The New Electronic Bill of Costs: An Obstacle to Perfect Competition?- Christopher Medhurst

The new Electronic Bill of Costs became mandatory for work commencing on or after 6 April 2018. It essentially follows very similarly to the structure of a budget. One of the purposes of the change was to reduce the expense of preparation as it is supposedly easier to create and amend bills. This may be true, but appears only to be so for firms with a case management system that can be tailored to export fee earner time recording straight out of the system into the bill. For those firms without such a system, it seems to create a more time consuming process in preparation for costs draftsman that need to prepare the bill from scratch.

Case management systems and their implementation, whether externally or internally sourced, are very expensive affairs. This is particularly relative to smaller law firms that would struggle to scrape together the capital to invest in something like this, without putting themselves into debt and/or forcing expansion to increase the output needed to cover the ongoing costs, such as licence fees and internal IT team training or subscribing to an external IT service. Unfortunately, this gives an absolute advantage to larger law firms who have the required capital freely available with minimal risk in investing. The larger firms will be able to produce bills far more efficiently, reducing time and costs incurred from conclusion of the main action to final settlement, reaping the rewards from their initial expense in investment. The smaller firms, with fewer resources and without a suitable case management system that enables the Draftsman to export fee earner time directly into the Electronic Bill, may well end up taking longer to turn bills around from conclusion of the main action.

This is due to the work becoming more complex than intended for those having to manually input the information from scratch, now needing to be separated by phase, task and activity, included in the bill on a line by line basis. For costs law firms and consultancies, resources and investments are going to be channelled primarily into output relative to the turnaround of bills for clients anyway, therefore arguably not so much of an issue as it is for law firms that keep their costing in-house, unless they are already a very profitable businesses. For law firms that keep their costing in house, resources already need to be split across other departments and the cost department is often seen as a "support" department, like IT, and can potentially be an afterthought.

The implementation of the Electronic Bill of Costs also raises questions with no definitive answers as of yet. How much can proportionately be charged for drafting? There will be an inconsistency between the actual time taken to draft a Bill of Costs by firms who can afford the necessary infrastructure to simply export data from a case management system into the bill, and firms that do not have the infrastructure and need to instruct costs draftsman to draft from scratch.

Will the same standard percentage of profit costs for drafting the Bill of Costs be applicable at the same amount for both, despite the likeliness of drafting taking longer having to draft from scratch, and very little time for those simply exporting data? From an economic point of view, at least as things stand currently, the electronic Bill of Costs is a good idea in theory, but will be harmful to fair competition between law firms and could lead to a gap created between smaller firms and the well established, large law firms, unless something is done promptly to address these issues.