What does the ‘2%’ costs management work cover?

There has recently been some debate as to what costs management and budgeting work, other than the initial preparation of the Precedent H costs budget, is recoverable between the parties to litigation.

CPR.r.3 PD3E section 7.2(b) states:
‘Costs management orders
7.1  …
7.2  Save in exceptional circumstances-
(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the approved or agreed budget; and
(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the approved or agreed budget.’

Having identified that, lets us now look at how the current Precedent H form is laid out. It currently looks like this:


Accordingly, it can be seen that the ‘1%’ and ‘2%’ work is in addition to that contained within the body of the budget. If the 1% and 2% work is contained within the budget then to add a further 1% and 2% would, of course, be duplication of the allowance for that work.

However, when we look at the ‘Annex B – Guidance Notes for Precedent H’ found at the foot of PD 3E we can see what costs management work is supposed to be included within the costs budget itself.

The guidance notes state that the following work should be included in the CMC phase of the costs budget:

• Reviewing opponent’s budget;
• Correspondence with opponent to agree...budgets, where possible;
• Preparation for, and attendance at, the CMC;

If this work is supposed to be in the costs budget, logically, it cannot be part of the ‘recoverable costs of the budgeting and costs management process’ anticipated by CPR.r.3 PD 3E s7.2(b) can it?

So, if reviewing an opponent’s budget, agreeing budgets and preparing for, and attendance at, the CMC is work that sits outside the recoverable 2% work, what sits within it?

Bearing in mind that there is double the allowance than that of the initial preparation of the Precedent H it must be something important.

Here at Just Costs, we are regularly seeing firms incurring more costs than is provided for by their costs budget. Logically, therefore, a large part of the 2% work must be for periodically reviewing and monitoring the actual legal spend following a costs management order to ensure that it is kept within the approved or agreed budget.

Of course, the consequences of overspending can be found at CPR.r.3.18:

‘Assessing costs on the standard basis where a costs management order has been made
3.18 In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –
(a) …
(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so.’

Essentially, unless there is a good reason for an overspend, any costs incurred over and above those approved or agreed within a costs management order are not recoverable between the parties.

Given the importance, therefore, of the periodical monitoring of legal spend following a costs management order and the fact that those costs are recoverable between the parties in the event that party receives a costs order in its favour, why would anyone not periodically review their legal spend? A practitioner can avoid writing off large proportions of costs and get paid for carrying out the exercise.

Nevertheless it is still happening and failing to do so is having a profound effect on the finances of firms of solicitors engaged in work that is the subject of costs management.

We cannot stress enough that practitioners (or their costs experts) must be periodically monitoring their legal spend particularly following a costs management order.

Fail to do so at your peril.

Written by Nick McDonnell - Director and Costs Lawyer



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