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Three easy fixes to budgeting.

This article discusses 3 possible changes to the current budgeting process:

1. Fixed costs for incurred costs

2. Hourly rates set at CMC/when budgets are approved

3. Touchpoints identified at CMC/when are approved (to enable departure from budgets)

As most readers will attest, signing up to blogs and receiving updates on developments on both case law and the rules is part of the course. Sometimes, bloggers go into overdrive and every Gordan, Kerry and Sean are providing updates on the same topic and consequently a number get lost. However, a little while back, an email popped into my inbox providing a link to a ‘webinar’ (or a GMTV style chat) featuring “the Prof” (Dominic Regan) and “the Lord” (Sir Rupert Jackson),

This “half-term report” provided some insight into the Lord’s upcoming report on all things fixed (or capped) costs and budgeting. Comments were made such as:

– All costs in the fast-track should be fixed

– There would (or should) be a voluntary pilot scheme

A lot of the discussion was in respect of budgeting (more important than ever considering Harrison). It was mentioned that budgeting faced a “bumpy start” with lots of opposition (including from Judges) but is now deemed to be working “extremely well”.

The cynic (as, strangely, I appear to be on a Monday morning) could argue that this change in approach/view is not only due to the practitioners becoming familiar with budgets, but also, the fear of fixed costs being implemented across the board.

There are arguments that if budgeting works, then there is no need for fixed costs as there is a control over costs.

In the webinar, Jackson appears to acknowledge this and indicates that the only issue with budgets is the incurred costs: “budgets do a valuable job of controlling future costs but have limited control of past costs”. According to research:

– c 31% of the costs in claimants’ budgets are incurred; and

– c 14% of the costs in defendants’ budgets are incurred

Evidently therefore, there is an issue with incurred costs.

One possible solution to this is the implementation of fixed costs for incurred costs. Practitioners often deal with the same type of cases daily, and with budgeting being around for over 4 years now, should have an idea of what it costs to get a claim to the initial CMC.

The fixed costs regime could mirror the phases of the Budgets, e.g.

– £5,000 for pre-action

– £5,000 for issue/SOC

– £5,000 for CMC*

*the figures are hypothetical, so the claimant solicitors/counsel can sit down and not scream, “10 blooming grand for getting a complex claim issued, get lost” (or, more likely, less savoury language)

There would be avenue for considering whether the value of the claim should increase the level of fixed costs, e.g. a claim pleaded (at the time of the CMC) at £100,000 as opposed to £50,000 could attract a 5% uplift.

There is also scope for allowing a further 25% if costs are awarded on the indemnity basis.

Having a fixed costs regime for incurred costs could/should negate any possible need for a costly detailed assessment (particularly given that an assessment may now only be required to deal with incurred costs due to  Harrison).

Also in the webinar, Jackson mentioned (and it has been written elsewhere) that rather than fixed costs, a costs scale could be implemented. This would mirror the budget phases and would enable a reduction to be applied if minimal work was completed under specific phases. Whilst this proposal may limit costs, it would still require files to be costed and hearings held at prohibitive cost and thus somewhat defeat the object of the proposal.

What the webinar didn’t address is 2 fundamental issues with budgeting in its present guise:

1. Not dealing with hourly rates

2. No guidance on what constitutes a “good reason” to depart from the agreed/approved figure

Thus, there is no indication that either will be dealt with.

Dealing with 1., there is a clear need to deal with rates at the CMC. Budgets are drafted on a very simple basis: hourly rates x time + counsel fees + disbursements. Skill is required to draft a budget well, but (often) with disregard to this (and key stage 2 maths teachings to always show your workings), budgets are often set by judges on an ad hoc basis with limited (or even no) justification. If budgets were set in the same way they are drafted, this would make the process simpler and easier for all.

Whilst this would require setting the appropriate rates, if a judge can set costs for the remainder of the case, there is no reason why he/she is unable to consider what a reasonable/proportionate rate is. Given the limited time at CMCs to deal with budgets, any arguments dealing with rates would be limited and again, would possibly negate the need for a costly detailed assessment (often, budgets are agreed subject to rates be argued at assessment etc.).

In respect of 2., guidance (or a change in approach) is required.  Harrison was the perfect opportunity to provide guidance and examples, but rather, the court refrained from doing so. I won’t go as far as others and say the Court “bottled it” but it was a disappointing judgment. Thus, everyone remains in the dark as to what a “good reason” is.

One straightforward way around this is for the Judge, when setting the Budget, to set “touchpoints” and say, for example:

“£10,000 allowed for dealing with witness evidence (£200 x 50) – this is based on 10 hours for each of the 4 statements anticipated by the claimant and another 10 hours for considering the defendant’s evidence”

Then, on assessment, if the claimant has only relied on 3 statements, the amount allowed is reduced accordingly (i.e. by 10 hours, £2,000).

The same principle could be applied to all phases and at conclusion of the claim, the parties could quickly and easily identify the reductions (if any) required to the approved figures.

So there it is, 3 easy fixes to budgeting:

1. Fixed costs for incurred costs

2. Hourly rates set at CMC/when budgets are approved

3. Touchpoints identified at CMC/when are approved (to enable departure from budgets)

Further/other changes considered but dismissed include:

a. Fixed costs across the board and removing need for budgets (no indication that will be forthcoming)

b. Summarily assessing incurred costs (could be lengthy and expensive process on some claims)

Written by James Parkinson, Costs Lawyer of A&M Bacon Limited

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