Quick Tips for Managing Construction Legal Costs

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By Patrick E. Gaas & Julie Moeller Albright
Coats Rose

In today’s economy, cost cutting is the new normal, and the legal industry is no exception. As a result, clients are continuously seeking new ways to reduce costs. However, the same value-driven strategies are not appropriate for all cases and can come at the significant price of compromising quality and good outcomes. Some popular strategies for reducing costs include alternative fee arrangements, billable task restrictions, scope limitations, and rate ceilings. While implementing some or all of these strategies can reduce costs, none are as effective alone as selecting the right legal professional for the engagement. Maximizing overall outcomes requires both the right cost-reduction strategy and the right lawyer.

Popular Cost-Saving Strategies
While hourly fee arrangements remain the industry standard, flat fees and mixed-fee arrangements are becoming more mainstream, and more lawyers are prepared to create and offer them to clients.

Flat-fee arrangements involve predetermined fees for a specified scope of work, the upside of which is the motivation for the lawyer to work efficiently and quickly to complete the assignment. On the downside, the risk exists that a particular assignment may take many more or fewer hours than budgeted. If the agreed upon fee does not reflect the actual time required to complete the project, the potential exists that either the client or lawyer may take a financial loss with a flat-fee arrangement or that quality will suffer. Selecting an experienced lawyer will usually ensure quality and reduce the likelihood of a significant loss to either side; however, even experienced lawyers cannot predict costs for every matter. Litigation costs, for instance, are predictably unpredictable—particularly in large, complex cases with multiple parties, counsel, and claims.

An alternative to reduce the risks associated with a flat fee is a mixed or "hybrid" fee arrangement. These engagements typically feature an hourly rate for certain types of cases and a contingent fee or bonus component if the lawyer obtains resolution quickly and at less cost than anticipated by the client. This arrangement is increasing in popularity because it provides an incentive without shifting the entire risk of loss to either party. Alternative-fee arrangements such as this may be more attractive to clients who have experienced bad outcomes at costs far exceeding their expectations. However, finding the right counsel for one’s particular need can substantially lessen this concern and improve overall outcome.

Other strategies include implementing billing guidelines geared toward more structure in managing legal costs. Some guidelines provide for daily maximum charges, extremely specific timekeeping descriptions and coding procedures, and little, if any, "block" billing. In practice, some timekeeping procedures are so burdensome, they can take more time to complete than the work itself. Do you want your lawyer only working eight hours a day? Perhaps, but what if they’re in trial all day and need to prepare for tomorrow? Or, what if they need to work all night to close your big deal? In drafting billing guidelines, some thought should be given to how restrictive billing provisions are and the potential impact on both costs and outcomes.

Other activities, such as inter-office conferences between lawyers, the number of lawyers working on a particular file, travel time, and preparing status reports are strictly limited in some billing guidelines. Limits such as these can be an effective method to reduce costs in routine assignments and prevent unnecessary and unproductive work. However, where an assignment includes novel legal issues or fact patterns and substantial exposure, synergistic analysis can produce creative solutions that can reduce the time and cost and improve outcomes. If a lawyer in the modern world billed for "thinking about your case," most conventional billing systems would decline payment.While some cases are admittedly no-brainers, you should consider whether your matter is important enough to pay your lawyer to think about it. If so, you may want to review your billing guidelines.

Recommended Strategy – Finding the Right Fit
Ask most sophisticated litigation managers whether they are satisfied with their litigation expenses and most will tell you they are not (even the ones with very restrictive billing guidelines).While not as frequently discussed, one strategy for lowering costs could be to hire a lawyer with the requisite skills for the subject matter (for instance, a construction lawyer) who is well respected by his client community, has a broad base of experience from which to draw, and has the potential to achieve the client’s desired outcome more quickly and efficiently.

Picking the right lawyer for the job means the client and the lawyer can avoid reinventing the wheel. A lawyer with the requisite skills will know how to allocate the risks inherent in a complex transaction. A lawyer proficient in handling complex construction claims can provide an early evaluation of a case’s strengths and weaknesses. While a less experienced or qualified lawyer may have an attractive rate, their overall cost may exceed that of a more experienced (and so-called "expensive") lawyer, and the outcome may not be optimal.

Most qualified construction lawyers have a pool of resources on which to draw, such as: (1) the ability to strategize from the outset, applying past experience to effectuate the client’s desired outcome; (2) a library of drafted documents to use as a framework and guide when analogous issues arise; (3) the ability to manage discovery expenses and reduce costs wherever feasible; (4) connections with expert witnesses that possess the skills to analyze a particular claim and the right qualifications and background to withstand Daubert challenges, or even more valuable, engaging a top expert before the opposition can; (5) systems for managing documents, which can be especially voluminous in construction disputes, depending on a project’s scale and asserted claims; (6) established relationships with vendors through which negotiated cost savings can be passed on to the client; (7) the capability of providing benchmarked budgeting based on experiences drawn from previous cases, and (8) the talent to recognize when a case has exposure and how to mitigate it. These factors will likely bear a direct correlation to your ultimate cost and outcome and likely much more so than say, a prohibition on block billing.

Other areas of inquiry, depending on the type of case and desired outcome, should be historical success with dispositive motion practice, experience with alternative dispute resolution, knowledge of third-party practice, and the ability to value and effectuate settlement.

Successful dispositive motion practice would be appropriate when a claim is facially unmeritorious or a legal defense precludes the claims asserted. Attacking an unmeritorious claim before discovery commences can be the most effective cost-saving strategy. Inquiring about a lawyer’s experience and success disposing of claims should be done at the outset to maximize cost savings.

Engaging a lawyer experienced in alternative dispute resolution is especially important when litigation arises from a contract containing provisions requiring mediation and arbitration, which many construction contracts do. These proceedings often have specific rules and procedures. Therefore, engaging a lawyer who already possesses knowledge of these can result in cost savings, as well as the ability to initiate the process quickly. Further, when clients offer services globally, legal liability may arise in international forums. Hiring a lawyer who is familiar with international rules and local customs may reduce overall costs as well.

Third-party practice is particularly valuable when a claim involves numerous potential parties, such as a complex construction defect claim where liability stems from a general contractor who employed dozens of subcontractors on a project. From a plaintiff’s perspective, more parties may mean more complete and effective relief. From a defense perspective, correctly identifying and pursuing responsible third parties can mitigate your exposure but sometimes at the risk of additional legal costs associated with more discovery, conferencing, and coordination among the parties. An experienced lawyer can help balance these factors.

One of the most effective tools of a lawyer who is the right fit is the ability to value and effectuate favorable settlement. A lawyer’s skills in identifying damages in analogous cases, assessing potential outcomes if litigated, and valuing a settlement appropriate for a given case’s facts can mean the difference between ending a claim near its inception or engaging in a lengthy and expensive battle that ends with a substantial damages award in additional to legal costs. Early, concise, and experience-backed evaluation has the potential to prevent the latter.

In conclusion, options are available for both clients and lawyers to reduce legal costs. Obvious solutions such as more control over fee structure and billing functions through the use of guidelines exist and can, and in some cases should, be implemented. However, the impact to costs and outcomes of choosing counsel best suited for a particular case cannot be understated. Doing so may require a bit more preparation and evaluation at an assignment’s inception, but the rewards can far outweigh the effort expended if the appropriate outcome is accomplished quickly, efficiently, and cost effectively.

Patrick Gaas is a director in the construction/surety section of Houston-based Coats Rose, focusing on the representation of owners, sureties, general contractors and subcontractors. Julie Moeller Albright is an associate in the construction/surety and litigation sections of Coats Rose. For more, visit www.coatsrose.com.