Hammering out the right price

Ill-equipped to deal with bills, and dubbed 'cost monkeys', cost negotiators have run into stiff criticism.

Stephen Ward examines whether regulation is the answer

Solicitors may be used to arguing, but where the dispute centres around payments, not legal work - as is increasingly the case - something is going wrong.

Fraser Whitehead, chairman of the Law Society Civil Litigation Committee and a partner at London firm Russell Jones and Walker, says: 'There is an enormous volume of dispute arising now, in an area where historically there was little substantial dispute.'However, Andrew Parker, president of the Forum of Insurance Lawyers (FOIL), argues: 'There is much more need to reduce the base costs claims in routine cases.'Mr Parker, a partner at London firm Beachcroft Wansbroughs, maintains that the apparently ever more aggressive attempts by insurance companies to challenge submissions of 'reasonable costs' after a damages claim are justified.

'Somebody's got to negotiate,' he says.

'In the current climate, somebody's got to reduce those costs.'But other solicitors argue that the way costs are being contested is not efficient or effective, and is not in anybody's interests.James Bell, a partner at medium-sized Carlisle firm Bell Park Kerridge, explains the common procedure which has evolved recently, whereby a negotiator will ring him on behalf of a defendant.He says: 'The first and often only question they ask themselves seems to be: "How can I reduce this bill?".

It should be: "Is there anything in this bill which would not be allowed in a detailed assessment?".'Most claimant solicitors look back approvingly to a time when the talks on costs were often with the defendant's solicitor.

The two had worked together, built a trust, and would also have a fair idea how high costs might have run.If the claim was at an earlier stage, the discussions would be with somebody inside an insurance company's claims department, who understood the basis of costs.One of the areas of contention is the way negotiators are now paid, often as a contingency fee, according to how much they can reduce the solicitor's costs.

If they accept a bill at original face value, they make no money.Moreover, Mr Whitehead says the role of cost negotiators has delayed the process of sorting out claims.

'Over the past two or three years, insurance companies (or solicitors on their behalf) have devolved responsibility for agreeing costs to these cost negotiators.

This is slowing down the whole process.

Whereas in the past it might have taken 15 months to get a claim resolved, and another two months to recover costs, it's now taking four to six months to recover costs, and often solicitors need to issue part eight proceedings to recover those costs,' he says.He explains that the situation is exacerbated because the lawyers are dealing with somebody with whom they have not worked during the claim, and outside any formal procedure.Mr Whitehead continues: 'My own firm's experience, and anecdotally from others, is that these people start off with the attitude of: "I'm going to knock this claim down by as much as I can".

Their motivation is not continuing a business with those solicitors, getting on with life and getting reasonable costs, but appears to be making money for themselves by making the most reduction in solicitors' costs.'The crux for claimant solicitors is not the process of negotiation per se, but that often there is inadequate expertise and understanding.

According to Mr Bell, on one occasion a bill was queried by a cost negotiator who said the majority of the work undertaken had not been by a partner, so there was no justification to apply partners' rates to any part of the bill.He gives an example of another recent case.

'I claimed 4,300 costs after the claim settled four days before trial,' he recalls.

'I made an offer to settle for the amount of my original claim.

The insurer's solicitors wrote back saying the matter was out of their hands.

My offer was rejected by the law costs consultants, who offered 3,400.

There was no option but to have a detailed assessment of costs, which took two hours of court time.

The day before the detailed assessment, the horse-trading began and an offer of 3,700 was made and rejected.

The costs were assessed.'The first interview with the client was claimed at 30 minutes.

The consultant argued that 18 minutes was quite enough.

The district judge observed that in practice he did not recall any first interview of a personal injury client taking only 18 minutes.' The final award, including interest and court costs, was 4,900.One solution many solicitors think would help would be to impose some form of quality control on negotiators.

This is proposed by the Association of Law Costs Draftsmen (ALCD), which says it represents three-quarters of the qualified costs experts who are familiar with the court rules for the assessment of costs procedures, how to draw up a bill in accordance with court guidelines, and dealing with the cost judges on taxation.As Mr Whitehead points out: 'It's a very specialist area of legal activity.'Matthew Harman, the ALCD chairman, is angry that his members - who have to pass an examination, and include some who act as costs negotiators - are seeing their reputation tarnished by the growth of less sophisticated cost-reducers, which many claimant solicitors dismiss as 'cost monkeys'.'There is no regulation at all as it stands,' Mr Harman says.

'Anybody can call himself a cost negotiator or a costs draftsman tomorrow.

The only thing he can't do is say he is a member of our association.' The Gazette approached a leading firm of costs negotiators which was unable to comment in relation to these issues.

The association is canvassing its members and all interested bodies, including FOIL and the Association of Personal Injury Lawyers (APIL), to see if there is a way to introduce regulation.Mr Harman says he has no issue with negotiators being paid as a proportion of the amount obtained, as long as the negotiation is informed.As it stands, many cost negotiators will neither take the word of a solicitor, nor of a bill prepared by a qualified costs draftsman.

Mr Bell says: 'Even if I use my local trusted costs draftsman to prepare my bill, and present a bill which I expect to be assessed "as drawn", then my refusal to accept one-third off will lead to me being accused of being "intransigent and unrealistic".' These are two words which solicitors say crop up frequently during these discussions.Kerry Underwood, senior partner at the personal injury claim specialists Underwoods, says he counters these negotiators by putting in bills which reflect every possible cost, on the basis that they will be negotiated hard.

He says insurance companies pay out more as a result.But although he agrees that the problem is the approach and inexperience of the negotiators, he says the solution needs to be more drastic than regulating them, and calls for reform of the whole concept of costs.

'Regulation of negotiators would be treating the symptom, not the illness,' he says.

He describes it as bizarre that the system is so clumsy that it needs a costs expert to calculate rates in a normal high-street case where costs are only around 2,000.

'We're not talking multi-million pound damages actions,' he says.The answer is fixed costs on the fast-track procedures, for damages of up to 15,000, to remove the need for these complex calculations, say both Mr Underwood and Mr Parker.

'That way we could streamline our procedures to save money.

If solicitors are paid hourly rates there is no incentive to do that.'While costs remain, we are left with a system which is making neither side happy.

As Mr Parker, who wants lower costs claims, says the wrangling is dominating relations between the two sides in litigation.

'We ought really to get back to a situation where costs are not number one on the agenda,' he says, 'or as they sometimes are now, numbers one, two and three.' Cost negotiators will be counting on this situation continuing.Stephen Ward is a freelance journalist