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UTBMS: A Breakthrough for M&A Codes

A Breakthrough for M&A Codes in UTBMS

The new M&A Codes reflect a breakthrough for measuring the cost and business value of legal work, writes contributor Aileen Leventon in this piece for the LexisNexis Business of Law Blog.

In the late 1990s, the concept seemed simple enough. Clients established outside counsel guidelines which included the requirement to submit invoices through an ebilling system.

Lawyers and other timekeepers would record their time using the Uniform Task Based Management System (UTBMS) standard.  This standardization eliminated the need for lengthy text-based narratives describing the work performed.  It also was intended to provide a means to view both the total cost of work and a granular breakdown based on the taxonomy of tasks and activities.

The standardization brought tools to law departments to evaluate how they spent money on legal services.  The data could be aggregated and analyzed. Clients could use it to develop metrics on costs, matter types and other information required a law department was required to monitor, measure and manage.  As a result, legal spending benchmarks began to emerge and in-house counsel should have had the basis for understanding the cost of units of work and make comparisons among law firms.

Over the past decade or so, billions of invoices have been processed through ebilling systems. As the graphic nearby indicates, from its inception in 1995 until 2013, LEDES has been prolific in promulgating codes. Clients, as well as legal industry ebilling vendors, have compiled a substantial repository of data. Vendors have mined the data to produce industry reports covering a range of topics, including market rates for different timekeepers for certain types of work.

The Need for Codes by Phase of Litigation

Nevertheless, the standardization presented challenges.  For example, while the litigation code set has been used widely, many believe that they have not been useful in developing benchmarks for this practice area.  The exception to the rule perhaps is for highly commoditized insurance defense work.

A better methodology would be to break the costs of litigation and assess the benefit for phases such as:

  • a motion to dismiss;
  • early case assessment;
  • discovery overall;
  • motions after a certain events occur;
  • settlement negotiations;
  • trial preparation; and
  • appeal.

With phase-based data, corporate counsel would have a better foundation for making a cost-benefit analysis to drive its litigation strategy.  In-house counsel would be able to use historical data to conclude, for example, that the incremental cost of continuing to litigate at a particular point in a case would not be likely to result in a lower settlement or pay-out.

Plethora of “Strategy and Analysis” Billing

Unfortunately, this is not possible at this time. Reviews of timekeeping records using the current code set over many years indicate that typically 80% of the time in handling a matter in litigation is assigned to just one or two codes. The most frequently used task code is “strategy and analysis,” which occurs over the entire duration of the case.

When the litigation code set was first established, the committee believed “strategy and analysis” would only occur during the early assessment phase of the case.  Unfortunately, the idea didn’t reflect how litigators actually work.

Another reason this code is used so frequently is simply for expediency’s sake.  The “strategy and analysis” task appears early in the drop-down menu of timekeeping systems.

Since task selection is rarely audited, systems are replete with information that is not useful without time-consuming corrections.

The current state of data quality is also inadequate because so few firms or companies provide specific guidance and candid discussion on how timekeepers should classify particular work.  Consequently, reporting is inconsistent within and across law firms.

Accuracy and consistency in recording codes and leadership support would enable both law firm and client alike to explore ways to improve efficiency, pricing and cost of legal services.  It would also go a long way towards assessing the reasonableness of legal fees, the effectiveness of counsel, and evaluating the business value of the legal work.

Codes must be simple and ensure consistency of approach. The right codes are critical to ensure the quality of the data – and provide information for sound decision-making. A different approach has been long overdue.

Consequently, we viewed the effort to design M&A codes as fostering a change in culture and conduct, rather than a data collection exercise.

New M&A Codes Require a Change in Culture

Since 2012 I have served as the project manager of a task force on Legal Project Management in the Mergers & Acquisition Committee of the ABA Business Law Section. Over 70 lawyers have been involved in this effort over the past four years. Among many projects, we developed a more practical approach to capturing data on legal work through a working group that designed codes for ease of adoption by busy practitioners.

The goal of the task force is to improve the efficiency of conducting deals, along with the data collection and analysis supporting such efforts. Consequently, we viewed the effort to design M&A codes as fostering a change in culture and conduct, rather than a data collection exercise.

Our premise was that incremental, consistent and accurate adoption of the phase-based approach is superior to requiring a burdensome timekeeping system. Aggregating reliable data also will promote effective budgeting and communication about staffing, roles, responsibilities, and overall deal objectives.

We also eschewed the granularity of activity and task codes.  This is because coding time records with the new phase structure is sufficient for monitoring and analysis at the level of detail required for facilitating effective planning.

In February 2016, the Board of the LEDES Oversight Committee (LOC) unanimously adopted simple, concise and practical codes for capturing information about the phases of work in M&A transactions.

After a few years of experience with the phase-based approach, it will be worth considering what more is needed.  For example, just as more data has been required to understand the cost-drivers of eDiscovery and codes have been developed, it may emerge that more granularity is required only for certain phases of an M&A deal.

Following Familiar M&A Patterns

The new codes also follow a well-recognized pattern familiar to M&A practitioners that aligns with the way the work is actually conducted. They are relevant regardless of the size or complexity of the deal or jurisdiction in which it is conducted. The ABA working group focused on the conduct of lawyers and barriers to change above all else.

The structure of the new codes promotes accuracy in data collection while clearly reflecting the natural evolution of a deal. It breaks the work into the following 10 phases:

  1.  Preliminary matters;
  2.  Purchase/Merger Agreement;
  3.  Due Diligence and Disclosure Schedules;
  4. Ancillary Documents;
  5.  Financing;
  6. Shareholder/Board Matters;
  7.  Closing Matters;
  8.  Integration Matters;
  9.  Post-Closing Requirements, Disputes & Adjustments; and
  10.  Deal Management.

The M&A codes also identifies nine types of specialists who may support a deal – and for whom M&A is likely only a small portion of their work. These experts often may not know precisely where their work fits into the deal’s progress, so subject matter experts should use only a single code associated with their area in their timekeeping entries.

The specialties are:

  1. Antitrust / Competition;
  2. Data Security/ Privacy/Data Protection/Cyber Security;
  3. Employment, Labor and Employee Benefits;
  4. Executive Compensation;
  5. Environmental;
  6. Intellectual Property and Technology;
  7. Real Estate;
  8. Securities Regulatory Matters; and
  9. Tax.

The deal team would be unlikely to derive benefit from having subject matter experts enter time by phases – especially considering the training and monitoring that would be required. Therefore the codes were designed to capture the cost, contribution and value of the work of the specialists in contributing to the overall deal in a straightforward way.

There is a consensus of opinion that improved and consistent codes are needed to better serve the many circumstances to which they are applied. As the new M&A codes are implemented, its framework and value will be tested against this standard.  To that end, the ABA Law Practice Division has established a Committee on Legal Project Management. We have  formed a working group which I am co-chairing to identify the needs of stakeholders for codes, data collection and e-billing broadly, and to serve as a clearinghouse as these issues evolve.

* * *

Aileen Leventon, JD, MBA, is President of QLex Consulting Inc., which focuses on improving the results and economics of legal services for both clients and their counsel.

If you enjoyed this post, you might also like:
Tools for Legal Project Management: The Kick-Off Meeting

Photo credit:  Flickr, Dave Center, Wall Street (CC BY 2.0)

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This bio page is used to publish submissions by contributing writers. We welcome contributions from the legal community and are especially keen for contributions from our customers. Please review previous submissions published here and the “About Us” section to get a sense for what topics work for this blog. All posts must be original content not published elsewhere for at least 30 days. To submit an idea for consideration please email blsssocial@lexisnexis.com.
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