You’ve just been notified your largest client wants to switch from paper to electronic bills. Initially, you think, “This is a good thing — we can eliminate a lot of paper and get paid faster because they’ll wire their payments directly to our bank account.” Then, you discover all the changes you must make to your timekeeping and billing procedures, and wonder if the client is worth that trouble. Despite the setup and learning curve to get electronic billing going, there is no choice for most firms because the client that wants you to bill electronically represents too large a part of a firm’s income.

Years ago, insurance companies insisted their defense firms submit bills electronically. Today, more and more corporations are requiring outside counsel submit bills through third-party auditing websites. A similar phenomenon swept over the medical industry during the 1990s. Doctors had submitted claims and were reimbursed from patients’ insurers with minimal questions. Today, doctors must assign procedure codes and follow a maze of requirements. Many such changes are heading toward law firms, especially those representing large corporations in multiple matters.

In the early 1990s, the American Bar Association, in conjunction with the American Corporate Counsel Association and a group of representatives from large corporations and law firms, and coordinated by consultants from Price Waterhouse, published the first set of uniform task based billing codes for litigation matters.

Today, in addition to the litigation code, there also are sets for counseling, bankruptcy and projects. The litigation code allows outside and in-house counsel to budget and track legal work typically involved in litigated matters. The codes are divided into five phases of litigation: case assessment, development and administration; pretrial pleadings and motions; discovery; trial preparation and trial; and appeal. The codes associated with these usually are referred to as the “L” or “phase” codes and consist of the stages of a case such as L240 dispositive motions within the pretrial phase. The actual work done by the timekeepers are designated as task or activity codes, commonly called “A” codes since they’re identified with that letter. For example, the time entry would be coded with the appropriate phase code (L) as well as the activity code (A). The firm’s expenses would be identified with “E” codes such as E108 postage.

There are similar sets of codes for bankruptcy cases (“B”) as well as for counseling and projects, which are intended to be flexible and are used primarily for transactional practices where bills are submitted to large corporations. The guidelines also require specific information within the text of the time entries. For example, the attorney may be required to include a name rather than merely “telephone call with opposing counsel.”

Items rejected

When submitting a bill electronically, law firms will have billing items rejected for a variety of reasons. One of the most frequent is, “We [auditing company] believe this work should have been done by a lowerrate employee” such as a paralegal rather than an attorney. The firm’s billing clerk must justify the time spent by the lawyer or agree to the lower rate. Some of my clients have taught their attorneys to word their time entries carefully to ensure the descriptions sound lawyerly rather than clerical. Read the guidelines carefully from specific clients about tasks for which there’s no reimbursement. One trick is to delete such codes from the billing system so lawyers won’t be tempted to use them.

Most billing systems have been improved so you can format bills properly. However, despite the electronic nature of the process, LEDES (Legal Electronic Data Exchange Standard) format generally requires individual preparation of each file.

While the set of codes are uniform, unfortunately, nothing else about the process is. Each auditing company has its own rules about how to submit bills. Some companies require them as attachments to email messages; others require the law firm to access a particular website and submit the bill via a series of screens.

To make the process even more difficult, there are several competing standards for file formats. The most popular is LEDES98B. As you can infer from the name, there are other LEDES standards (see www.ledes.org for additional information). While there has been some movement toward an updated LEDES2000 standard, I have yet to find a law firm client required to use the newer standard. The other major format is Litigation Advisor. Each format uses different fields and separators.

Even if two corporations or insurance companies request outside counsel use LEDES98B, there inevitably will be differences between their requirements. Some insurers require the firm to track such case specific information as the claim number, insured name, date of incident, etc. and add those as fields on their e-bill. Other carriers require firms to include the timekeeper levels (e.g., partner, associate). While all the leading timekeeping and billing programs can produce electronic bills, there may be many steps required to prepare each invoice.

Online resources

Firms new to task based billing can visit www.abanet.org/litigation/litnews/practice/utbms.pdf, which provides both background about development of the codes, and complete lists and explanations of what work is intended to be classified with each code, and www.abanet.org/genpractice/lawyer/complete/w98toothsid.html, which offers an excellent chart that explains the most common rejections of electronic bill submissions. It includes such items as “excessive time,” where an associate may have spent more time on a task than the auditing company deems acceptable, or “overstaffing,” where the auditor determines the firm had too many lawyers working on an activity.

In recent years, more corporate counsel have required outside law firms to use electronic billing. This enables them to better verify this work and compare it to other firms used for similar projects. The auditing process checks for excessive time on a single day as well as tracking time spent on each phase of the work.

At the same time, house counsel can more easily approve payments based on electronic submissions. However, the nature of this process means another layer of people without the skills to evaluate the legal work are helping decide whether the work by outside counsel was appropriate. The same trend has occurred in medicine, where carriers often make substantive decisions about medical care regardless of the doctor’s preference and advice.

In the past few years, some insurers also have begun to require their law firm clients to provide budgets for each aspect of litigation. It’s clear the next round will be caps on the amount of fees for specific phases of work on “typical” cases. This sounds more like an auto mechanic who refers to a guidebook for standard fees and less like sound counsel on behalf of legal clients.

Today, most legal billing is still printed and mailed first class. It’s anticipated that in the next decade, a huge chunk of billing  especially to large corporations, banks and insurance companies  will be submitted electronically. And that process usually will require more steps than paper bills because they must be done individually. The LEDES standard includes start and end dates, and some companies interpret these as the date of the first billing entry and the date of the last billing entry for that file. This requires the billing person to enter these dates into the system before processing the bill. It’s generally a business decision to keep working for a client that has asked for electronic bills  a decision based on that client’s percentage of the firm’s income.

Electronic billing is here to stay, but it will take some adjusting. There are benefits to receiving payments quickly and directly into the firm’s bank account, but there are many adjustments to be made to meet e-format requirements.

Carol L. Schlein is president of Law Office Systems in Montclair, a training and consulting firm specializing in law firm automation. Copies of her previous columns are on losinc.com, which also lists upcoming meetings and training classes. For information, e-mail info@losinc.com or check the website. Schlein formerly chaired the Computer and Technology Division of the ABA Law Practice Management Section and can be reached at carol@losinc.com.

Questions for Carol L. Schlein on law office technology may be e-mailed to New Jersey Lawyer at news@njlnews.com or faxed to (908) 226-0165.