General counsel hoping to find savings in their legal spend without creating an antagonistic relationship with their outside counsel might benefit from having a third-party auditor manage the task for them, Marci Waterman of Sterling Analytics says in a Legal Funding Journal podcast.
The company employs lawyers who weigh the bills that law firms send their clients against standards that have evolved over the years based on case law, professional codes and clients’ billing guidelines.
When charges are outside the standards, the attorneys reduce the amounts and return the bills with notes explaining why.
“It’s not adversarial at all,” said Waterman, the company’s president. “We write in a respectful manner why the invoice is being reduced. There’s case law backing up everything, and oftentimes the attorney comes to us and says, ‘Gee, I had no idea about that. Thank you for enlightening me,’ and that mistake isn’t seen again.”
Lawyers aren’t taught about billing in law school, so their practices reflect what they learn at their firm, Waterman said.
“Sometimes in firms they’re taught that, if you breathe it, you bill it,” she said. “Other firms teach to give your client the benefit of the doubt. Other times everything that’s done is billed.”
Whether they’re formalized by case law or professional codes, the standards put guardrails around what are, and aren’t, acceptable practices, she said. Senior partners don’t do the work of associates, for example, and associates don’t do the work of paralegals. Paralegals don’t do the work of clerical staff, and clerical staff don’t do work that’s billed to the client; they’re only paid as part of overhead.
“There are different things that go on that some people have no idea about,” she said.
Having a layer between the client and outside counsel can help, too, because it keeps the back and forth professional while the two sides work out differences in good faith.
“We always give the benefit of the doubt to the attorney,” she said. “At this point we’re reviewing almost $4 billion a year in legal bills, so our attorneys are adept at spotting issues and able to speak cogently to the attorney about it. We’re asked all the time, ‘Don’t the attorneys hate you? Isn’t this an adversarial process?’ And it’s not. We respect the attorney-client relationship.”
Sterling is one of the few audit firms that has remained independent of e-billing companies, Waterman says, so its attorneys can access about a dozen platforms to review invoices.
“That ability to be agnostic allows our team to go in and out of [these] e-billing systems,” she said. “We go in and do what we need to do — we have credentials with every one of these e-billers — and then we toggle out. No one else can do that because they’re all tied to a [specific] system.”
Under the typical process, the auditors are the first to review a bill once it gets uploaded to the platform.
“We get a notification on our system to go in,” she said. “We look at the bill, reduce it, and go back and forth with the attorney. The attorney gets an opportunity to say, ‘I’m OK with reduction,’ or, ‘No. Here’s more evidence that in fact this bill is what it should be.’ We either approve it or we send it back again for more appeals and then when it gets done, it gets pushed to payments, and then the bill gets paid. The client doesn’t even have to see the bill.”
Sterling launched about a dozen years ago during the subprime mortgage meltdown, when banks worked with a handful of attorneys at an insurance brokerage to help them ensure they weren’t overpaying for legal work they were having done during the crisis. “They knew there was a business here,” she said.
General counsel like the service because the fee comes out of the savings. “It’s literally a free service,” she said. “We’re never charging you more than we’re saving you.”
The company has grown to 55 lawyers, many of whom are partner-track lawyers who left for more work-life balance after starting a family.
“We’re staffed with these tremendously talented attorneys who, because of a hybrid work environment, have this great life-work balance where they do the work, get tranches of time, but they [can] still take their kids to school or go see a school play or give their kids dinner,” she said.
