Best Practices for Litigation Budgeting

By Patricia H. Thompson

Situation: In-house counsel has hired outside counsel for the filing or defense of a new lawsuit. The client has expectations or even requirements as to how long it should take to handle this case, what its exposure is, what its risk tolerance is, and how much the case should cost. The law firm has a sense of how long it should take to handle this case, what the client’s exposure is, what the risks are, and how much the case may cost. The client’s and law firm’s respective expectations and predictions may be much different, but neither may know how different.

Challenges: Delayed, inaccurate, dysfunctional, or careless budget communications and assumptions can harm the in-house and outside counsel relationship irreparably, for several reasons, including that the client discovers too late that it is spending more money than it should have or wanted to, and the law firm discovers that the client does not want to pay for work performed, which is inconsistent with an unrealistic, out-of-date budget. Like symptoms of an ignored disease, a broken budget process predicts an unhealthy attorney-client relationship. 

How to address these challenges: Early, effective, evaluative, collaborative, candid and frequent discussions between the client and outside counsel about the budget (and strategy) for handling the case.

  • Actually discuss the budget. Too often the firm submits a largely irrelevant form comprised of activities, hours and dollar amounts, which is received without comment, filed away, and never reviewed, updated, or talked about again – unless, possibly much later when someone within the client’s business group demands to know how this case got so much more expensive than the outdated and perhaps unrealistic budget and refuses to pay any more bills. 
  • Communicate early. It is a myth that the client and firm cannot have meaningful budget discussions early in litigation. The budget will change over time, but at the outset, both need to thoughtfully discuss the client’s cost expectations and fee tolerance, given past, similar litigation or the significance of the case as informed by the firm’s experience with similar litigation, the particular judge, the venue, or opposing counsel. 
  • Communicate effectively. If the case warrants it, the discussions may need to be in person, uninterrupted by emails or other distractions, but at least by phone, working through a checklist of the issues and typical litigation stages and requirements that likely will increase litigation costs: E-discovery? Lots of depositions or videotaped depositions? Lots of travel? Number of attorneys working on the matter and why? Use of contract professionals? 
  • Evaluate. How aggressive does the client want to be with motion practice, discovery, and use of experts? What are the client’s goals, and how best can they be achieved? How important is early resolution vs. the perfect result? When should mediation occur to be most effective? Any other forms of ADR that may be strategically beneficial? To save money and avoid redundant work by multiple firms, does the client have other counsel that can assist in certain previously litigated issues? Conversely, can this firm work on similar issues in other litigation? 
  • Collaborate. The client can inform the budget process as much as the law firm. Indeed, just as strategy for the litigation must be the result of collaborative analysis, so the budget must be the result of candid and creative thinking about what each can do to eliminate expense, accurately predict costs, and anticipate results. Based on this discussion, the client and its counsel can better formulate litigation strategy. 
  • Re-evaluate frequently. As events occur, or at least quarterly, the analysis described above should be repeated. If not prompted by in-house counsel, outside counsel should raise the need to revisit the budget on their own initiative. This will insure that the client and its attorneys take the time to focus on what is important: why they are pursuing the strategy they have chosen, and the actual and foreseeable cost of that strategy.

Measuring Success: Successful budget discussions result in greater value for each dollar spent; insuring that the focus of the litigation is on the client and its goals and not litigation for litigation’s sake; outside counsel’s better understanding of the client’s business; increased and unprompted communication; and a client that is better informed about what is happening in the case, why, and what its strategic options may be.