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Seven steps a general counsel might take to reduce gaming on matter budgets

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It is a risk that some collusion may occur between the inside lawyer responsible for approving the matter budget of a firm and the firm that submits the budget. Neither lawyer nor firm wants to look bad so a fatter budget serves both. But that pattern rolled up for the entire department bloats the departmental budget.

The built-in tension, however, is hard to suppress (See my post of March 24, 2005: what proportion of initial budgets from firms prove to be too high; Oct. 19, 2007: inherent tension between firm and department on budgets; June 11, 2008: matter budgets: inside accountability and the principal-agent tension; March 25, 2008: how to handle budgets from external counsel; March 29, 2009: problem of inflated budgets in anticipation of cuts; Nov. 3, 2009: twists and turns when GCs assess accuracy of budgets; and Nov. 21, 2008: performance in relation to budgets should determine whether a panel firm gets more work.).

Some ideas for you to consider if you want to reduce the incidence and severity of budget manipulation:

  1. Compare accuracy of budgets between your in-house lawyers
  2. Require inside lawyer to record what could be done to reduce each budget
  3. Impose an overall budget on the inside lawyer for outside counsel spending
  4. Rely also on burn rates and unit costs rather than just budgets
  5. Boost other incentives to control costs so that budgets declined in relative salience
  6. Move to fixed fee arrangements or alternatives to hourly billing on budget
  7. Implement peer review of budgets, or review by the general counsel