Articles Posted in Outside Counsel

When a lawyer who retains a law firm knows the value of the work the lawyer wants, there should be few gaps between fees charged and fees paid. If the instructions are clear – “Do not spend more than $2,000 on this research/draft/review/deliberation,” how can the firm diverge very far?

Sometimes, therefore, criticisms about divergence between benefit delivered and fees paid reflects shoddy instructions to the firm (See my posts of Nov. 11, 2007 on this debate; and Feb. 4, 2007 on the difficulty of stating a dollar value for what a firm accomplishes.).

Further, the more your external counsel understand your business, the more likely they are to be in tune to how their costs and effort ought to stack up against your gains (or risks avoided). Again, the culprit when there is a mismatch between legal costs and value might be the in-house lawyer who failed to put the legal work expected to be done in a realistic business context.

When law firms submit proposals for work, they may suggest a management idea that has merit, but should your law department abscond with the idea if you don’t hire that firm (See my post of Oct. 1, 2005 about the ethics of disseminating good ideas in proposals.)?

Hard-nosers say, “Yes, absolutely, because the firms know that their ideas are not protected by some form of proprietary confidentiality. If they give you a good idea, it’s yours.” Those who disagree feel guilty that your law department takes without compensation, except the nebulous possibility that you think better of the firm and it might fare better in a later round of proposals.

The same ethical question arises when several law firms, competing to represent you, analyze a new law suit and suggest what strategies and legal arguments they might advocate. Good ideas are everywhere and once expressed can’t be taken back, but only one law firm will be selected.

The question is, if you are a large law department and you have just installed e-billing, how many people might you require to support that software? Of course, the answer varies enormously, but let’s sketch one scenario for a law department of 20-to-50 lawyers.

After the initial setup period, an administrator might be required for something like one-half time to keep up with security, new users, password problems, training, help desk, system backup and other maintenance functions (See my post of May 2, 2007 on the term “full-time equivalent”).

Another half of a full-time equivalent might prepare reports from the system; analyze, chart and present those reports; and develop new insights.

UK general counsel have largely given up trying to reduce spending year-over-year. According to a survey conducted on behalf of the UK law firm, CMS Cameron McKenna, it’s enough to shave some off the spiraling legal spend: compared to a benchmark increase of six percent, a four percent increase is a small triumph, even though actual expenditures rise.

The survey, reported in Legal Week, Nov. 15, 2007, ranked the methods the law departments selected for outside-counsel cost control. The most important was a move away from hourly billing, which 68 percent of the respondents chose as their premier tool to reduce costs. Based on what I witness, it seems that is wishful thinking.

Just behind alternative fees, with 63 percent choosing it, was “better control of costs from firms.” What a bland and wishful dream that is!

Elsewhere this blog has plastered the notion, rashly advanced by others, that legal departments routinely “fire” significant numbers of law firms, including their primary firms. Enough debunking of that myth (See my post of May 27, 2007.).

But nothing in this blog has turned the coin over: do law firms fire corporate clients that are prestigious? We can all conjure up circumstances where that might happen: too many demands on the firm (See my post of Nov. 18, 2007 about freebies law firms can offer clients.); too many fire drills and weekend marathons; too much nickel-and-dime fee chopping; too wide and inflexible a bar of on conflicts of interest (See my post of Nov. 22, 2007 about waivers sought in advance by law firms.).

Or perhaps it just doesn’t happen – few law firms say to big companies, “Take a hike.” More likely the service level of a frustrated, put-upon firm slips steadily and eventually the law department cans the firm.

A recent study, prepared by Commerce & Industry (C&I) and BDO Stoy Hayward, offers many ideas about hourly billing (See my posts of Nov. 11, 2007 for two comments on the study; and Nov. 13, 2007 for two more posts; and Nov. 23, 2007 for a fifth.). Let me advance another thought.

Apparently as a result of procurement’s involvement with outside counsel fees (See my post of Nov. 23, 2007 regarding procurement and coaching.), “Dell asks some law firms to bill on a daily or half-daily rate rather than by the hour for some of their work.”

As an explanation why per-diem billing sometimes is more attractive than hourly billing, a Dell lawyer said that such an arrangement can “offer better value” and be “more familiar in terms of structure and content” to people who are accustomed to that method. In other words, clients more commonly pay per diem or half day rates to their service providers, so they more readily understand and can evaluate legal fees when outside counsel bill by the same periods.

A report released this year by Commerce & Industry (C&I) and BDO Stoy Hayward brought up an interesting point about any arrangement between a law department and a law firm under which the firm will handle all of a certain kind of work for a set fee (See my posts of Aug. 5, 2007 for two comments on fixed-fee arrangements.).

According to the report (at 2), “Cisco put in place a service level agreement: if Cisco doesn’t perform the work it has promised to do, it will have to compensate the firm.” In other words, a law firm that has signed on to do all the work of a certain kind for a client for a set payment must be able to rely on the law department – and the company – to maintain or improve the status quo. The department must keep its staff levels the same, their workload similar, and their incentives to handle similar kinds and amounts of work as high. Nor can clients slough off. Both the in-house legal group and its clients must hold up their ends of the bargain with the law firm.

According to Barry Fisher, general counsel at SAP Canada Inc., “Many companies are calling upon specialists who offer coaching on how to conduct interviews and expertise in identifying success factors” when the companies select outside counsel.

In the next paragraph, from LEXPERT, Vol. 8, July/Aug. 2007 at 63, the suggestion is made that procurement personnel can help with these skills. Sourcing experts might help find the coach, but how your law department effectively uses them depends on you (See my post of June 9, 2007 on coaching and seven references cited.).

It’s news to me that many companies have hired coaches, and I disagree that they are very effective. In-house counsel can become more adept at interviewing partners but useful coaching by non-lawyers on the rest of the selection process is hard to imagine. Then again, perhaps Fisher’s point is that purchasing specialists have a more discipline methods of querying sellers of services (interviews) and a more analytical approach to ranking the proposals of law firms. With that point, I agree (See my post of Nov. 13, 2007 about the procurement group at Dell.).

In 2006 a major bank paid through its e-billing system more than 800 firms and an average of 17 timekeepers per firm. “Timekeepers” means anyone – lawyers, paralegals, litigation support staff, researchers – who bills time. Of its law firms, however, 40 percent billed one or two timekeepers and 70 percent billed 10 or less. Among the 220 law firms paid the most, the bank averaged 49 timekeepers per firm. Those firms had an astonishing number of people who billed on the bank’s matters (unless the median figure was much lower).

This data powerfully makes the point that many law firms stray far from the core-team approach (See my post of Dec. 8, 2006 about core teams in law firms.). They don’t have, or perhaps we just can’t tell from the data, a handful of lawyers who become most familiar with the work and needs of a particular client (See my post of Nov. 15 2005 on 17 timekeepers per law firm in claims work.). Instead, everyone and their cousins bill time to the bank’s matters.

Many law departments may find it useful to obtain information from a set of law firms who might be retained in the future. To speed up the competitive bid processes that are to come, the department might want to gather some demographic and cost information from a number of law firms, some of whom may be asked to compete later for a specific matter.

The Request for Information (RFI) asks for background, qualifying information such as experience in area of law, lawyers who specialize in that area, conflicts of interest, and billing rates. With that foundational information in hand, the department can narrow down which firms will receive an RFP and will only ask them to update their information and focus on the particular matter. This approach is different than selecting a panel of law firms (See my post of Mqay 13, 2007 on panels of firms.).