“In litigation, budgets are outside counsel’s friends…really!”
Inside Counsel 05/09/14 By Kevin M. Long, Matthew J. Duchemin
Budgets can be painful. For clients, litigation is sometimes painful. Putting them together can viscerally feel like more than twice the pain. However, experienced litigation managers and outside counsel realize that litigation budgets are absolutely critical for both the successful prosecution of a significant piece of litigation and continuous improvement in performance and decision making by both outside counsel and clients.
In our parents’ generation, litigation was described as unpredictable and impossible to budget. In truth, because neither the client nor outside counsel controls the activities of their adversaries or the court, and the liberal discovery rules allow for unanticipated (and often unproductive) activity, the cost is difficult to predict. While that is no doubt true, thousands (and perhaps millions) of commercial transactions from construction projects to manufacturing processes are run on budgets, and those endeavors have at least as much complexity as a single piece of litigation.
When unanticipated events occur in the commercial world, the parties reassess the most effective way to reach to the sought after goals, reprioritize based on upon that assessment and then adjust the budget. The same should occur in litigation. Litigators need to understand that meaningful budgets are a key part of any significant matter, and that effective budgeting and budget monitoring are central to our job as litigators. In turn, clients need to understand that budgets change when the facts upon which they are based change. That is, a budget is not a fixed fee, or a not-to-exceed price.
At the heart of outside counsel’s antipathy toward budgeting is an unwillingness to confront the fact that in today’s world, turning over every stone in the discovery process is often cost-prohibitive. As lawyers, we all love the stone-turning because we abhor surprise. While turning over every stone minimizes surprises, it also causes parties to delay strategic decisions, to focus on discovery fights rather than the merits and to stretch out the matter.
Budgets lead to better and more predictable results. When a matter is not budgeted at the outset and the strategy is reactive, too often there is a disconnect between the costs of discovery sought by a party and the return on investment (i.e., what facts are found or evidence established). Budgeting makes both outside counsel and clients think proactively about what will add value, as well as whether there are more efficient alternatives for providing that value.
Budgets help us understand that delay adds significant transactional cost to litigation. While delay in litigation is often unavoidable (and sometimes tactically advantageous), self-inflicted delay is not tactically advantageous and is to be avoided. Budgeting also reinforces the importance of knowledge management and effective lean staffing in business litigation. The most effective way to prosecute a business dispute is with a focused team that remains on the case through the duration of the litigation, understands the business objectives of the client, and has the operative facts down cold as quickly as possible. Taking early steps to understand and budget a case reduces the number of “sideshow” disputes that occur, whether it be needless motions to compel or more complicated amended pleadings on issues that should have been identified earlier.
Budgets make us better lawyers. The best litigators know how to achieve an efficient result for their clients. This is usually because of years of experience in a particular specialization or with a particular judge or jury pool. The same can be said for lawyers who both diligently budget their matters and critically analyze their performance against budget. Like a seasoned manager looking at a box score, a seasoned litigator looking at the time put in against a budget can analyze the report and see both the successes and the shortcomings. The problem is, too often as litigators we don’t take the time to learn from our experience. Rather, we simply move on to the next challenge on our agenda.
If we would take the time, we could learn where we could have made improvements, usually in both the budget and the performance. With that accomplished, when the next similar matter appears, we will be better prepared to both budget and execute more effectively. Ultimately, it will help lawyers and clients craft appropriate fee arrangement and litigation plans that align with the client's objectives and desired outcomes.
Most importantly, budgets help us communicate. Every budget is going to be wrong — it is an estimate. Clients and lawyers need to use the budgeting process as a tool to communicate and integrate the litigation issues with the business objectives of the clients. Every dollar spent in litigation hits some budget on the client’s books — it could be legal spending within a general counsel’s budget, or it could be profit and loss within a particular product line or cost center. Outside counsel should understand as much as they can about how the matter’s budget will impact the client’s budget. This helps outside counsel meet the client’s objectives.
A well-thought out budget should also be a litigation roadmap that will help the client understand how the litigation will play out including what costs will be incurred and when. This can help the client understand if settlement is feasible or advisable at an early stage, or what the cost will be if settlement is not an option. Discussing the budget and actual results engage the clients in the process and provide them the information necessary to make critical business decisions.
Unfortunately, budgeting is not something most litigators embrace. Too often, we are dragged into it only after clients require it. Respectfully, this is short-sighted. The verdict is in. Budgeting works. It is time for all litigators to embrace budgeting as a key component of litigation of significant matters.
Originally published in Inside Counsel, May 9, 2014