"What we are able to collect when we settle a case or take one to judgment has nothing to do with the amount of actual work we do. Sometimes we can put in a few hours and get tens of thousands of dollars after we negotiate. Other times, we put in hundreds or even thousands of hours and get nothing. So why bother?"

Before we can begin to explore the question posed by the reader: "what software should I be using for billing/accounting in a contingent fee practice", we should preliminary explore another question. That is, should lawyers in contingent fee practices (and for that matter, flat fee-oriented practices) track their time using a traditional legal billing and accounting system?

I understand the argument that contingent fee practitioners make. Tracking time for each task is one of the less pleasant parts of law practice. Even though modern case management systems and legal billing products have made this process more easier and even more automated, discipline is still required. It always seems something is more pressing than filling in a paper (God forbid!) timesheet or an online time entry screen. The paradox for those billing by the hour, of course, is that the thing that is pressing (client work) is the thing that DEMANDS the time be spent entering it--no time entry, no money!

It is my feeling, and I’m sure this will draw recriminations from the contingent fee bar, but I think that everyone should track their time. Whether contingent fee lawyers or hourly billers or flat-fee types, we’re all selling time. Aside from a lawyer’s expertise, time is one of the most valuable commodities that is sold. In a contingent fee case, one could argue that one can look at the bottom line figures and determine whether one is making money or not at the end of the day. But that doesn’t help in determining the mix of cases to accept or focus on. And it also doesn’t cover the question of efficiently managing one’s time. This is especially the case when it comes to monitoring the time of younger, less experienced lawyers.

After all, does it make sense to consistently accept and work on cases where the hourly equivalent rate is $25 an hour? Of course not. No one could afford to do that. By tracking hours in all cases, or at least "spot-tracking" in some cases, one would be able to check on the "hours spent v. dollars achieved" question.

This is perhaps even more important in flat-fee cases. Firm managers need information when establishing flat fee amounts. Some of this information will be related to factors external to the firm. These may include factors such as prevailing pricing for similar services in one’s geographical market, past billing history with clients, etc. But the firm also has to look at the same kind of information that all other business people who are pricing "products" have to consider: the cost of production. It is impossible to price a product or service unless one knows the cost to deliver the service or produce a saleable widget. Clearly there are a number of elements contributing to the cost of a specific legal service to be delivered. Some of these include an attribution of overall firm overhead, a desired profit margin and of course, the "raw material" itself: the professional time involved in generating the piece of work, whether a bankruptcy or an estate plan.

Okay, that’s the theory and certainly enough of a soapbox for one column. Let’s get to the specifics of the question raised by our reader. He is using Needles (from Chesapeake Interlink at www.needpins.com, voice: 410-363-1976). He is also using the TAB billing system from Software Technology, Inc. (www.stilegal.com, voice 402-423-1440). No specific version of the TABS billing system was identified and this may be material since older versions would draw a different answer, at least in terms of the mechanics of how to handle the question.

His concern is that he is "dissatisfied" with TABS because his practice is mostly contingent fee-based and all he really needs is trust accounting. Let’s explore this supposition . . .

Needles is a well-established and very comprehensive case management system that has been primarily marketed to the civil tort litigation bar. It is the Windows inheritor of the venerable DOS product, PINS. According to the features chart on case management software appearing in the February/March 2000 issue of Law Office Computing magazine, Needles includes ability to track time and some time and billing functionality. We would question whether our reader has explored these capabilities with the friendly people at Chesapeake Interlink or their local Needles systems integrator. We think the answer may at least partly lie in Needles itself, if not in the TABS billing system the firm also has.

From the legal billing system perspective, TABS is well-suited for use in the situation described. This program has been around in various versions for more than 20 years and quite a number of firms with contingent fee practices use the product. Specifically, in the current 9.x release of TABS III, the way this would be done would involve at least two separate modules: the TABS III billing system itself and the TABS Trust Accounting program (and more ideally, since EVERYONE has accounting needs, the TABS General Ledger and TABS Accounts Payable system--all of which integrate cohesively together).

Part of the argument for tracking time in contingent fee cases is based on the ability to keep clients effectively apprized of the work being done and the services being provided that "justify" the firm’s portion of the proceeds of the case. Certainly, there is the need to track costs advanced on behalf of the client. This information should be entered in the TABS billing system as specific cost entries for that client’s open matter. Whether the firm bills the client for these costs before payment or advances the funds first, the process is the same with the difference being in the accounting process. When funds are received via a settlement or a judgment, the funds are deposited in the firm’s trust account and then disbursed and accounted for as appropriate. Part of the process of disbursing will be paying the firm to reimburse it for any costs it advanced. Part will be the firm paying itself for its contingent fee from the proceeds received. To properly track case results and financial productivity, this should be posted into the firm’s billing system. Then a write-up or write-down of the actual time/fees on the client’s matter should be made to equal the firm’s contingent fee. This will then show, compared against the actual fees, whether the firm made or lost money compared to its assigned hourly rate equivalent. If the firm has not entered any time in the system, it will appear as a 100% write-up, which is clearly a fiction since professional time was certainly expended.

One additional point, TABS III version 9.x has the ability to generate an interim statement to clients that shows the time put in on a case without billing anything. This is ideal for the contingent fee firm to apprize a client that services are actually being provided (in the middle of handling a lengthy case which may not be settled or taken to judgment for some time ahead) that will earn the fee the firm may ultimately generate. This is done by creating a statement template with the "Fee Format" set to "Info Only." The actual fee entries remain as unbilled work-in-process until the completion of the matter and either the successful application of a contingent fee passed through from the integrated TABS Trust Accounting module or the write-off if the case is a loser (hopefully, the former and not the latter, at least most of the time!).

So my view is that the reader’s firm may need additional training on the TABS system and potentially the rest of the integrated TABS accounting modules. But that overall, they have the tools needed to do what they want without buying anything else.

--Ross L. Kodner

February 11, 2000