Articles Posted in Non-Law Firm Costs

An interview in Met. Corp. Counsel, Vol. 15, May 2007 at 39, of Brian Kenny, Manager of Planning and Analysis at Marsh and McLennan, delves into some e-billing specifics. Marsh and McLennan has approximately 140 lawyers. The law department selected DataCert’s AIMS, in part because “approximately 80% of the law firms with whom we do business were already submitting e-bills to other clients using DataCert.”

Kenny goes on to explain that “the implementation process took approximately four months.” The law department went live on Feb. 1, 2006 and a year later had “approximately 70 firms and vendors on board,” with the result that “the majority of our bills are received electronically” (See my post of Sept. 5, 2007 on requiring only your primary firms to bill electronically.).

Oddly, to my way of thinking, he points out that one of the time consuming steps during implementation was reconciling the law department’s matter names and numbers to the firms’ corresponding names and numbers. Training on the system took place over three days and each session was limited to eight to ten people.

Law departments might consider several points in time to convert invoices that are not delivered in their home currency (See my posts of July 17, 2005 on currency considerations.). The date of the invoice might be when the law department ought to convert. The date might be later, such as when the law department enters the invoice into its matter management system (See my post of Sept. 5, 2005 on conversion on that date.). Or, the law department might take the currency conversion date of its accounts payable system, whatever that is.

Regardless of the date chosen, the law department also has to decide on the conversion figure to use. One department I worked with selected a conversion figure and held it constant for the entire year. Others update quarterly, monthly or even daily. Online systems can maintain very fresh conversion dates.

In Fulbright & Jaworski’s Fourth Annual Litigation Trends Survey, at 50, a chart portrays data from 303 UK and US companies. The chart shows what percentages of those companies carry nine kinds of insurance against litigation costs. In decreasing order, the insurance coverage included general liability (56% had such a policy), D&O (37%), “other” (35%), “self-insured” (18%), EPL (10%), “E&O” (9%), umbrella (2%), excess (1%) and “GC” (0%). E&O stands for Errors and Omissions.

This is quite a list of coverage types, but it is not exhaustive. Insurance against legal risk is available in a number of practice areas (See my posts of July 25, 2005 and July 20, 2005 for patent litigation; March 23, 2006 #5 for employment practices litigation [EPL]; and Nov. 16, 2005 #3 for IP insurance in Denmark.), This blog has commented more generally on insurance against litigation expenses (See my post of July 30, 2005 on external legal fees and insurance; April 23, 2006 about litigation insurance after a lawsuit is filed; Nov. 16, 2005 #3 for its availability in Europe.)

From Fulbright & Jaworski’s Fourth Annual Litigation Trends Survey at 23 comes data on e-discovery counsel. The text explains that the data pertains to “companies that have retained or considered retaining national or regional counsel specifically for e-discovery issues that arise in matters” (emphasis added). The findings report emphasizes the dramatic rise of this form of assistance from the previous year’s survey.

I interpret the results differently. Among the 117 companies with more than $1 billion in revenue, the percentage who answered affirmatively plummeted from 77 to 48. That drop might be because the new procedural rules were better understood this year, in-house experience with e-discovery has risen, or litigation firms have developed more skills so there is less need for a specialty firm to pitch in on e-discovery matters.

When faced with budget or headcount cuts, many general counsel create a team and charge that team to meet the objective. Teams can rethink the processes they engage in and teams can change relationships with outside counsel. Teams can chose and implement new software, and they can tackle many other management challenges, but teams cannot bring themselves to fire team members.

Only a general counsel can ultimately decide who and how many will be terminated. It just is not plausible that anyone on a team will volunteer to be terminated or nominate someone else on the team or in their reporting line to be terminated.

Because of this psychological and emotional limitation, teams may address cost solutions but not personnel solutions (See my post of Sept. 25, 2005 about the unique role of the general counsel.).

From Fulbright & Jaworski’s Fourth Annual Litigation Trends Survey comes some data about the costs of “pre-production privilege reviews.” Half of the 253 US law departments that responded said that privilege review cost more than five percent of their budget in the last 12 months (See my post of Oct. 24, 2007 on the much-touted figure of 60 percent of all litigation expenditures going to discovery.). Bear in mind that 22 percent of the US participants were companies with revenues under $100 million while 42 percent had revenues greater than $1 billion (at 6).

For 30 percent of that group, they “estimated that privilege reviews comprised 6% to 10% of their litigation costs.” For 16 percent of them, these costs went as high as one-third to one-half of their litigation budget (at 24). The findings report adds: “Most of the latter figure consisted of the mid-sized and the largest companies participating.” In the US group, 10 percent of the companies (25 of them) spent over $10 million on litigation (at 16).

In short, one portion of discovery — pre-production privilege reviews, which constitutes a large portion of “discovery” but not all, came nowhere near 60 percent.

The thought has troubled me for some time that in-house lawyers who manage outside law firms have very little reason to control costs (See my post of May 26, 2006 on rubber hitting the road.). All the wonderful systems and processes and external incentive systems pale in comparison to what a motivated and dedicated in-house counsel can do. But they don’t.

So I wrote an article, published in Legal Times, Sept. 2007, that offers some suggestions for how to involve individual lawyers in a campaign to spend law department dollars more wisely. Here is the article.

Many vendors of litigation support software or services will offer to host the files and documents you collect during an investigation or lawsuit. The costs for storage can mount rapidly, even into the tens-of-thousands of dollars per month where the number of pages of documents stored reaches millions.

Some law departments, with a modicum of IT support and server capability, have taken on that storage on their own. They purchase a server and license software and store their own documents themselves. One company I have worked with followed that path. They did have to hire a service provider and obtain software for access to the database and another to ensure web access. The cost savings can be dramatic for a law department.

My notion of a dormant lawsuit is one where billings are trivial during any quarter. If nothing much has happened for three months, the case has gone into hibernation. During one of my consulting projects, the head litigation lawyer estimated that of the company’s lawsuits then pending, “about 97 percent of them are dormant.” That quiescent percentage seems much too high, but I have seen no data elsewhere from other law departments. Many of the cases for that particular company were legacy and had been hanging around for years.

As I have mentioned, it seems foolish to try to reduce cycle time on cases – close the tap – where spending is but an infrequent drip (See my post of May 23, 2007 on reduction of cycle time.).

In some law departments, where outside counsel is to be hired the lawyer responsible must start the engagement with a purchase order. Some law departments open general purchase orders for the services of a law firm during a year. The department then can accumulate different small matters or general advice under the same purchase order.

Often the purchase order must be approved by a senior lawyer and must include at the least an estimate of how much will be spent under the PO requisition. To that degree, then, the inside lawyer presumably must give thought to the matter’s budget.

It might be that the lawyer creates the budget on her own or it may be that the lawyer asks the outside counsel to submit a proposed budget (See my post of Oct.19, 2007 on budgets and their inherent tensions.). Either way, a PO system and a budgeting system ought to complement each other.