Precedent H and costs budgeting – the basics
The costs management and budgeting skills which all multi-track litigators need to learn are akin to those of project management and quantity surveying. These skills can be learnt (as has been proved in Singapore) but mistakes in your budget – or failure to properly monitor and control your costs - will prove costly (see Murray and another v Neil Dowlman Architecture and Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd ).
Creating and getting your initial budget right is therefore only half the process. HHJ Simon Brown QC, recently described as a costs management pioneer, has recently written a series of excellent articles in the New Law Journal. He, along with Professor Dominic Regan – academic, lecturer and costs ‘guru’ – stresses the over-riding imperative of effective monitoring and control of budgets (or face the penalty).
By way of a checklist of what firms need to be able to do:-
- Record work in your PMS/CMS by phase
- Review historic work on non-issued multi-track cases to assign it to one of the phases (see the MoJ Notes for Guidance on Precedent H)
- Prepare costs budgets in the correct format i.e. in Precedent H*
- Monitor and control your budgets – by phase – to ensure that they are not exceeded
- Identify and show already incurred work done pre and post 1st April 2013 (for cases issued after 1st April the old proportionality rule applies to work done up to 31st March and the new proportionality rule from 1st April)
- Exclude from the budget any costs not recoverable from a paying party i.e. solicitor and own client work (funding costs, costs associated with interlocutory applications where there is no order for costs or an adverse order for costs). This is because the budget that is set is for maximum recoverable costs and solicitor and client costs are never recoverable inter partes
* Do not under any circumstances attempt to use the Precedent H that is on the MoJ website; it is riddled with errors and incorrect formulae. Practical Law Company have a correctly calculating Precedent H or if anybody wants to e-mail me I will be happy to send one.
As far as Precedent H itself is concerned:-
- Remember that each phase is, in effect, a mini budget: you cannot exceed the budget for, say, experts reports because you have “space” left in your budget for witness statements
- Incurred costs – as mentioned above, you will need to “phase” all work done on a case. The Courts are almost certainly going to want to see a breakdown of the incurred work by phase so you need to consider how your systems will do this
- Forecast/estimated costs – this is partly an exercise of your skill, judgement and experience but you could help yourselves by analysing a cross section of historic/closed cases and undertaking the “phasing exercise” to give you a starting point. The results can be put into a spreadsheet which can give you average costs per phase for a particular type of case and this could be added to/updated going forward
- Assumptions – these are absolutely critical to get right as the Court will need to know the basis upon which you have created your budget for each phase. For example, for experts reports, you should record inter alia the type of experts you are intending to use and why, the expert reports you assume that you are going to be served with by the opposing party, the work that you anticipate will need doing such as consideration of reports, advising the client, setting up round table meeting, considering joint expert’s reports etc etc. Any application to vary your budget will be considerably assisted if you can demonstrate that the assumptions on which your budget is based have been departed from.
- Disbursements and Counsel’s fees – these need to be shown on pages 2 to 5 of Precedent H and again need to be split between the incurred and forecast fees. Do not forget when monitoring your fees against budget that a fee effectively is incurred once formal instructions are sent i.e. don’t rely on simply monitoring disbursements and fees actually paid
- Following on from the last point, you will need to consider your retainer/ arrangements with your experts and Counsel – will they be prepared to produce reports/accept instructions on the basis that they will accept whatever the Court allows or will then be looking to you for the balance?
- You should consider preparing a Statement of Issues to file with your budget and your breakdown of incurred costs. Anecdotally, several Courts are ordering some form of statement to be filed in any event. Bear in mind that whatever assistance you can give the Court is likely to make them look more favourably upon your budget!
If it looks like you are going to exceed your allowed budget for any phase you can apply to the Court to vary your budget if there is good reason to do so. Do not forget that you must first of all try to agree your initial budget and any potential variations with the opposing party (and your own client). Also bear in mind that you will receive a copy of the opposing party’s budget to which you should give the same attention that you have given to your own.
The use of a good (preferably regulated) cost professional will greatly assist you both in the preparation of your own budget and the scrutiny of your opposing party’s budget. If you don’t have an in-house costs department consider employing a costs expert as a member of your professional support team. They will be able to advise you not only on budgets and Precedent H but on all other aspects of the reforms (QOCS, Part 36, retainers etc).
Last but not least, consider the various programs and software products that have been developed to assist the budgeting process. My firm for example has created a web based program called Omnia which not only helps to create, monitor and analyse budgets but will also be able to produce bills and schedules of costs. Time records can be imported into it on a regular (I suggest daily) basis and it will alert you when you reach a pre-set percentage of any phase of any budget.
On a final – and cheerful – note consider the recent case of Slick Seatings Systems & Ors v Adams & Ors  EWHC B8 (Mercantile). HHJ Simon Brown summarily assessed the Claimant’s costs and awarded £351K (payable in 14 days) after a judgment of £4.4M where each phase was completed within a total budget of £359K. He has since commented that this was “An example of good, accurate budgeting …… and immaculate [costs] control” before going on to say that, “There will be no need for the delay and expense of a Detailed Assessment. Your costs lawyer will be redundant at the end of the case and will have proved his worth for his involvement in accurate budgeting at the very beginning”.
So, remember that costs management/budgeting should give some certainty and predictability to everyone involved including your clients. Financial planning should become easier and cashflow should improve for receiving parties whilst paying parties will more accurately be able to calculate reserves. What’s not to like in that!