premium) at a whopping £296,000.

Settllement in the week before a two-day detailed assessment  ……. £165,000.

Given the settlement included interest and the costs of the costs fight (a good eight months worth) this represented a major climbdown by the claimant.

No wonder media defendants are getting ready to test the water on a range of costs cases in the wake of the Jackson report. 

Posted via web from costs2

It is fairly rare these days for us to take an assessment of costs between client and solicitors all the way to a contested hearing.

But the assessment hearing my colleague Justin Edwards appeared on yesterday was exceptional in every respect.

The bill (for administration of an estate) came down from £145,000 to £25,000.  Justin had advised our client to offer £30,000 so it became very expensive for our opponents in costs as well (to the tune of a further £18,000).

Their own costs would easily have exceeded the remaining £7,000 so it proved a salutary lesson in keeping one’s client informed as to costs.

A bill of £145,000 more than wiped out – plus a disciplinary referral to the Law Society.

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The costs profession has so far proved resilient in the face of rule changes.  The costs bar has flourished since 2000 and firms of low-grade costs negotiators have expanded.  But there is no doubt the Jackson Report presents the sternest challenge imaginable to all costs specialists.

Threats leap out from the confluence of a fixed costs regime in the fast track, the desire to demystify costs, litigation budgets progressively set to replace detailed assessment and the use of technology largely to automate the production of estimates and bills.

We cannot be certain of the pace of change but it would be foolish not to prepare for the inevitability of wide-ranging reform.

Fixed costs in fast track cases

Whereas lawyers will find a way to readjust to fixed costs in the fast track (and lower success fees recouped from damages), those process-driven costs firms who thrash out the costs of lower value cases will have to scale down markedly or risk extinction.

Costs Management

Lord Justice Jackson has identified and criticised a lack of real engagement by judges and lawyers in cost issues. If he is successful in redirecting judicial training and CPD, costs specialists have a more fundamental challenge if they are to remain relevant.

Even those costs draftsmen and consultants who make efforts to swap the abacus for the crystal ball will need to prove their value to clients who will become more self-sufficient in costs.

The process of establishing the methodology and standards needed to forecast litigation costs more reliably is in its infancy.  The brightest minds on the subject have been working independently, but the next phase of the Jackson reform is likely to bring those minds together.

Costs draftsmen will be mistaken if they believe that they can change horses seamlessly from bills to estimates – or even know where to start.  While there is a Cook On Costs available from all good bookshops, it may be a while before a hypothetically titled Tench on Estimating hits the shelves.

Dan Tench is a litigation partner at Olswang.  He is also a skilled software developer and in the wake of the Woolf reforms wrote a powerful application called Feesability that combines costs estimating and case planning.  With our help he has recently blown the dust off Feesability in order to deliver Lord Justice Jackson’s own costs estimating training – a session Sir Rupert described in his report as “invaluable”.  There is a growing buzz around the future development of Feesability (see Times 21 January 2010, http://bit.ly/7WBpaA)

Bill format

Lord Justice Jackson, encouraged by my firm’s work with Chief Master Hurst and Jeremy Morgan QC during the review, has recommended that estimates and bills of costs be presented in a form that follows tiered phases and tasks rather than activities.

He suggests that as a long-term goal, software be developed to enable estimates and bills of costs to be produced with far less human intervention.

Early critics of this initiative have pointed out that many lawyers are not wholly committed to recording their time now, and would not take easily or at all to classifying their time accurately at point of entry.

Whatever the implementation problems are, I doubt the solutions will involve conventional costs drafting techniques or the electronic assembly applications currently used by many costs draftsmen.

The new landscape

Of course traditional work will not dry up completely. Courts will still make complex costs orders that take some working out. Technology will produce bills of costs more efficiently but some human intervention will still be required. Parties will always argue about costs.  For a while they will argue about budgets and the consequences of exceeding them.

Also on the positive side, in the years “AJ” (after Jackson) commercial clients and their lawyers may be less reluctant than at present to resolve cost disputes through assessment. If the assessment can be confined to aspects of the litigation where budgets have been blown, assessments should be shorter and more focused.

The costs profession is in for a rough ride over the next few years. I hope that some of us are still here afterwards to tell the tale of successful transition. 

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… and I haven’t read anything that changes my predictions from those in my last blog.

I realise they were hardly in the Nostradamus league but the telling points about the costs management and detailed assessment recommendations are that (apart from pre-action costs management) they do not require primary legislation to be put into effect.  Hence I wouldn’t bet against their adoption.

I particularly liked the description of current bills of costs as “turgid” (which has immediately become my word of the week). 

Clearly (as everyone can now see) there is far more to the issue about forms of bills and estimates than mere style.  

Where I would blow Ellis Grant’s own trumpet is in the context of the recommendations for greater economy in presentation of points of dispute and replies.  We hope by our good management rather than than luck, the points of dispute and replies drafted by our firm have long been consistent with the brevity and lack of repetition now urged by Lord Justice Jackson.

As to the rest of the report I couldn’t hope to say anything intelligent or useful about it in the early hours of this Friday morning.  My necessarily superficial impression at this early stage is that this, as my American friends might say, is a game-changer.

My late father (who spent most of his working life at Ford Motor Co) used to tell me of the Damascene conversion in management style and manufacturing process brought about after Ford’s top brass studied the Japanese car industry in the 1970’s.  The acronym “AJ” was coined meaning “After Japan” and was employed widely to signify disruptive but necessary change.  

In litigation costs we now have our own “AJ”.  And as Bob Dylan once wrote “Your old road is rapidly agin’. Please get out of the new one if you can’t lend your hand”.  No prizes for guessing the next line.

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