How Corporate Counsel enforces OCGs and what that means for firms
How much do you understand what happens to your invoices after they’re submitted to your clients? It’s an important question, because it impacts when, and if, your invoices get paid. This article explains the increasing scrutiny to which law firm invoices are being subjected and how firms ought to respond.
What you don’t know about Outside Counsel Guidelines
As you know, outside counsel guidelines, or OCGs, are the rules setting out what the client will and won’t accept in their legal bills. What you might not know is that clients don’t always give full transparency of their rules to their firms. This is because part of the point of OCGs is to keep law firms honest. And the concern, rightly or wrongly, is that if firms know all the details of the rules, they might develop ways to get around them.
OCGs are, in turn, increasingly being enforced by the use of spend management systems designed to do two things. First, they control spend by enforcing budgeting, rates, and the stipulations in the OCGs. Second, they capture the legal spend in invoices for later analysis. The validation process generally results in one of four outcomes: allow the invoice to pass, as is, to the manual review stage to be approved or rejected by a reviewer; flag the invoice for further scrutiny by a reviewer at the review stage; adjust line items to comply with the OCGs; or, if the invoice is taxed, reject the invoice back to the firm.
In addition, some forward-thinking clients are requiring firms to submit an anticipated budget against a matter before they can even commence work. This requires the firm to estimate its likely spend to a very granular level, even down to a specific bill code or phase. And these invoices are subject to validation by the spend management system too, so spending limits must be adhered to.
The increasing growth of spend management
A brief history. After the financial crash, organizations became a lot more interested in controlling cost and measuring value, and general counsel were not immune. Whereas previously, legal spend was accepted as an inescapable cost of doing business; after the crash, the pressure to account for, and justify, the cost of the legal function grew. It further became evident that to protect the in-house legal function from being outsourced, GCs needed to demonstrate their value and how they were saving businesses money. So suddenly they needed a much deeper understanding of how, and where, money was being spent, and OCGs, fee earner rate enforcement, and budgeting were increasingly the result.
How law firms should respond
The use of spend management to enforce OCGs and budgets is becoming ever-more common and has the capacity to impact the firm in punitive ways. First, there’s the cost, in time, of compliance. Second, there’s the cost of non-compliance: that is having line items adjusted or an invoice rejected, requiring correction and resubmission and increasing the workload and the payment period. Third—and this can be very expensive indeed—there’s the cost of being habitually non-compliant. You’ll remember, I mentioned the second thing spend management systems do, which is capture data for analysis. When that data is crunched, these numbers can be used to rank the performance of each firm, and poor performers may not be reselected during a panel review.
In response, firms have to counter the sophistication of their clients’ processes by employing sophisticated systems of their own. The goal should be to produce compliant invoices which sail through the validation process.
The most important thing is that fee earners are aware, at the point at which they’re recording time, of the level of scrutiny to which bills will be subjected, so time is logged in a detailed and conscientious way. It’s also desirable that lawyers can capture time to the required standard in a way that doesn’t increase the time taken to do so.
Firms should therefore be looking for timekeeping platforms which can deliver highly accurate, contemporaneous, and passive time recording, plus integration with an e-billing system such as eBillingHub. It’s then possible to program in the known OCGs rules to validate time entries at the point where the fee earner enters time.
Whichever system your firm has, the takeaway is clear: firms now have to raise their game when it comes to lawyers recording time, because the landscape has changed, and in this newly competitive, cost-conscious world, only detailed, accurate billing will do.