How to Produce a Bill of Costs Clients Do Not Dispute
A bill of costs is the formal statement of what a legal matter has cost, set out in a form that a client, an opposing party or a costs officer can examine. The phrase covers more than one document. It may be the itemised account that an attorney-at-law delivers to a client at the conclusion of a retainer; it may be the bill prepared for assessment or taxation after a court has ordered one party to pay the costs of another; and in some jurisdictions it takes a particular prescribed form. The disciplines that produce a good bill of costs are common to all three: accuracy, support for every entry, a defensible relationship between the work done and the sum charged, and clarity of presentation.
Disputes over bills are rarely caused by a single large error. They arise from small failures that accumulate: a vague narrative, an entry without a date, a disbursement without a receipt, a fee earner whose time has not been explained, a total that does not reconcile to the engagement letter, or a bill that arrives so long after the work that the client has forgotten what was done. Each failure gives the paying party a reason to question the whole account, and a bill that is questioned in part is usually examined in full.
This article sets out a method for preparing a bill of costs that is built to withstand scrutiny. It deals with the foundations laid at the start of a matter, the records kept during it, the preparation of the bill itself, the handling of disbursements and tax, the process of assessment and challenge, and the conduct of the conversation with the client. The rules governing costs differ between jurisdictions and between courts, and the practitioner must apply the procedure rules, the costs scales and the regulator's requirements that govern the particular matter.
Understand which bill of costs you are preparing
The first step is to identify the type of bill, because the governing principles differ.
The bill delivered to the client
This is the account between practitioner and client. It is governed by the retainer, by the law of contract, and by professional rules and statutory requirements on the form and delivery of bills and on the client's right to challenge or seek assessment. Typically the practitioner must be able to show that the sum claimed is fair and reasonable for the work done, and the client may be entitled to request an itemised account or a review by a costs officer or the regulator.
The bill for assessment between the parties
Where a court orders one party to pay another's costs, the receiving party prepares a bill for the paying party and, if agreement is not reached, for assessment by the court or a costs officer. The basis of assessment, commonly described as a standard basis or an indemnity basis in many common law systems, and the use of fixed or prescribed costs, determine what may be recovered. The sum recoverable from the opposing party is frequently lower than the sum the practitioner has charged the client, and the difference must be explained to the client at the outset and again at the end.
The bill under prescribed or fixed scales
Some courts and some categories of proceedings use scales or fixed costs, in which case the task is as much to apply the scale correctly as to record time. The practitioner should confirm whether a scale applies, what it covers, and whether any additional item may be claimed.
Lay the foundations in the engagement letter
A bill that clients do not dispute is the product of an engagement that clients understood. The engagement letter, or retainer agreement, should state the basis of charging, the rates or the fixed fee, who will work on the matter, how disbursements are treated, when bills will be rendered, what happens if the matter ends early, and the client's rights in relation to challenging a bill. It should also deal with the position on costs recovery from an opposing party.
The letter should be clear on the following points, expressed in language the client can follow:
the charging basis: hourly rate by fee earner grade, fixed fee, stage fee, capped fee or a combination;
the estimate of overall costs and the assumptions on which it rests, with a statement that the estimate will be revisited if those assumptions change;
the treatment of disbursements, including those that will be incurred on the client's behalf and the practitioner's policy on payment on account;
the frequency of billing, and any interim billing for large matters;
how tax is applied and shown;
the distinction between the costs the client owes the practitioner and any costs recoverable from another party, and the fact that recovery may be partial;
how the client may raise a concern about a bill, and the relevant complaints and assessment routes.
Estimates deserve particular care. A client who has been told in writing that a matter should cost within a stated range and is then presented with a bill beyond that range, without any warning, will almost certainly dispute it. The remedy is a standing practice of notifying the client in writing whenever it becomes apparent that the estimate will be exceeded, with the reason and a revised figure, before the additional work is done.
Keep contemporaneous records
The accuracy of a bill of costs is determined during the matter, not afterwards. Time recorded from memory days or weeks later is vulnerable on challenge and often understates or overstates actual effort.
Time recording standards
Each fee earner should record time on the day of the work, in consistent units, with a narrative that identifies the task and the matter-specific purpose. A narrative such as "Perusing correspondence" is of little use. A narrative such as "Reviewing the defendant's letter of the stated date and advising the client by telephone on the settlement proposal" shows what was done and why. Narratives should be accurate, free of internal comment, and written on the assumption that the client or a costs officer will read them.
File notes and documents
Maintain attendance notes for meetings and calls, and file them in the matter record. When a costs officer or opposing party challenges an item, the most effective answer is a contemporaneous note and a document that shows the work was performed. Conversely, an item for which there is no record is hard to defend.
Disbursement records
Retain invoices and receipts for every disbursement, record the date, payee, purpose and amount, and note whether tax was charged. Distinguish between disbursements paid from the client account and those paid from the office account, because the accounting treatment and the client's expectations differ.
Review during the matter
Review the unbilled time and disbursements on each matter regularly, for example monthly, to identify entries that are unclear, duplicated or inconsistent with the work on file. Correcting these when the facts are fresh is far easier than reconstructing them when preparing the final bill.
Structure the bill of costs
A clear structure is the principal means of avoiding dispute. The reader should be able to understand what the work was, who did it, how long it took, at what rate and with what result, without having to ask. The following layout is suitable for a bill that is itemised, and it can be adapted to the form that a particular court prescribes.
Part | Content | Purpose |
|---|---|---|
Heading | Parties, matter reference, court and number where applicable, and the order or retainer under which the bill is prepared | Identifies what is being claimed and on what authority |
Background note | Short narrative of the matter, the stages, and the outcome | Gives the reader context for the work |
Fee earner schedule | Name, grade, admission date or experience, and hourly rate for each person who worked on the matter | Justifies the rates charged and the allocation of work |
Itemised work | Date, fee earner, description, time and amount for each item, grouped by stage | Allows each entry to be checked |
Disbursements | Date, payee, purpose, amount and tax treatment, with vouchers appended | Supports sums paid to third parties |
Summary | Totals of fees, disbursements and tax, and any credits for sums already received | Reconciles to the amount claimed |
Certificate or statement | Practitioner's confirmation that the bill is accurate and that the costs have been or will be incurred, where required | Meets procedural requirements |
Grouping entries by stage, such as pleadings, disclosure, preparation for hearing and the hearing itself, helps the reader understand why time was spent where it was. It also tends to show that the distribution of work is proportionate. Where the matter was long, a summary page showing the total for each stage is a valuable aid.
Apply reasonableness and proportionality
Whatever the basis of assessment, the underlying tests are whether the work was necessary, whether the time taken was reasonable, whether the rate was appropriate for the task and the person, and whether the total is proportionate to the matter. These are judgments, and a practitioner who applies them to the bill before it is sent will anticipate most of the objections that would otherwise be raised.
Questions to ask of each entry
Was the work instructed or reasonably necessary to advance the client's case?
Was it done by a fee earner of an appropriate grade, or could it have been delegated?
Was the time taken reasonable for the task, given its complexity?
Does any entry duplicate another, for example a document reviewed twice by different people?
Does the narrative describe the work accurately, and is it consistent with the file?
Is the entry within the scope of the retainer or the order for costs?
Write off, do not defend, the indefensible
Where an entry cannot be supported, because the time was spent on an internal training exercise, a correction of the firm's own error or a task that proved unnecessary, it should be removed before the bill is issued. A practitioner who voluntarily reduces a bill demonstrates integrity, and the credibility gained supports the entries that remain. Conversely, defending a weak item in the face of challenge damages the standing of the whole account.
Proportionality in costs between the parties
Where costs are recoverable from another party, the court or costs officer may consider whether the total is proportionate to the value and complexity of the case, and may reduce a bill that is otherwise accurate. The practitioner should therefore assess early in the matter whether the likely recoverable costs justify the spending, and advise the client accordingly. If a client chooses to instruct at a higher level than would be recoverable, the engagement letter and later correspondence should record that choice.
Illustrative arithmetic: reconciling the bill
The following is illustrative arithmetic and not market data. It demonstrates how a practitioner can verify that a bill is internally consistent before it is issued.
Suppose a matter has three fee earners. A senior attorney records 6 hours at a rate of 200 units per hour, an associate records 14 hours at 120 units per hour, and a paralegal records 10 hours at 60 units per hour. The fees are 1,200 units, 1,680 units and 600 units respectively, and the total is 3,480 units. Suppose disbursements of 250 units are supported by receipts, and that tax at a stated rate applies to fees but not to a particular category of disbursement. If tax applies at 10 per cent to fees only, the tax is 348 units, and the gross total is 3,480 plus 250 plus 348, that is 4,078 units. If the client paid 1,000 units on account, the balance due is 3,078 units.
The check is simple and should be performed by someone other than the preparer: multiply hours by rate for each entry, sum by fee earner, sum by stage, and confirm that the two totals agree. Confirm that tax is applied only where it should be, that the credit for payments on account is shown, and that the figures in the covering letter match the bill. A bill whose arithmetic does not reconcile invites an immediate challenge, whatever the quality of the underlying work.
Disbursements and tax
Disbursements are sums paid to third parties on the client's behalf, such as court fees, expert fees, search fees, courier costs, travel and counsel's fees. They should be itemised with the date, the payee and the purpose, and supported with vouchers. A general charge described only as "sundry expenses" will not survive examination.
Take particular care with internal charges. The treatment of photocopying, telephone and similar overheads varies by retainer and by jurisdiction, and in some settings they are not recoverable as disbursements and must be absorbed within the fee. Do not describe an internal overhead as a disbursement unless the engagement letter and the rules permit it.
Tax must be treated correctly. Consider whether value added tax or an equivalent consumption tax applies to the fees, whether it applies to each disbursement, and whether the client is able to recover it. Where the paying party is entitled to recover tax, the bill may be shown net of tax, and where it is not, the tax forms part of the cost. State the position clearly, and take tax advice where uncertain.
Client money must be handled in accordance with the applicable accounts rules. Do not apply money held in the client account to the payment of a bill without the authority the rules require, and ensure that any transfer is properly recorded and notified to the client.
Prepare the bill of costs promptly and review it before it leaves the office
Delay is a principal source of dispute. A bill that arrives long after the conclusion of the work is harder to justify, and a client who has not been billed may assume that the work has been done at no charge. Set a standard period within which the final bill is prepared, and for matters of any length, render interim bills at agreed stages.
Adopt a review sequence before issue:
The responsible practitioner reviews all narratives and removes or revises entries that cannot be supported.
A second person reconciles the arithmetic, the rates against the fee earner schedule, and the tax treatment.
Disbursement vouchers are checked and appended.
The bill is compared with the engagement letter and any estimate, and any variation is explained in the covering letter.
The covering letter states the amount due, payment instructions, the date for payment and the client's rights to query or seek assessment.
Where the bill is for assessment between the parties, apply the additional steps required by the court's procedure: serving the bill within the stated time, giving the required notices, and being ready with the supporting file.
The assessment process, challenge and client communication
How assessment proceeds
When a paying party disputes a bill, the process usually involves a written statement of the points in dispute, a written reply, and a hearing or paper review before a costs officer or judge. The details differ widely. The practitioner should read the applicable rules at the outset, diarise every deadline, and recognise that failure to respond within time may carry costly consequences.
Responding to points of dispute
Respond to each point in turn, with reference to the file. Where a point has merit, concede it promptly. Where it does not, explain why the work was necessary, why the time was reasonable and why the rate was appropriate, and refer to the document or note that supports the answer. A reasoned and concise reply is more persuasive than a general assertion of the reasonableness of the whole bill.
Negotiation and settlement
Most challenges are resolved by negotiation. Consider the costs of the assessment itself, which may be significant in comparison to the sum in dispute, and which may be borne by the losing party. A realistic offer made early, and recorded in writing, can avoid disproportionate expense. Be aware of the rules on offers, since in some systems a well-made offer carries consequences for the costs of the assessment.
Where the client is the challenger
If the challenge comes from the practitioner's own client, treat it as a client service matter before a legal one. Arrange a conversation, listen to the concern, and provide a full explanation with the supporting records. Many disputes about bills arise from surprise or from poor communication, and are resolved by explanation and sometimes by a modest adjustment. Where the client invokes a statutory or regulatory right to assessment or complaint, comply fully and co-operate.
Communicating with the client about costs
The tone and timing of communication determine whether a bill is accepted. Keep the client informed throughout the matter: report costs incurred against the estimate at milestones, warn about additional costs before they are incurred, and explain what is and is not likely to be recovered from another party. The conversation about the bill should therefore not be a surprise.
When issuing the final bill, write a short covering letter that summarises the work and the result, identifies any variation from the estimate and why, states clearly what is due, and invites questions. If an element of the costs is recoverable from the other side, explain the position and the expected timing, and distinguish between sums the client owes now and sums that may later be reimbursed.
Practical next steps
Review the firm's engagement letter template to ensure it states the charging basis, estimate assumptions, disbursement treatment, billing frequency and the client's rights to query a bill.
Adopt a rule that time is recorded daily, with narratives that identify the task and its purpose.
Require a voucher for every disbursement and reject entries without one.
Prepare a standard bill layout with a fee earner schedule, stage groupings, a disbursement schedule and a summary.
Introduce a two person review, covering narrative, arithmetic, tax and consistency with the retainer, before any bill is issued.
Set a firm period for rendering final bills after conclusion of the matter, and a monthly review of unbilled time.
Create a short template covering letter and a standard process for responding to queries and to formal challenges.
Keep a note of the rules and scales for each court in which the firm appears and diarise any deadlines for service and response.
How practice management software supports the work
Bills that withstand challenge depend on reliable time entries, vouchers, matter documents and clear records of what the client was told. A practice management platform such as Legalytech brings time recording, billing, documents, client communication and a client portal into a single matter record, so that the evidence for each entry and the history of each estimate can be retrieved when a bill is prepared or questioned.
This article is provided for general information only and does not constitute legal advice. Practitioners should consult the rules of their own jurisdiction and regulator.
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