The Saturday edition of the Wall Street Journal had this fine article by Nathan Koppel and Ashby Jones: "Amtrak's Lesson: Check Legal Bills Closely" (subscription probably required). They report that the federally funded railroad company had audited its legal bills, finding that it had allowed outside law firms to ignore the company's billing guidelines. After spending over $100 million in outside-lawyer fees from 2002 to 2005, it realized it could have spent "substantially" less.
The article has plenty of ammunition for opponents of hourly billing, such as:
- 41% of the fees one firm submitted had "cryptic" descriptions for tasks, such as "Review Amtrak documents." William Ross, a law professor and consultant, noted that while these phrases were common in law-firm bills, they didn't help clients evaluate whether the work was necessary.
- Another firm billed exactly nine hours of a paralegal's time on 10 different occasions in a single month. The auditor thought it unusual that there were no entries for 8.9 or 9.1 hours. Ross suggested that this practice could mean that the times were estimates: "Attorneys often bill exactly the same amount of time, day to day. It's like they are trying to fill a quota."
[I'll pause while you let that last phrase reverberate in your head.]
- Some of the law firms used "block billing," despite the Amtrak billing guidelines' barring the practice. Block billing is when "law firms lump together tasks without itemizing how much time each one took.... [It] can make it tough to gauge whether lawyers spent an appropriate amount of time on each task." Another lawyer, apparently unconnected with Amtrak, defended block billing, saying that it was not necessarily "evidence that you are not providing good legal service."
[That may be true. But it's certainly not evidence that you are providing good legal service.]
- The article also cites the problem of close relationships between the in-house lawyers and the outside law firms, where some of them previously worked. The Amtrak auditor said, "The attitude of the law department was that they shouldn't manage the [outside] law firms, because they were their buddies."
So Amtrak has learned to watch their law-firm bills more carefully. But that is just a stopgap measure for a much bigger problem. Hourly billing does nothing to help a client determine the value of the work that was performed. Just because something took longer doesn't mean it was more valuable to the client. Without hourly billing, in-house counsel won't have to worry about whether their outside counsel "are trying to fill a quota."Peter Lattman's WSJ Law Blog treatment of this issue is here. Earlier coverage on this topic is here and here.