The Difference Between Recording Legal Costs and Managing Legal Costs?

The question might seem simple, legal costs recording vs management, what’s the difference? If you ask any fee earner in a law firm how much time has been spent on a particular matter, and they will probably be able to provide you an answer relatively quickly. Their case management system (CMS) will show the hours recorded, the value of the WIP and the disbursements incurred. From a straight forward accounting perspective, the firm has a reasonably clear picture of what the matter has cost so far.

The difficulty, however, is that this information is largely historical, without context (bar maybe a small description) and doesn’t give insight into the work. . What this means is that it does not necessarily explain whether the costs are reasonable, whether expenditure is developing as expected or whether the recorded costs are likely to be recovered from the paying party. We’re presuming the matter is a litigation matter, naturally.

This is where the distinction between legal costs recording and legal costs management becomes important.

Recording Legal Costs Is Only the Starting Point.

Traditional time recording creates a record of work undertaken. A solicitor completes a task, records the time spent and assigns it to the relevant matter. Over the course of litigation, those individual entries accumulate into WIP and eventually form part of the information used when preparing a bill of costs. 

This information is essential because without accurate time recording, firms cannot properly understand the value of work undertaken, prepare reliable costs budgets or produce accurate bills. The quality of the underlying data influences almost every subsequent stage of the costs process, particularly when the receiving party needs to demonstrate why particular work was reasonably undertaken.

However, having accurate information does not necessarily mean that information is being actively managed. A matter might contain £75,000 of recorded time, but that figure alone does not explain whether the work has been allocated correctly, whether one area of work is consuming more resources than anticipated or whether the amount ultimately recoverable is likely to be substantially lower due to pre-existing case law. 

Recording legal costs really only provides the underlying data. Essentially just standard WIP. Legal costs management on the other hand is the process of using that information to understand what is happening on the matter and, where necessary, making decisions as appropriate. 

Costs Management Looks Forward as Well as Backwards.

Effective legal costs management in inter partes work, requires firms to consider both incurred and estimated work. Rather than leaving it to the end and realising the costs have exceeded expectations. The objective should be to identify developing issues while the case is still progressing.

This becomes particularly important where there is costs budgeting. An agreed costs budget provides a framework to a law firm which expenditure can be monitored throughout. If the disclosure phase is consuming significantly more of the available budget than originally anticipated, the litigation team should ideally know about that before the phase has been completed. Thus avoiding potential embarrassment  in front of the judge.

Having that information available can influence how the remaining work is approached and allocated. It may prompt discussions around the pre-existing assumptions behind the budget to be reconsidered or simply make the litigation team more conscious of the resources being committed.. The purpose is not necessarily to prevent expenditure, because additional work may be entirely justified. But rather to ensure that the developing costs position is understood.

Recorded WIP and Recoverable Costs Are Not the Same Thing.

One of the most important distinctions when looking at legal costs recording vs management, is the difference between the WIP and the recoverable amount. A firm’s WIP represents the value of recorded work, but it doesn’t automatically represent the amount that will eventually be recovered.

Costs may be challenged because of proportionality in litigation costs, duplication, hourly rates, the level of fee earner undertaking the work, and a myriad of other reasons. The eventual figure agreed between the parties or allowed on detailed assessment can therefore look very different from the amount recorded.

For firms undertaking substantial volumes of litigation, the difference can become commercially significant. A department may appear highly profitable when performance is viewed solely through WIP, but the picture changes if substantial amounts are routinely written off, negotiated away or reduced during assessment.

Effective costs management should therefore help firms understand the relationship between work undertaken, costs claimed and costs ultimately recovered.

A Costs Budget Should Be More Than a Court Requirement

The distinction between recording and managing costs becomes particularly obvious when considering costs budgets. Significant work can go into preparing a Precedent H, negotiating with the opposing party and dealing with the budget at a Costs and Case Management Conference. Once the budget has been agreed or approved, there is a risk that it becomes little more than another document stored on the matter.

From a legal costs management perspective, that overlooks much of its value. The budget provides a financial framework for the litigation and gives the firm an opportunity to compare incurred costs with the estimated costs. Monitoring this information throughout makes it possible to identify phases where expenditure is developing differently from expectations.

If costs information is only revisited when another formal costs exercise becomes necessary, the firm is primarily recording costs rather than managing them. Active monitoring makes the financial position part of the ongoing management of the litigation and gives both the solicitor and costs professional greater visibility while decisions can still be made.

Better Costs Management Improves Costs Drafting

There is also a direct relationship between good costs management and good costs drafting. A costs draftsman presented with accurate, structured and well-maintained information can concentrate on preparing and presenting the claim rather than attempting to reconstruct the history of the work done.

Where costs have been actively monitored throughout proceedings, there should be a clearer record of how the case developed, Why significant expenditure occurred and how the work relates to the different stages of litigation. That information can make preparing a bill of costs more efficient.

Where costs have not been managed, the drafting process can become a retrospective investigation. Costs professionals may have to work through thousands of entries, Establish what happened during particular periods and determine why recorded expenditure departed from budgets or estimates.

Context that was obvious to the solicitor when the work was undertaken can be extremely difficult to reconstruct months or years later, potentially affecting both the efficiency of costs drafting and the strength of the eventual claim.

Costs Management Is a Commercial Discipline

Managing legal costs should not be viewed purely as a procedural requirement. For law firms, it can provide important information about the commercial performance of litigation and help identify where the difference between recorded work and recovered revenue is greatest.

If a firm understands which categories of work are consistently being reduced, which phases regularly exceed budgets and where the largest differences exist between recorded and recovered costs. It has valuable information about how its matters are being conducted.

Over a sufficiently large caseload, patterns can emerge that would be difficult to identify by looking at individual files in isolation. That information can influence the operations of the law firm itself.

If work is routinely being undertaken at an unnecessarily senior level, the data may expose that pattern. If particular types of cases consistently require substantially more work than anticipated. The firm can take that into account when preparing future estimates and costs budgets. Equally, strong recovery data can help identify teams and approaches that are working particularly effectively.

Technology Can Turn Costs Data into Useful Information

Law firms already generate enormous quantities of costs data. But the challenge is making that information useful. Modern costs drafting software should allow firms to move beyond simply viewing a total WIP figure, and provide a clearer picture of incurred, estimated and recoverable costs.

Bringing this information together can allow solicitors and costs professionals to see how expenditure is developing across different phases. Identify potential issues earlier and work from better-quality information when preparing costs budgets and bills of costs. Artificial intelligence (AI) can also support areas such as data extraction, categorisation, drafting, reducing repetitive administrative work and allowing costs professionals to spend more time applying specialist judgment.

Technology should not attempt to decide whether particular work was strategically justified or whether additional expenditure remains proportionate. Those decisions still require the experience of solicitors, costs lawyers and costs draftsmen. The value of technology lies in giving those professionals better information on which to exercise that judgment.

Moving from Costs Recording to Costs Management

Recording legal costs will always be essential, and effective costs management is impossible without accurate underlying information. The important distinction is that recording should be the beginning of the process rather than its conclusion. Firms need to use their costs data to understand how matters are developing. How expenditure compares with expectations, and how effectively recorded work is ultimately being converted into recoverable costs.

For solicitors, this provides greater visibility over the financial direction of litigation. For costs lawyers and costs draftsmen, it provides stronger information from which to prepare budgets, bills and negotiations.

For law firms, it creates a much clearer picture of the true commercial performance of their litigation work. The transition from simply recording legal costs to actively managing them is therefore about much more than improving reporting.

It creates an opportunity to identify problems earlier, manage expenditure more effectively and improve costs recovery. Firms already possess much of the data required to achieve this. The real opportunity lies in using that information throughout the life of the matter rather than waiting until the bill of costs needs to be prepared.