The Complete Beginner’s Guide to Legal Bill Review

Legal Bill Review (aka ‘LBR’) is the practice of clients auditing law firm invoices to ensure that the right amount is paid for the right amount of service provided.

While legal bill review can result in invoices adjustments, it is not the clients’ primary objective. Legal bill review ensures that law firms are compliant with the engagement terms, ethical and professional billing standards, and, more importantly, producing quality legal spend data.

Although traditionally, legal bill review is a client’s practice to control legal costs, now law firms also do legal bill reviews to avoid invoice adjustments by clients.

If you have never heard of legal bill review (that would be less likely), that’s OK. This article provides a complete introduction to legal bill review by discussing the following points.

  • What is Legal Bill Review?
  • Role of Enterprise Legal Management Software
  • Need for Electronic Invoicing/aka eBilling
  • What is Automated Bill Review?
  • What is Manual Bill Review?
  • What is Appeal Resolution?

What’s Legal Bill Review?

Legal bill review is clients’ practice reviewing law firms and other legal support supplier invoices to comply with its billing guidelines to avoid overpayment.

The primary objective behind a client implementing Legal Bill Review is to control its legal spending. However, there has been a change in the recent past – legal bill review is more focused on building data quality around the legal spend. 

Generally, clients prefer performing legal bill review in-house. However, there’s an increased trend of clients outsourcing legal bill review to external service providers. 

Whether legal bill review should be outsourced or performed in-house is a debatable topic. 

Who’s qualified to perform Legal Bill Review?

Well, here’s my short answer – 

Anyone familiar with the client’s billing guidelines and general legal practice can effectively audit invoices. 

Legal bill review involves

  1. A line-by-line review of the invoices
  2. Identifcation of billing guidelines non-compliances, and
  3. Applying relevant adjustments to the invoice 

Below are some of the commonly found billing guideline non-compliances:

  • Block Billing
  • Vague/Insufficient Descriptions
  • Overhead costs billed to clients
  • Expenses billed without supporting document

The number of non-compliances can range between 20 to 45 depending upon the client’s billing guidelines. 

Below is a generic high-level workflow of the legal bill review process. In this article, I have covered in detail each step found in this workflow.

Enterprise Legal Management (‘ELM’) Software

ELM is a web-based software used by clients for effective end-to-end matter management that also includes functions related to electronic invoicing and legal bill review. 

Below are some of the ELM leaders in the market:

Although legal bill review dates back to paper invoices, the adoption of ELM by clients and firms has expanded the scope for legal bill review. 

These ELM providers help receive multibillion dollars worth of invoices in a standard structured data format.

Although the high-level workflow is uniform among these ELM providers, the functional features related to legal bill review have significant differences. 

The functional touchpoints of a legal bill review auditor in an ELM system will directly impact the underlying invoice data. Therefore, before adopting a particular ELM system, clients must evaluate their user-friendliness and efficiency. 

Electronic Invoicing /eBilling

ELM systems require firms to prepare and submit invoices in electronic format, especially in Legal Electronic Data Exchange Standard – shortly referred to as ‘LEDES.’  

LEDES invoice data specifications are maintained by LEDES Oversight Committee (‘LOC’) – a mutual benefit corporation.  

The technical details of each LEDES invoice format may not be necessary for an end-user, especially a bill reviewer. However, some of the standard data elements utilized in these invoices are important to understand. 

  • Phase Code 
  • Task Code 
  • Activity Code 
  • Expense Code 

These codes are called Uniform Task-Based Management System (‘UTBMS’), and they provide a standardized categorization of legal work and expenses.

UTBMS resulted from collaborative work among the American Bar Association, American Corporate Counsel Association, and a group of major corporate clients and law firms. UTBMS is currently developed and maintained by LOC. 

UTBMS has specific Phase and Tasks codes for litigation, eDiscovery, counseling, project, bankruptcy, patent, and trademark. However, the activity and expense codes are applicable for all practice areas.  

Billing Guideline Non-Compliance Matrix

Billing Guideline Non-Compliance Matrix (“GNC Matrix”) is a guiding document that helps define the scope of legal bill review. 

GNC Matrix consists of details extracted from the clients’ billing guidelines and other industry best practices. 

  • GNC Heading – a short description of the non-compliance, e.g., Block Billing, Vague Description, Overhead Expenses, etc. 
  • Adjustment Reason/Comments – a long description explains why an invoice line entry is flagged with a guideline non-compliance. Typically, this section will include the relevant citations from the client’s billing guidelines.
  • Adjustments – provides the value of adjustments to invoice line entries based on the non-compliance identified. e.g., Reduce Amount to Zero, Reduce Amount by %, Reduce Units by %, Set Amount to, Set Units to. 
  • Scope for Automation – provides logic and algorithms for automating adjustments, i.e., corresponding adjustments for non-compliance identified. For example, if the non-compliance applied is “Travel Time,” the line item amount should be automatically reduced by 50%. Another example would be if the activity code used is A112 (i.e., UTBMS Activity code for travel time), the system should automatically apply the non-compliance for “Travel Time.”

If you want to master the art of legal bill review, you should start from the GNC Matrix. Review the available one, and then prepare one of your own.

Automated Legal Bill Review

Automated bill review has become very much a part of any ELM system currently available in the market. 

Automated bill reviews can identify non-compliances and adjust or reject invoices. 

These automated invoice validations help reduce unnecessary manual efforts. However, at present, you cannot wholly avoid manual intervention. The scope of automation has a dependency on the quality of the invoice data.

UTBMS codes utilized in the LEDES invoices play a crucial role in enabling most of the automated validations. 

Below are some examples:

  • Invoice Amount v. Budget – if the invoice amount is higher than the approved budget estimation, the system will automatically reject the invoice. 
  • Timekeeper Rate – if the timekeeper rate submitted in the invoice is higher than the approved rate for the timekeeper, then the system will automatically reduce the timekeeper rate to the agreed rate.
  • Duplicate Line Entries – if the invoice consists of duplicative line entries, the system will automatically reduce the Amount billed for such duplicate line entries.
  • Photocopying Charges – if photocopying charges are billed at a rate higher than the agreed rates, the system will automatically adjust the rates to the agreed rates. 
  • Overhead Expenses – if any overhead expenses are billed, the system can automatically detect and reject such billing entries. e.g., postal charges, fax, local travel, word processing, etc.

In addition, there are other semi-automated bill reviews that work as a system aid for better manual invoice review. These system validation flags indicate a possible billing guideline violation that requires an auditor’s review to finalize. Below are some examples:

  • Possible Block Billing – depending upon the wordiness of the invoice line entry narrative and the combination of specific keywords that indicate different activity types, the system can flag a line entry as ‘possible block billing.’ 
  • Possible Vague Entry / Insufficient Description – if the invoice narrative displays only a couple of words or much lesser text characters, the system will flag those line entries as ‘possible vague entry.’
  • Possible Travel Time – if the activity code is A112, the system will flag the line entry as ‘possible travel time.’ Similarly, the system also uses expense codes such as E104 – Facsimile, E105 – Telephone Call, E108 – Postage, E109 – Local Travel, E111 – Meals to flag them as overhead expenses.

Manual Legal Bill Review

Almost all the ELM system with eBilling has manual bill review functions that allow users to audit invoices line by line and adjust the invoice amount at the line entry and invoice levels.

In recent years, most ELM providers claim and advertise that their system has artificial intelligence to replace manual legal bill reviews. However, this is not a reality now for various reasons. 

Auditors pay utmost attention to details while reviewing each invoice line entries to determine if they are compliant with the billing guidelines. During this process, the auditor will also review items that are adjusted by the system automatically.

The bill review approach of auditors will differ from client to client depending upon the engagement terms, billing guidelines, and certain high-level objectives of the clients behind employing legal bill review. 

Let me share some of the best practices that I have employed/recommended for various clients.

  • Block Billing – Block billing is the practice of billing multiple activities within a single invoice line entry. The most straightforward test to determine if a line item is a block billed or not is to check if the activities billed in a line item can attract more than one UTBMS activity code.  
  • Staffing Issues – Staffing-related billing issues include i. attendance time billed by multiple timekeepers, ii. paralegal tasks billed by attorneys, iii. replacement timekeeper billing time for reviewing case file for familiarizing the matter; and iv. lead attorney billing for supervisory time. 
  • Insufficient Descriptions – Some of the commonly found insufficient descriptions include – i. Communication time billed without the details of the parties involved and the subject matter of the communication ii. Document review time without mentioning the volume of the documents reviewed (specifically eDiscovery work), and iii. “prepare for . . .” and “work on . . .” time entries without specifying the actual task performed. 
  • Expense Items – Review of expense line entries can be divided into two major types i. identifying and rejecting law firm overhead items billed to clients (e.g., local travel, postage, facsimile, local meals, telephone calls, etc.); and ii. verify expense items with supporting documents and receipts. 
  • Activity & Expense Code – This is one of the latest addition to the bill review items, especially by those clients who are focusing on improving the quality of legal data. This type of review is focused on ensuring that appropriate activity and expense codes are utilized in the invoice line entries. 

Appeal Resolution

Now, we are at the final step of the legal bill review workflow.

Invoice appeal resolution is the final step in the workflow where auditors and law firms negotiate and bring resolutions to any invoice adjustments related to appeals.  

This process aims to provide the law firms a fair opportunity to review and then accept or appeal the invoice reductions before they are finalized for payment. If the law firm and the auditor cannot resolve, then the matter manager will address such appeal, who make the final decision. 

Each appeal submitted by law firms should provide adequate reasoning for the reinstatement requested.  

Not all appeals will result in a full reinstatement of the deductions. However, an auditor will allow full reinstatement under the following scenarios. 

  • When a reduction is misapplied
  • When a matter manager retrospectively approves a task that otherwise would have required prior approval
  • When a law firm supplies relevant, e.g., expense receipts.

The appealing part of the legal bill review workflow might sound straightforward, but this is one of the most complex ones mainly because of the lack of understanding about the billing guidelines among the law firms and sometimes the matter managers. 

Law firms often use certain standard appeal comments that do not address the non-compliance and are entirely irrelevant. I want to share an example where the appeal comment reads as follows: 

The task performed is reasonable considering the sensitive nature of the matter.

Anonymous Law Firm

I have received this standard appeal comment numerous times for all kinds of adjustments irrespective of the billing guidelines non-compliance identified. Typically, an author will not question whether the firm can perform a task but will only check if the invoicing has compliant with the billing guidelines. 

And, I feel sad for the client who picked this firm to handle such a sensitive matter. 

Another interesting example is a firm’s invoice description reads as “Call with the client;” the auditor flags line item as “insufficient description,” and appeal comment reads: 

The subject of the call is known to the client. Hence this description is sufficient.

Anonymous Law Firm

This appeal becomes even more complex when the matter manager also states that the call’s content is known to him/her and, therefore, the description is sufficient. 

What is missing here is the understanding of the objectives of the relevant billing guidelines. A billing guideline requiring specific details in an invoice line entry description is meant for determining the reasonableness of the time charged. 

There are challenges in the appeal process, but it helps educate law firms about complying with billing guidelines. More importantly, this process allows clients receive quality invoice data. 

So, what do you think? Are you ready to give legal bill review a try? 

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