Best practices in managing litigation budgets and outside counsel
Litigation budgeting poses a significant challenge for businesses. Disputes carry significant uncertainty as to timelines, opponent tactics, case outcomes, collection and enforcement. Managing these risks is critical to getting litigation matters successfully across the finish line, but success comes at ever-increasing costs, which makes setting accurate and realistic budgets difficult.
While nearly nine in ten (87%) senior in-house lawyers say the ability to provide accurate budgets is important, half (50%) say that their outside counsel do not do so. In the litigation context, where the stakes and costs are high, it is crucial to align incentives between law firms and their clients.
To this end, I moderated a webcast with leading Big Law partners Collin Cox of Gibson Dunn and Lauren Friedman of King & Spalding on how senior in-house lawyers can work with outside counsel to build accurate budgets and implement effective strategies. Below are some of the key takeaways from the discussion.
Effective strategies for managing litigation costs
Managing litigation budgets can be complex. Businesses whose primary focus is not litigation often do not fully comprehend and commonly underestimate the associated costs.
The panelists identified several ways businesses can manage litigation costs:
- Regular client-law firm communication: Regular expense tracking and real-time adjustments are necessary to control costs and keep budgets in line.
- Leveraging past experience: Law firm lawyers and legal finance partners can identify prior recent cases that are similar in size and scope as a baseline.
- Transparency: Law firms need to be transparent about their cost estimation process and be ready to explain their charges. This helps clients understand the value they're receiving and make informed decisions when hiring a law firm. Law firms should also realistically budget and avoid underbidding to secure business, which could result in cost overruns and harm client relationships
- Enumerate likely witnesses and experts: Hiring renowned experts is expensive and their fees are less negotiable than lawyers' fees, making this an important and challenging area of budgeting. Clear communication is crucial to establish the number of experts required and their work scope. It's also vital to assess whether experts' involvement is necessary at all case stages or can be restricted to specific phases.
- Alternative fee arrangements (AFAs): AFAs are gaining popularity as clients seek greater certainty and control over their legal costs. AFAs can come in various forms like fixed fees, capped fees, holdbacks and discounts. While AFAs offer more predictability, they're not necessarily less expensive than the traditional hourly rate model. Clients and firms should have open and honest discussions about anticipated costs at each litigation stage and adjust the fee arrangement as needed.
How legal finance can help with effective litigation budgeting
Whether for one case or many, legal finance mitigates cost by providing the capital required for the litigation in exchange for some of its upside in return—allowing companies and their law firms to be certain about their litigation spend.
Legal finance firms also provide an extra pair of eyes in assessing litigation budgets from an economic lens. This gives clients greater certainty in setting budgets and, likely, helps to win more internal support by articulating the business imperatives for pursuing affirmative litigation.
Burford has exceptional capabilities to help our clients assess litigation budgets and litigation risks. With a $7.2 billion portfolio and after nearly 15 years in business, Burford has amassed a unique data set (including settlement data) that enhances our work with leading law firms and Fortune 500 companies. Businesses that work with us benefit from proprietary historical data and insights into likely fees, costs, duration and outcomes.
