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Analyze Your Legal Bills

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Originally a Special to THE GLOBE AND MAIL

To small business the complaint is "big legal bills." Four thousand dollars for incorporation is a fair whack to a new pizza parlor. To big business it's "the high cost of counsel." As one CEO said recently, "Every year we give our lawyers an unlimited budget, and every year they exceed it."

Small or large, these companies find hiring lawyers is like riding a taxi with no destination, the meter whirring away as the taxi circles the same block.

It doesn't have to be that way. Many companies presently ordering legal work by gosh and by golly are capable of ordering complicated machinery part by part, and when legal work starts visibly chewing into the bottom line, it is time to give the same attention to legal bills.

Cost control begins with putting someone on "legal duty." This is not to say you need to create a new bureaucracy for buying law –any more than pencils –but the person reading the legal bills needs to know a bit about legal work.

In theory in-house lawyers would be best at this –and superficially they are –but I find that they have trouble judging what work is needed. Intent on the billable hours, lawyers have trouble rising above the desk and wondering, "Why are we doing this?" Since useless work is a bigger problem than fraudulent billing, this question belongs in any bill-control plan.

Generally lawyer-duty means an executive taking their turn, not only because it must be someone who isn't impressed by lawyers, but because it helps to have someone who can impress lawyers. (Accountants have a poor history of keeping lawyers in line; they are overwhelmed by superior expert power.)

Smaller business need not despair here. I rarely meet an executive quite as money conscious as an owner, and the small business owner –with smaller problems –can learn to order legal work in much less time.

Regardless of who goes on lawyer-watch, there are three fairly direct ways to get a functional knowledge of law, lawyers, and legal billing.

Legal bookstores near universities are a good place to learn law. Among the ten-pound books –telling everything you don't want to know about a subject –you can find nice thin paperbacks designed to guide desperate students through exams. Other brief paperbacks –written for practicing lawyers or businesspeople –can be pleasantly blunt. Some even provide simple checklists of do's and don'ts.

The second information source is the monthly bill. A modern itemized legal bill contains more information than you see at first glance. Even without inside information, patterns tell much of the story, and patterns emerge best when you get the bills on diskette, and crunch those numbers in a spreadsheet program. Simply sorting and re-sorting the bills by tasks, dates, hours, costs, and personnel can yield surprising amounts of knowledge. This is not necessarily a search for fraud. Often it just raises the question: "This particular job is costing a three times what we pay our lawyers for a typical job. Is it worth it?"

The rest of the story comes out with inside information, and here an independent paralegal who has worked at a legal firm can be a great help, quickly spotting make-work such as unneeded depositions, or which work billed by partners could have been handled by associates, or whether a lawyer has missed a filing date.

Don't expect paralegals to express an opinion on whether work needs to be done at all, as they are harassed by lawyers for the "unauthorized practice of law." Equally, don't hire a paralegal fresh from a law firm unless they show independent thought; the paralegals within firms are far too often in awe of lawyers. Allowing for that, paralegals can be immensely useful.

If you follow this system your legal bills should drop from 5% to 50%. Is it worth the effort? That's between you and your calculator.





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