Costs Management: Sun Has Set & There Is New Dawn

Article By Danielle Park, QA Software Engineer, Select Legal Systems.

It seems the sun has set on Jackson-Style budgeting & there is a new dawn

It is almost twelve years since Lord Justice Jackson’s review of civil litigation costs first appeared in our Google search results (Christmas week 2009), explaining his recommendations for reform, to promote access to justice at proportionate cost. On reflection, his report was revolutionary, and it was the start of what has turned out to be quite a journey for the UK legal profession.

Those in civil litigation will admit when the proposed changes hit our desks over a decade ago, most were incredibly sceptical about them, many were vehemently opposed to embracing them, and some fought hard against them. However, Jackson’s far-reaching reforms became mandatory and were embedded within the Civil Procedure Rules in 2013. Eight years later, whilst LJJ enjoys his well-earned retirement, writing about Roman history, it seems the sun has finally set on his ‘new’ way of working.

As progress is made, however, debate bubbles on, as we have seen in the news yesterday with the Government’s plans to extend Fixed Recoverable Costs (FRCs) to more areas, and the reaction to it. But that’s a whole other topic, for a whole other blog.

The Sun Has Set: Higher standards of budgeting for litigators & Others

Litigators are now well and truly in the habit of a far stricter costs budgeting regime for complex, multi-track cases. The changes at the complex end of litigation ensure that costs budgets are far more proportionate to the issues in dispute. The profession’s exposure to the stringent rules has set a high bar in terms of the standard of budgeting we are now seeing. What is perhaps even more interesting for us as a software supplier, is we are seeing evidence that the changes have led to a new dawn for practitioners in other areas of law, who are also now seeing the benefits of the robust ‘Jackson-style’ budgeting. Some of our clients from other legal disciplines have jumped onto the ‘costs management’ bandwagon, even though budgeting is not mandatory for them.

Reflection

The Journey So Far

As we consider our costs management module development plans in light of the interest we are receiving from litigation firms, as well as new interest from firms practicing other areas of law, I began to reflect on the journey so far. I thought it might be interesting to document this from our corner of the market, as well as some of the lessons learned, in the hope of provoking some inspiring thoughts for the future.

More than a decade of learning

The people at the coal-face

Over the past 10+ years, we have made it our business, at Select Legal Systems, to learn as much as we can about what litigators need for costs budgeting. In ‘our world’ of software development for law firms, we talk to a wide range of experienced people at the coal-face of legal practice every day – partners, fee earners, finance people, costs lawyers, cost draftsmen, paralegals, and a cross-section of support staff – all playing their part in delivering a whole host of key roles. Some share with us examples of best practice, a few tell us about their encounters with worst practice, whilst others admit their exposure to non-existent practice. As you can imagine this kind of input is invaluable for understanding the software functionality requirements law firms have.

One of the first

Fit-for-purpose

Working in this way, we have learnt a significant amount about costs management. We were one of the first software houses to launch a fit-for-purpose costs management module for law firms, as part of our integrated software suite. This has enabled us to work closely with some of the best in the industry to produce robust software functionality for litigation firms that enables them to auto-produce precedents H, R, and S, utilise costing templates with allocation against ‘cost stages’, and to use litigation codes (born out of the original J-Codes theory) for litigation ‘tasks’ and ‘activities’, and much more.

Huge Change

To Reduce Unfair Costs Suffered By Many

We quickly learned that before the reforms it was normal for little attention to be paid to the costs incurred whilst a case was ongoing. Costs tended to be left to detailed assessment at the end of the case and negotiated with the other side. Pre the reforms, most cases were funded by CFA (Conditional Fee Agreements) and ATE (After-the-event) Insurance, or BTE (Before-the-event) Insurance, a system that ensured clients would receive 100% of their compensation. Accurate assessments carried little weight as clients were generally not interested, as they knew they would not be expected to make a financial contribution. Lord Justice Jackson recognised the effect of the previous arrangements where claimants could litigate ‘risk-free’ at huge cost to the losing defendants. He highlighted that this placed an excessive burden on opposing parties, whose costs liability could become grossly disproportionate if they contested the case to trial and lost. Jackson recommended that recoverability of conditional fee agreements (CFA) and after-the-event (ATE) insurance premiums be abolished. The Government adopted his recommendations citing the need to reduce unfair costs suffered by many, including the NHS, to restore greater proportionality for civil cases.

Overwhelming Concern

Litigators wondered if their work would be sustainable

When firms first saw Jackson’s recommendations most were extremely concerned. Many had little experience of planning and budgeting a case, particularly complex ones, and the level of detail that was clearly going to be necessary was overwhelming. With the additional time required by fee earners that would need to be afforded to budgeting, as well as the liabilities they would incur under the new regime, many litigators wondered if their work would be sustainable. There was a lack of tools available that would enable firms to produce accurate estimates for complex cases and much fear of the unknown in terms of how firms would cope with the increased responsibility of managing costs incurred to keep them proportionate and to minimise write-off. Fee earners were also dreading the difficult discussions they knew they would have to have with clients about shouldering the costs liability.

Quite Understandable

Difficult to plan

It is quite understandable why there was a ‘head in the sand’ approach by some in the beginning, as it took time to build the skills and gather the tools and support to start estimating budgets correctly. There was also initial confusion about the rules, and the added complication of different judges requiring different things, making it difficult to plan for CCMCs (Costs and Case Management Conference – an important stage in the litigation process where the court will order case management directions up to trial).

Significant Write-Off Levels

Up to 30% of case costs

From our research, when budgeting first became mandatory some of the pundits we spoke to admitted some firms were having to write-off up to 30% of their litigation case costs, but more recently we understand from our contacts that with more accurate budgeting it is now probably closer to 10%, and improving. Once the fee earner has a budget in place, the work can be better planned and adhered to, and early conversations with the client can be had to address any likely shortfall.

It has taken time

The profession is increasingly comfortable with new norm

For litigators, whilst costs budgeting has been challenging, it has steadily become the accepted norm. The 2019 ACL (Association of Costs Lawyers) annual survey on the subject, that gathered the opinions of 72 Cost Lawyers (Dec 2019) showed that 63% of respondents admitted they were ‘getting used to the electronic bill of costs’ up from 41% in 2018, and whilst only 4% admitted to ‘getting the hang of it’ more than half – 56% agreed that ‘like it or not, this is the future and they must embrace it.’ The results of the ACL’s most recent survey completed by 146 costs lawyers (Dec 2020) stated that “the profession is becoming increasingly comfortable with the electronic bill of costs…” but the survey focused more on the effects of the pandemic and digital working. The areas prioritised in this recent survey, is a strong message in itself, that Jackson’s flavour of budgeting is now the accepted norm.

Expectations

Constraints have led to far higher standards than ever before

For civil litigation multi-track cases, parties and their lawyers are expected to predict all reasonable work to be completed in pursuit of their case and budget accordingly. Once a party has filed its costs budget with the court the budget is set in stone unless the lawyer applies to the court to amend the budget. Only in extremely limited circumstances will the courts allow an amendment to a previously filed costs budget. There must be a ‘significant development’ for a budget amendment to be considered. For instance, simply ‘bad drafting’ is not acceptable. Where a party has filed a late budget or indeed no budget at all, they will be entitled to court fees only. The defaulting party must make an immediate application for relief from sanctions and file a budget at the very earliest convenience. The profession is finding that working within these kinds of constraints has led to far higher standards for litigation costs budgeting than has ever existed before.

Tough Lessons Learned

Other areas non-mandatory areas of law raising their game too

The proverbial bar was set quite high by cases such as Mitchell MP v News Group Newspapers (2013) when the Tory Chief Whip fell foul to the reformed court rules to the sum of £500K+, when his lawyers failed to file his costs budget by the specified seven clear days prior to the costs case management hearing.

It is interesting to note that, as a result of all of these changes and the tough lessons civil litigators have learnt, as a software supplier to law firms, we are now seeing a number of firms raising their costs budgeting game outside of multi-track civil litigation. Lawyers who are not subject to mandatory budgeting for the courts are also starting to utilise the comprehensive functionality that Team LAWFUSION initially developed in response to the Jackson reforms for litigation firms. One reason for this we believe is of course they too wish to significantly reduce write-off. A 2018 PWC Law Firm Survey Report highlights that firms were writing off between 10% and 20% of their fees, which collectively equates to an obscene amount of profit heading straight down the drain every year before anyone even begins practising. The survey highlights ‘inaccurate estimates’ to be one of the most common causes for fee income write-offs. This is evidence enough for many, that costs budgeting is a good habit to form across many areas of law.

The New Dawn: Cost Budgeting Outside Of Civil Litigation

Here are a few examples of effective budgeting that we have seen, as software suppliers, outside of multi-track civil litigation:

Cost Budgeting For Court of Protection Work

Excellent for revised estimates for the OPG

The Office of Public Guardian (OPG) requires firms to provide an estimate of costs for the forthcoming Deputyship year, broken down into specific categories of work. When assessing the bill, if fees exceed the estimate in any category, the court will not allow them. When a fee earner is aware that he/she is likely to exceed the estimate, they can write to the OPG in advance and provide a revised estimate. Providing the revised estimate is sent in good time the extra costs will not be disallowed. The LAWFUSION Costs Management module can be used to set up phases for each category of Court of Protection work, as outlined in the OPG annual report, and they can set the estimated fees as budget limits. Lawyers can then configure warnings as time is recorded to each phase to alert them when approaching the estimated figures (limits). As soon as the fee earner sees the alerts they know they must produce a revised estimate for the Office of Public Guardian.

Cost Budgeting For Legal Aid Work

Comparing ‘actual costs’ with ‘costs allowed’

When dealing with a legally aided matter lawyers will receive a certificate to cover the work done up to a set stage. For each stage, there will be a cost limit set. Again LAWFUSION users can configure costs phases to match the stages of the legal aid case. Fee earners then simply record their time and disbursements to the appropriate cost phase. Recording time in this way allows users to monitor their ‘actual’ costs compared with the ‘costs allowed’ under the certificate. Because LAWFUSION is a fully integrated suite of software the costs management module works in tandem with its legal aid modules to provide a comprehensive set of tools for costs management for legal aid firms.

Cost Budgeting For Fixed Fee Work

Fully aware of the cost and value of the service

As firms continue to move away from the traditional hourly rate charging model for certain areas of law, exploring alternative charging structures, fixed fee charging strategies are growing in popularity with clients because upfront budgets/estimates mean they can avoid nasty surprises. Solicitors like this too because it often reduces the need for awkward confrontations with clients about costs at the end of the case, and helps prevent disputes and non-payment issues arising. To deliver fixed fee work profitably a law firm needs to be able to break work down into stages so they can be fully aware of the cost and value of the service enabling them to charge a fixed fee for each stage. The LAWFUSION costs management module can help firms with the challenge of accurately estimating stages of work to ensure that a fixed fee charging structure remains profitable.

The Norm

For civil litigation firms and other areas are getting on board too

It has taken time, but firms learned how to work with the courts on budgeting and clients have become used to paying their costs. In 2021, we are proud to see many civil litigation firms benefiting from LAWFUSION’s reliable costs management tools, and delighted to see our software is helping fee earners in other areas of law too.

To Learn More:

About managing budgets and reducing write-off levels

Select Legal Systems, part of the Access Group, are the authors of LAWFUSION – the leading legal practice management software for law firms. Amongst many other fully integrated legal software modules available with LAWFUSION, there is a Litigation Costs Management Module. If you want to automate your costs management processes, LAWFUSION offers powerful tools that will help any law firm implement Jackson-style budgeting for their cases. It makes it far easier for staff to understand the rules, follow and adhere to them, to significantly reduced levels of write-off.

To book your demonstration of this module or any other aspect of LAWFUSION, please call 01482 567601 today. Alternatively, you can reach Team LAWFUSION via our online book-a-demonstration form which is available at all times on our website.