Corporate legal departments, which are looking for alternatives to the traditional hourly billing that has received much commentary in recent months, have admitted to not monitoring their external law firms’ performance. This is despite the fact that legal costs are at the top of their list of concerns, according to a recent survey.

The inaugural survey of the criteria used by in-house lawyers to select, retain and control costs by Australian companies, Corporate Counsel — Law Firm Relationships, was released last week in a joint effort by Harris Cost Lawyers, Mahlab and the Australian Corporate Lawyers Association (ACLA).

According to the survey of 1,800 ACLA in-house counsel members, there is overwhelming support for a move away from time-based billing. While 55 per cent of respondents still use the hourly billing method when managing matters sent to law firms, 96 per cent are looking for a change.

Of the top five most pressing business issues facing their law departments, reducing outside legal costs is at the top of the list. A reassessment of the current billing methods is now taking place, according to Elizabeth Harris, managing director of Harris Cost Lawyers.

“The sort of change contemplated ranged from upfront fixed contracts for matters to a project management approach and greater use of technology. Of significant interest was the desire for law firms to understand the clients’ commercial objectives and to plan their strategic approach to the clients’ legal needs accordingly,” Harris said.

But the most startling aspect of the survey, noted Peter Turner, ACLA CEO, is that 77 per cent of respondents admitted to not having procedures in place to monitor law firm performance, even though this is at the top of their list of concerns.

“A lot of internal/external relationships have grown historically,” Turner said. “Many corporations and government departments use firms with whom they have an historical and long standing relationship. So, yes, I think there is a high level of trust.”

He argued that when he was a member of the legal team at Fosters Brewing, he “certainly had those procedures in place”.

“It means there is opportunity out there for internal counsel to do something that will help them to better control costs and to produce a slowdown in the growth of cost,” he said.

But, he added, it is worth noting that “most corporate and government departments are value conscious. If they think they get value, then cost is a secondary issue”.

The survey found that even if corporate counsel use panel firms, they are unlikely to have procedures that review the panel in place. Time is a major factor, said Turner, as few in-house legal departments have time to sit down and discuss this issue in a consequent way.

“Even getting together what a company spends is quite a complicated undertaking. There are often other departments spending on legal costs and it’s quite normal to find the tax department spending a lot of money on legal advice or the treasury department capitalising legal costs in all kinds of financial products. So it’s hard to get a handle on what is being spent.

“But you have to do this to get a handle on it and to take the next step — find out where those big costs are coming from and prioritise them. Then approach the suppliers and see what can be done. I think it is often misunderstood just how much time and effort is needed to go into that,” said Turner.

The finding that there is support for a move away from traditional hourly billing to alternative methods is in contrast to some law firms’ claims in the recently released NSW Legal Fees Review Panel report about billing.

The report noted that “law firms’ views of their clients’ level of satisfaction [with hourly billing] may not be entirely accurate”.

The Law Society of New South Wales criticised NSW Attorney General, Bob Debus’ claims that the report, Legal Costs in New South Wales, discloses that the current system of fees and charges is a significant contributor to the rising cost of legal services.

But, NSW Law Society president June McPhie claimed recently, the Panel’s report acknowledged that less than nine per cent of cost disputes are based on claims of solicitors’ overcharging, while the number of complaints upheld is even smaller.

“The report accepts that the vast majority of solicitors do comply with the compulsory costs disclosure and also operate ethically and professionally,” said McPhie.

But the message from the Attorney General was stern and clear in purpose: “Dodgy Lawyers and rapacious legal firms have been put on notice that the days of outrageous billing practices are over,” his statement said.

The report has called for a cultural change in the legal profession, said Debus. This will see improved communication and transparency between lawyers and their clients and the report recommends an end to the dominance of time billing, he said.