LAW COSTS UPDATE: THE NEW MODEL BILL OF COSTS – TIME FOR SOLICITORS TO GET READY FOR J-CODING
Jackson LJ’s Recommendations
Jackson LJ’s interim report heavily criticized the current format of bills of costs. The Report concluded that the bills – based on ‘the style of a Victorian account book’– are cumbersome, expensive, lacking in transparency and proper detail (especially as to why work was done), and are incapable of making use of modern technology.
Jackson LJ’s final report called for change, setting out three basic requirements for any new bill format, namely:
‘(i) The bill must provide more transparent explanation than is currently provided, about what work was done in the various time periods and why.
(ii) The bill must provide a user-friendly synopsis of the work done, how long it took and why. This is in contrast to bills in the present format, which are turgid to read and present no clear overall picture.
(iii) The bill must be inexpensive to prepare. This is in contrast to the present bills, which typically cost many thousands of pounds to assemble.’
The answer, the report concluded, lies in modern technology – time recording systems that must capture relevant information and a bill format that ‘must be compatible with existing time recording systems, so that at any given point in a piece of litigation a bill of costs can be generated’. In this regard Jackson LJ made two key recommendations:
‘(i) A new format of bills of costs should be devised, which will be more informative and capable of yielding information at different levels of generality.
(ii) Software should be developed which will (a) be used for time recording and capturing relevant information and (b) automatically generate schedules for summaryassessment or bills for detailed assessment as and when required. The long term aim must be to harmonise the procedures and systems which will be used for costs budgeting, costs management, summary assessment and detailed assessment.’
The Response: first phase (J-Codes)-
The Hutton Committee, established in 2012, was tasked with creation of a new model bill of costs to meet Jackson LJ’s recommendations. The Committee approached that task in two phases. The first phase culminated in the approval by the Master of the Rolls, in July 2014, of the new Civil Litigation J-Code Set.
Costs will be recorded by way of 13 Phase codes, 41 Task codes, and 29 Activity codes. The idea is that with the right software solicitors should eventually be able to produce costs statements, cost budgets and bills of costs with relatively little human intervention and at any stage of the litigation (although of course practitioners will to have to invest in new software and will need to spend significantly more time on time and cost recording than they currently do). Please see our previous post ‘J-Codes and the new model bill of costs – radical changes to costs recording and assessments’ for a run-down of the Phase, Task, and Activity codes.
The Response: second phase (New Model Bill of Costs)-
Last month the Hutton Committee released a template and guidance notes for the new model bill of costs. Although the form may change following a short period of consultation it is planned that a Practice Direction coming into force in October 2015 will permit the voluntary use of the new model straight away. A compulsory pilot will operate for bills of costs assessed by the SCCO from April 2016 (but only in relation to cases that have been subject of a case management order and where the order for costs is made after 1 April 2016).
The new bill of costs is said to be ‘a self-calculating, self-summarising spreadsheet document based on the J-codes, which is capable of being generated automatically by use of the J-Codes and adopting the same structure.’ The Hutton Committee’s guidance document also claims that the J-Code ‘compatible recording, budgeting and billing structure enables the automatic production of “reports” suitable for budgeting, billing, negotiation, assessment or any other purpose.’
Whilst the Hutton Committee does not recommend that time recording by J-Codes should be made mandatory, it does recommend that they are adapted and used as soon as possible, in order to avoid time consuming and expensive after the event allocation of costs.
Comments on the features of the new model bill –
The Committee’s guidance describes the ‘features’ of the new model bill, which include:
- Self-Calculation – essentially the new model is a spreadsheet. This is nothing new. The Committee’s suggestion that ‘Manual arithmetical calculation should become largely redundant’ seems rather odd, a solution to a non-existent problem – given that even the least tech-savvy costs draftsmen have been using spreadsheets or specialist bill drafting software for some years.
- Electronic Use and Transmission – the new bill can be ‘transmitted’ electronically to all interested parties and will ‘recalculate itself’ to reflect adjustments made as the assessment runs its course. Again, the Committee describes every day features as though new potentialities – yet costs draftsmen are already doing precisely these things, through the use of spreadsheets and email, and have been some years.
- Budget Comparison – the new model bill is ‘intended be be as adaptable as possible’ and the Committee is of the view that ‘the general format and the underlying system of time recording are sufficiently flexible to produce “reports” at different levels of generality.’ Given the rule changes over the past recent years, and in particular to CPR 3.18(b) (which requires that the costs allowed on a standard basis detailed assessment do not depart from the last approved or agreed budget unless there is good reason) it is obviously necessary for practitioners to address how best to make comparisons. Indeed, from October 2015, an amendment to CPR Rule 47.6 will require that where a costs management order has been made, a breakdown of the costs claimed for each phase of the proceedings is to be provided with the bill of costs. Most costs draftsmen, and certainly the writer’s firm, are already geared up for this change, which in fact does not require the reinvention of the wheel or the production of a J-Code based bill of costs to make what is a relatively simple comparison between budgeted costs and final spend. That said, if already pressed fee earners can indeed be persuaded to spend considerable time logging time and costs very precisely as each case progresses, and if practice management software catches up, it may well be that budget to bill and more detailed phase and task comparisons can be made quite easily in straightforward cases (by those that can afford the time and software).
- Logic and Transparency – it is said that the new model bill is designed to meet a number of objectives: it should produce a more transparent and informative claim for costs, it should yield information at differing levels of generality, and it should be capable of being generated automatically. The new model is certainly easier to follow in some respects – gone is the separation of counsel fees from (most of) the corresponding solicitors’ fees, and the separation of court time and conferences with counsel from other work, and it will no longer be necessary to cross-reference various sections of the bill in order to calculate the amount spent overall on disclosure, evidence, and other important phases. The bill instead – at least in various summaries – groups all costs by phase, and within each phase groups the costs of various types of task together. I can certainly see that a claim for costs, prepared in this way, will be more susceptible of analysis (and at various levels of generality), although I am not at all sure what the effect of that might be. It remains to be seen whether the splitting of costs up into phases and task groups will provide any discernible advantage to either side to a costs dispute. The new model certainly does not encourage fee earners to address Jackson LJ’s key requirement that it should provide an explanation about why costs were incurred. Also, in view of CPR Rule 3.18(b) one has to wonder whether in the not too distant future there are going to be a great many costs disputes after judgment or settlement that require analysis going any way beyond the simple (and inexpensive) budget to bill phase comparison that we are already going to see from October 2015.
I share the view that the bill of cost is out of date and I agree that the model needs to change so that it mirrors the costs budgeting phase by phase approach. However, I struggle to understand the headlong rush to introduce a system that will rely so heavily for success on upgraded and specialist practice management software and on solicitors and other fee earners engaging with time consuming and sophisticated cost recording in a way that they have never done before.
Further, whilst I agree that for those that can afford it, it should be possible with newly developed software, to produce reports and bills of costs’ automatically’ in straightforward cases where costs have already been J-coded, I disagree fundamentally with the Committee’s view that the ‘cost of preparing draft bills of costs will decrease significantly’. The direct cost may well decrease, but that can only happen in circumstances where rather more time than ever before is spent by fee earners, inputting details of time and costs phase by phase and task by task (which the Committee acknowledges is a ‘core skill’ of costs draftsmen) . It is naive, in my view, to think that there is no great cost in that additional management time. There clearly is and the significant cost of additional fee earner time will need to be accepted by legal practices – many of whom cannot afford it – or passed on to the clients.
The guidance notes can be downloaded by clicking here and a partly populated bill of costs is available here.