COSTS OF COSTS BUDGETING

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

There is an interesting recent blog from the ever excellent Simon Gibbs pointing out that the 1% of approved budget or £1,000 for budget drafting, and 2% for the budget process, are caps, not entitlements; in other words the costs are capped and not fixed.

I see this mistake time and time again in various areas of work.

Understanding the difference is crucial.

Where costs are fixed, then the key is to earn those fixed costs at minimum expense, while maintaining the necessary quality of work.

That may sound like a tall order, but it is the way virtually every other business works.

Capped costs maintain a lot of the inefficiency, and incentives to be inefficient, that exist with the hourly rate, that is to do as much work as possible, but only up to the level of the cap.

Simon Gibbs also states:

“Secondly, the fact that the part of the % that relates to incurred costs is calculated by reference to the amount eventually “agreed or allowed on assessment” means that at the time the budget is drafted (and at the time of the costs management hearing) it is completely unknown what figure will eventually be agreed or assessed in respect of incurred costs.  This will only be discovered at the conclusion of the claim once the other costs have actually been agreed/assessed.  It is therefore not possible to calculate the 1% or 2% figure at that stage as the amount used to calculate the figure has not yet crystallised.

Thirdly, even in respect of the estimated future costs, at best it is simply wishful thinking to believe that because the estimated future costs are £x that this amount will be approved in full.  Any reduction by the court in respect of estimated costs will lead to a corresponding reduction in the amount allowed for the “budget drafting” and “budget process” caps.

Matters are not helped by the Precedent H Guidance Notes which state:

“Budget preparation: the time spent in preparing the budget and associated material must not be claimed in the draft budget under any phase. The permitted figure will be inserted once the final budget figure has been approved by the court.”

The reference to “inserted” is clearly intended to mean the amounts that will be inserted on the front page of Precedent H.

This is also simply wrong, because at the point the future estimated costs are approved by the court, the amount that may be agreed/assessed for the incurred costs will, again, remain unknown.

Precedent H itself is clearly defectively drafted.  The 1% and 2% figures can never be inserted at the costs management stage and these elements should not be on Precedent H.”