The purpose of the recent second edition of the Legal Ombudsman’s Guidance on Good Costs…
According to the final report (‘the report’) on the civil litigation cost management pilot, most of the judges who took part in the pilot believe the new cost budgeting procedure works well and that it does not require much improvement (pp 43-45 and p 49 of the report). I find this view quite puzzling. After reading the report and attending the recent annual conference of the Commercial Litigation Association (CLAN), which had cost management as its running theme, it seems there is indeed room for improvement.
Purpose and application of the cost budgeting rules
The new cost budgeting procedure is made up of two parts: cost budgeting rules and a standard cost budget precedent form. The purpose of the new scheme, it is stressed in the report, is to assist with the cost management of cases. The scheme is not designed to be a cost capping regime. However the report also reminds readers of observations made by the Court of Appeal in Henry v News Group Newspapers Ltd where it was noted that, in relation to the new cost budget rules they provide a “prima facie limit on the amount of recoverable costs” (my emphasis).
The need for project (case) reviews
Standard advice therefore, in light of Henry, is that solicitors should keep the initial cost estimate under review and submit revisions to the court regularly (during the cost management pilot very few revised cost budgets were submitted for approval).
From a project management point of view it is good practice to keep initial estimates under review and revise where necessary. If there is need for significant changes to project scope and budget then approval for the changes will be required from the key stakeholders. In terms of the new cost budgeting scheme, judges are clearly key stakeholders: it is they who approve the budget. If solicitors are going to keep case costs under review and submit updated cost budgets for judicial approval regularly, how might litigation costs be better tracked and communicated to judges? More particularly, how might the standard cost budget form, precedent form h, be amended to assist with this? (I am thinking here of medium term structural improvements, not so much immediate short-term concerns about technical faults with the online version of precedent form h).
Earned Value Management
Earned Value Management (EVM) is a well-known technique for tracking, and managing, project costs. When using EVM project managers set their initial project cost estimates as their baseline. Actual expenditure incurred during each project stage is recorded and compared against the initial estimate. This then allows project managers to work things out such as: Cost Variance, Schedule Variance, Estimated Cost at Completion and Cost to Complete the project.
For the purposes of managing projects with the help of cost data, the key concept is that of variance. This can act as a tripwire or early warning signal that something is awry with the project. Once a threshold of acceptable variance is breached the project manager has to do something to rectify the situation. If the project manager has sufficient authority he may implement immediate operational changes to the project; alternatively, he may need to seek approval for any significant changes of scope and / or budget.
Project communication tools
Probably one of the most important tasks project managers have is to communicate project developments clearly and concisely to the project stakeholders, especially the project sponsors. Hence project managers often work hard to devise appropriate project report templates which help communicate project status to busy senior executives. Ideally, the project report should be no more than one page. To help communicate project status, project managers will often include graphical indicators – dashboards and coloured ‘traffic light’ indicators etc.
The front sheet of precedent form h summarises the estimated costs and actual costs incurred during a case, broken up into 10 discrete (and apparently sequential) stages. The subsequent 4 pages allow for the inputting of more detailed cost data which supports the front page summary. As it stands however precedent form h does not particularly help with tracking and explaining expenditure during a case. It would take only a little ingenuity to change this, and make a revised precedent form h a much more useful tool for cost tracking, cost budgeting and case management.
For example, a new front sheet could be created which could include two sets of bar charts. Each set being be made up of a pair. One pair of bar charts could be for disbursement costs and another pair representing the cost of work. One chart of each pair could represent the original estimates, perhaps with each section (representing a case stage) coloured amber. The other chart of each pair could then represent actual expenditure incurred during each stage to date. If progress of work during a stage is under budget it could be coloured green, if over budget red and on budget amber. It would therefore be possible for readers to see at a glance how cost actually incurred compares with the original estimates. Project summary reports also usually include a brief explanation of significant project issues along with proposals for any changes to project scope, scheduling and cost.
Proactive cost management
If civil litigation actions were truly run as projects then project managers (ie solicitors) should be collecting and analysing cost data at regular intervals, the more frequently the better. Regular and consistent data tracking should alert solicitors if they are straying above acceptable variance of the original cost estimates. If so, they will need to take immediate corrective action of some sort. They will need to try and bring cost budgets under control so far as they can or, if this is not possible, they will need judicial approval to change project costings. If the latter, they will need to go back to court and seek approval for variation to their original cost budget. One of the things suggested during the CLAN conference was that cost management hearings will almost certainly need to happen more frequently in future during a typical case’s lifecycle. Because of their greater number, more frequent hearings will need to be short and focused.
With this in mind any tools which help with tracking and communicating costs incurred during litigation should be welcomed. At a hearing to consider any proposed cost budget revision it would surely help everyone if there were a one page project summary sheet, which could help explain the situation to date clearly and concisely.