Time billing has DLA counting the cost
The financial incentives of racking up billable hours are behind what has been described as “perverse behaviours” by DLA Piper lawyers in the US who have been accused of overbilling, a legal consultant has claimed.
The billing practices of DLA Piper’s New York office are under scrutiny after internal emails between firm lawyers emerged in a court filing this month. One email indicated that a lawyer was creating unnecessary billable work, with his approach described as “churn that bill, baby! mode”.
John Chisholm (pictured) of Chisholm Consulting told Lawyers Weekly that time-based billing creates incentives for lawyers to drive up a client’s bill.
“Incentives do matter,” he said. “If I am primarily measured and rewarded by billable time, then you can expect some perverse behaviours ... nothing startling there, [it’s] basic human nature.”
The correspondence between the DLA Piper lawyers was disclosed in a fee dispute brought by Adam Victor, chief executive of TransGas Development Systems. After DLA Piper sued Victor for US$675,000 in unpaid legal bills, Victor filed a counterclaim, alleging the firm engaged in a “sweeping practice of overbilling”, reported the New York Times.
Casual emails between DLA Piper lawyers working on the bankruptcy filing revealed that the bill was US$200,000 over the estimate provided to the client. “That’s Team DLA Piper!” wrote Erich P. Eisenegger, a lawyer at the firm.
A colleague, Christopher Thomson, wrote: “That bill shall know no limits” in reference to a third lawyer who had “random people working full time on random research projects”.
In a memo to its lawyers, DLA Piper described the language in the emails as “unprofessional”, but denied allegations of improper billing practices.
“These emails reflect an unfortunate attempt at humour by three former lawyers of the firm, but did not result in overbilling to the client,” stated the memo, which was published by the New York Times.
The emails have come to light at a time when in-house lawyers are increasingly demanding alternatives to time-based billing to control external legal spend.
Paul Rogerson, the head of legal at NRMA, told Lawyers Weekly last month that firms should consider task-based billing and provide a menu of standard legal tasks, which would give in-house counsel the price certainty they seek.
NRMA currently requests estimates from its external legal counsel, all of which use time-based billing. Rogerson said firms must consult him before exceeding an estimate and provide an explanation for the failure to remain within the budgeted amount.
While Rogerson admitted that the arrangement is not ideal, he accused firms of being unreceptive to his requests for alternative fee arrangements (AFAs).
Maria Polczynski, the head of group legal at the Adelaide & Bendigo Bank, has spoken on a number of occasions about the failure of firms to embrace AFAs.
In an interview with Lawyers Weekly in February, Polczynski said she was outraged at what some firms expect organisations to pay for legal services. She also expressed her frustration at firms that say they will adopt AFAs but then simply calculate fixed fees based on their hourly rates.
“Firms are never going to suggest anything other than hourly rates because it suits their current systems,” she said. “It’s infuriating when you can’t get them out of that psychology.”