Having reviewed over 12,000 cases and counting, we at Burford are experts at assessing and budgeting for legal risk. The data from those 12,000 cases inform our approach to diligence and serve as an invaluable budgeting resource to our clients. In what follows, we offer guidance on legal budgeting for law firm and in-house lawyers alike, drawn from our extensive experience helping clients achieve successful litigation outcomes.
As lawyers, we’re acutely aware that litigation comes with multiple sources of risk—and that successfully managing all those risks can be expensive. Unfortunately, that doesn’t make litigation budgeting any easier.
I remember the first time I was asked as a junior lawyer at an AmLaw 100 law firm to develop a litigation budget: The experience was humbling. I proposed a list of personnel, accompanied by an ungodly number of expected hours, and added an hourly rate chart for good measure—that was it (and it wasn’t pretty).
Since then, budgeting has gotten both easier and harder—thanks to the introduction of new tools and innovations—yet it remains a pain point for both in-house lawyers and outside counsel. In the fight for new business, law firms are incentivized to present optimistic budgets, and junior lawyers often receive little to no budget training. On the other hand, in-house lawyers need to balance the need for detailed budgeting with the inherent complexity of litigation: Clients don’t want complex tree diagrams, they just want to know how much their litigation will cost.
Fortunately, this is where legal finance can help. Having reviewed over 12,000 cases and counting, we at Burford are experts at assessing and budgeting for legal risk. The data from those 12,000 cases inform our approach to diligence and serve as an invaluable budgeting resource to our clients. In what follows, we offer guidance on legal budgeting for law firm and in-house lawyers alike, drawn from our extensive experience helping clients achieve successful litigation outcomes.
Insights from experience: Budgeting in legal finance
Legal finance is built on a core expertise of evaluating and quantifying risk and valuing claims. Of the cases that receive capital commitments, success or failure is dictated, at least partly, by the accuracy of legal budgets. For instance, within the commercial legal finance industry, expected damages in investable claims are typically at least ten times greater than the expected capital commitment from the legal finance provider. In turn, the legal finance diligence process is not only focused on what the case could deliver in economic value, but also on the capital it will require to litigate.
Unfortunately, most lawyers are not trained in in risk or claim valuation—rather, lawyers must learn to value risk and claims through experience accumulated over a career, and this may be limited to one or two practice areas. Legal financiers on the other hand, especially Burford, typically review more cases than lawyers at even the busiest law firms. In addition, legal financiers review claims across practice areas, industries, geographies and other attributes that would stretch a law firm lawyer’s expertise. Capital providers not only offer this value-adding expertise for free, but they do so with the incentive of maximizing value for both the law firm and its client, as legal financiers only recoup their capital when invested claims succeed.
Burford’s legal finance diligence process: A budgeting boon
When a company or law firm approaches Burford for financing, the law firm’s proposed budget for a litigation or arbitration is a critical consideration in our underwriting. Typically, we ask our counterparties the budgeting diligence questions in the below reference table—and we advise that counterparties (both companies and law firms) ask themselves these questions before budgeting.
No individual question has a right or wrong answer—but in their totality, these considerations are crucial to get right. Clients find Burford’s budgeting insights valuable—irrespective of whether we say “yes”—and regularly express gratitude for the insights delivered by our team of more than 60 lawyers who have worked across case types, industries and geographies over our 13-year history serving the legal industry.
How does Burford help its counterparties keep to the budget?
Beyond helping clients set realistic budgets, we strive to ensure that law firms stick to them.
Budget caps and litigation phases
One of the ways clients experience our budgeting discipline after deals close is in how we recommend caps on, and assist in managing, budgets for different phases of litigation. Whether applied to discovery, expert work, summary judgment, or briefings, we are able bring granular focus to the small details, twists and turns that can dramatically impact litigation costs but that can be hard for a client or law firm to forecast. Sometimes these caps are formalized, sometimes they serve as guideposts, but in either case they help eliminate surprises and get all parties on the same page—before there’s a problem.
Monthly review of invoices
After Burford has agreed to provide financing and the claim has commenced, we conduct a monthly review of invoices related to the claim. We focus on hours billed and fees paid; we then compare this analysis against the budgets and any caps agreed to in the financing arrangement. Where there are discrepancies, we work with our client and their providers to help get the matter back on track.
Gratis consultancy-type services
The expert analysis that Burford brings to bear at the outset of a claim is applied throughout that claim’s life. Within our wider underwriting team, we have a smaller case management team dedicated to ensuring that the claims in which we’re invested progress optimally for our clients. Except in limited circumstances that are agreed to in advance, we rarely direct our clients, who retain control of their legal claims and associated strategy. However, clients regularly ask us to review briefs, conduct mock oral arguments, and brainstorm with counsel because they recognize that our case management team’s unwavering focus and discipline can provide a no-cost value add—like helping to flesh out the most powerful arguments and to identify weaker ones in order to re-allocate budget as necessary.
Client relations and incentive-aligned course correction
Once claims are filed, it’s rare that the cases will adhere exactly to their initial budgets. Where unexpected developments cause law firms or third parties to exceed a budget, Burford can assist with various types of incentives, depending on the preference of our counterparty. This enables our counterparties to preserve their relationships with counsel and avoid awkward conversations. Indeed, relationships are at the core of why it’s so difficult to budget—law firms want to keep their clients happy, and clients want to keep their money. Perhaps more than anything else, Burford is a repository of legal industry relationships because its incentives are aligned with both clients and their law firms to realize successful outcomes.
In a legal industry notorious for its costliness and unpredictability, achieving budget certainty can be a massive victory for in-house lawyers and law firms alike. We at Burford are uniquely prepared to help you in this effort.