Legal Invoice Review: How To Do It Effectively
In the overall process of managing outside counsel spend, reviewing invoices is the final step in a larger process. You will have likely gone through a selection process of some kind, agreed instructions and scope of work. You might have agreed on a cost estimate and even gone as far as discussing how the work should be resourced.
While it is the final step, it far from the least important. In addition to being a vetting and cost control exercise, invoice review provides the context within which you will frame your next engagement. For example, if the review process shows a certain firm spending a lot of time on internal communications – you will want to address that on your next engagement upfront and agree on a cap. If on an M&A deal with a firm the cost of the diligence was excessive, you may want to give the next M&A deal to another firm (or resource with an alternative provider).
The process is cyclical: set the parameters, monitor adherence, tweak the parameters afterward.
And if you don’t have a rigorous review process in place right now – you should know that is one of the quickest and most cost-effective ways to begin controlling your outside legal spend today. It’s an easy and quick win.
How to review an invoice:
Reviewing invoice narratives is not a task people typically enjoy. It can distract from doing other higher-value actions for the business and sometimes is avoided.
Where possible, you will want to use the tools at your disposal to make it quicker and more effective.
Brightflag reads invoice lines and summarizes them in the overview like this you see to the side. You can click each item to drill down onto the invoice lines related to that task. If you don’t have an AI tool like this, you can get your Law Firms to code their invoices with UTBMS codes. While you are reliant on the law firm doing this diligently (and the process can take time to set up) it can be effective in some circumstances.
Failing that, you can always manually categorize lines to give yourself an approximate idea of the resourcing of the work – this is time-consuming, but may be worthwhile on very large invoices that you want to scrutinize closely.
Looking at a breakdown like this allows you a first pass overview on a piece of work. How was it staffed? Where was the time spent? Do any actions or phases seem excessive in relation to the overall matter?
What to look for:
Clear guidelines lend a structure to your invoice review, since you know in advance the kinds of issues you are looking for. Here are some common ones (screenshots are from Brightflag, but the overall concepts apply universally):
1. Administrative Work. If paralegals or junior lawyers are spending time photocopying, scanning, compiling books of documents – this work should not be charged out. This is law firm overhead already contained in their hourly rates.
2. Internal Communications. If you look at the invoice and see that a large portion of a matter constituted internal communications with the law firm – you should query this. Often the amount of internal communications is not apparent in a line-by-line breakdown, and if left unchecked can potentially represent unnecessary costs.
3. Research Costs. Any research should be agreed in advance. Less experienced lawyers should not research work that is already known to more senior colleagues. Research and related tasks are an element of costs on an invoice that should be scrutinized closely to ensure the charges were merited.
4. Attendance at Meetings. Did multiple lawyers attend a meeting? Was it warranted? Did each person charge the same time? It can be difficult and time-consuming to track this across a multi-page invoice narrative, but if you suspect it is happening, it is worthwhile to track and (Brightflag fully automates this for you).
5. Vague Time Entries/Block Billing. If a description is not clear, you are entitled to get an accurate description of how the time has been spent. “Reviewing File” is not sufficient anymore. Also, if multiple actions have been grouped together in one line (block billing), it can obscure how long has been taken on each task. While you may not seek a reduction on these issues (although some more aggressive billing guidelines advocate writing down block-billed time), they are important to monitor and raise with your firms
These are some of the most common issues our software finds in many invoices. Of course, there are many more checks and balances and they differ from matter to matter. However, the overall goal does not change: ensure the law firm’s time was spent efficiently and that all work was in line with what was agreed.
A well-run legal department will want to have clear billing guidelines in place, combined with a transparent and fair invoice review process. Once these two elements are in place, a true collaborative and trusted relationship can exist between the in-house team and the outside counsel.
While fixed fee and alternative arrangements are suitable in some matters (and the data from an invoice review process will help you move the relevant matters to such arrangements) the vast majority of corporate legal work is still charged on an hourly basis.
Trust is built up, fewer invoices are queried and everybody is happy. If you don’t have a rigorous process in place currently, it can be a very effective way of bringing efficiencies and cost savings in a short period of time.