Preparing costs budgets effectively

There seems to be a bit of an obsession with getting the figures in a costs budget right. By ‘right’ I mean the figures included in it will be stuck to, to the penny. Anybody who prepares budgets regularly and continues to take that approach will soon need to be locked away in a padded cell.

As soon as we all accept that every budget will be wrong, the better. After all, the glossary to the CPR defines a budget as an ‘estimate’, so wrong is fine. Of course, some may be more wrong than others. To stand a chance of approval, a budget has to be reasonable, proportionate and justifiable. The first two could be said to be capable of measurement in monetary terms; the third requires more than that and will be referenced to the assumptions behind the numbers.

Over the last year or so, I have been visiting solicitors’ offices delivering practical training on preparing costs budgets. Based on a real case and a real budget, I give the fee-earners a case scenario and a mock budget with the costs already incurred included and ask them individually to draft a budget for the future costs.

To a man, woman and child they all want to get as close as possible to the figure in the budget that was actually filed in the real case and the excitement builds as I get ready to read out the actual figure. They want to be right. To date, the lowest figure I have seen is £15,000 and the highest is £180,000.

There is palpable disappointment when I tell my victims that they are all wrong, even if their figure is the same as the real total, but there is some relief when I tell them all that if the figures in it are reasonable, proportionate and justifiable by reference to assumptions, they are as close to ‘right’ as the next person, whether their figure was £15,000 or £180,000.

The figures are not necessarily of primary importance but rather the assumptions that they are based on. For example, you might reasonably assume that your client’s case is going to settle the following day, so the only costs in the future budget will be a handful of letters, drafting a consent order and the court fee. On the other hand you might reasonably assume that your case is going to be fought tooth and nail to the death and there will be experts and counsel at every stage.

I admit that the first example is somewhat extreme and unlikely as most, if not all, budgets will assume that the case will get to court, from a budgetary perspective at least. But it demonstrates the point that the total future estimated cost will be based on the reasonable assumptions you make in respect of the litigation. Those assumptions have to take into account the conduct of your opponent as well as your own client. The assumptions are therefore key to justifying your £15,000 or your £180,000.

If, as will frequently be the case, your case then takes a different path to the one you reasonably anticipated, then you have good reason to amend the budget, relying on whatever ‘significant development’ has occurred.

Your assumptions will and should change. One of my former school teachers recently reminded me of a quote attributed to Isaac Asimov: “Your assumptions are your windows on the world. Scrub them off once in a while or the light won’t come in.” A piece of litigation can be looked at in much the same way – your assumptions will need to be challenged and changed, maybe on more than one occasion or else your budget will become more meaningless than you may think it is already.

If a change in assumptions amounts to or results from a ‘significant development’ and the budgeted figures change, either upwards or downwards (remember the rules require a party to amend its budget downwards if necessary), then an application will need to be made to amend it, before you have exceeded the particular budgetary phase.

If it needs to go down rather than up, then there must be a fair chance that your opponent will agree it but increasing it may be more problematic. However, as long as the assumptions made in the original budget were sufficiently narrow and specific, there will be identifiable grounds to persuade the court to allow you to amend it.

That is where budgeting becomes an art more than a science. Whilst it is important to have a good stab at calculating how long the required work will take, the assumptions are paramount to being able to justify that work in the first place and to subsequently amend it successfully when the case changes.

Jon Lord is a Council member of the Association of Costs Lawyers

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08 Jun 2016

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