Legal departments are consciously driving change and leveraging outside counsel guidelines as one of their most effective tools to do so. Law firms, on the other hand, are lagging in their response, mired in manual processes: Billers are printing invoices for manual notes to be edited by partners and returned to finance. This would be OK if the guidelines were short, clear, partners were reading them, and billers could tie billing to them—but little of this applies.

This means that the rules for payment are locked inside of a complex document, and no one inside of the law firm has the key. Bills are getting kicked back for non-compliance, payments are delayed, bills are appealed, fees reduced, and write-offs are the result. This directly impacts collection realization and top line revenue. This isn't going to get better—for law firms, that is, unless they do something substantive about it.

As a cost center, departments are under tremendous budgetary pressure to control spend and this pressure flows through to their law firms. The evidence has poured in as survey after survey has demonstrated that the greatest impact legal departments can have on controlling costs is through better management of outside counsel guidelines. It is important to note, though, that the majority of legal department professionals—62 percent (see Consilio's Annual Law Department Operations Survey)—see their primary role to be change management, not expense management. They embrace innovation, including workflow and automation of repetitive tasks, and they turn to technology to create operational wins.

Overwhelmingly, the technology of choice is e-billing (75 percent—see Altman Weil's 2018 Chief Legal Officer Survey). Here's where it gets sticky for law firms, however, and where OCG come in. 79 percent of departments provide OCG that include rules for billing, expenses, matter staffing and matter management. The reasons for having Outside Counsel Guidelines can be summarized as follows:

1. Formally communicate the expectations of the corporate legal department.
2. Hold all parties accountable to the same standards (i.e., billing, matter management, corporate policies, marketing, cybersecurity).
3. Promote better communication between the legal departments and their firms.

But what should be clearly stated is that OCG are contracts that require compliance for payment—and legal departments use billing to automate that compliance. Most proactively enforce and almost half (39 percent) are performing data analysis on spend date, and you can bet that efficiency in billing is one of the legal department KPIs.

A firm's prolonged inefficiency around compliance with billing guidelines can potentially have long term effects on the relationship, not just the immediate impact on top line revenue. That is, another significant difference through the years has been law departments' emerging comfort and use of alternative legal service providers, as evidenced by the halving of “total outside counsel spend” (from 65 percent to 36 percent) and the tripling of “total outside counsel and service-provider spend” as a KPI (15 percent vs. 43 percent). This illustrates that LDO professionals are decreasingly concerned with who is doing the work as much as the overall efficiency, predictability and cost of getting it done.

Why is billing compliance with OCG challenging for law firms? For one, OCG are new and, well, law firms are not quick to adapt to change. Legal departments are changing far more rapidly than their law firm peers. But also, legal departments' change in focus has resulted in an explosion in the complexity and type of fee arrangements:

• In 2008, legal departments reported using three types of alternative arrangements: flat fee, volume discounts, and discount rate with bonus for success.
• In 2018, the types of alternative fee arrangements have tripled to include a vast array of types including: fixed fee per matter, blended rate, flat fee to handle matters in a given area, fixed fee with a collar or a cap, budget based monthly billing, risk sharing, contingencies, auctions etc.

Of course, law firms are trying their hardest to comply with all aspects of OCG. However, there is a gap between what was agreed upon in the attorney-client engagement and the firm's processes for billing and compliance. This compliance gap starts at the moment that live guidelines are put in place, and it happens for several reasons—sometimes it is the negotiating partner who is in possession of the guidelines, but he/she may not take action to activate compliance processes within the firm. Many firms, however, simply have no process in place to execute on the guidelines.

Moving forward, firms must address compliance-related procedures within the firm, ambiguity within billing guidelines and put in place mechanisms to manage these areas to scale. Due to the currently manual nature of checking for compliance (during pre-bill or bill stages), billers only look for critical items to check for compliance if they have the time and resources. The rest are sent out, awaiting client review and rejection. When items are rejected, or fees reduced, the firm will fix the invoices and start an appeal process. This is a purely reactive approach.

The onus cannot be put on the shoulders of billers. Billers are not only faced with the challenge of doing the billing, but they are also responsible for making sure that those entries are in compliance and, when they are not, re-submitting the bills. This is extremely resource intensive. To further complicate the role of the billing manager, billing guidelines contain both explicit rules and vague/hidden rules (ex. “An excessive amount of work can't be billed” or “partners can't do clerical work”). This is the type of knowledge that is typically stored in the head of the biller or on a notepad. The biller is familiar with trigger words that are often subject to rejections. Therefore, if a biller leaves the firm, they walk out with all that knowledge because there is no centralized repository on how to manage those billing guidelines and billing rules. This is a business continuity issue.

The result is a timecard inventory that is not compliant with the firm's client guidelines, causing payment delays, rejections and appeals, which often ends up as revenue write-offs. At the same time, the firm continues to add more resources and spend more money to manually address this problem, so that they can get paid. Firms are stuck in a lose-lose situation.

Nor can the onus be put on the shoulders of our attorneys and partners. As we pile information governance, data security and a host of new needs and processes onto our lawyering, we need to look for ways to allow lawyers to be lawyers. This sentiment was reflected widely in the ILTA 2018 Tech Survey. We need to stop adding more processes on top of our attorneys and legal professionals and provide a solution that stands up to our innovative legal department peers—and in this instance, this means innovative technology that ties the guidelines to the billing process itself from the beginning of the engagement and ensures compliance at the point of time entry. Firms that wish to remain competitive should no longer accept the fallout of non-compliance as a cost of doing business.

Gabriela Isturiz is founder and president of Bellefield Systems, a technology company committed to helping law firms manage outside counsel guidelines, recover more billable time and enable firms to achieve their revenue goals.