Articles Posted in Outside Counsel

Ed Poll, writing on his blog, Law Biz Blog, parts ways with me about value based billings (See my post of Nov. 11, 2007 on how hard it is to set a value on many legal services.): “Rees Morrison observed, “Certainly no law firm can hazard more than a guess on the worth to a particular client at a particular time of its 10 paralegal hours, 20 associate hours, and 8 partner hours on a revision of a major sublease. For much that law firms do, value and cost are incommensurable.”

I agree with Rees when one looks backwards. However, if one reviews the matter with the client before the engagement actually begins, the client generally will be able to assess the value to him/her/it. At that point, the law firm and client, together, should evaluate whether the anticipated service can be delivered for a fee that is commensurate with the value delivered as perceived by the client.” I agree with Ed that clients are better positioned to value a legal service, but that doesn’t mean that they can put a dollar value on the service.

Poll adds: “Budgeting for the matter, with the involvement and concurrence of the client, will go a long way to establish both the value to the client and likely fees the law firm will charge.” Budgets are often based on what firms charged previously for similar work, not on a calculation of the value of the work to the client.

If you ask a large law firm that hasn’t worked with your department before to handle a small, one-off matter, the firm may ask you to waive in advance your rights to conflict that firm out of other matters. The firm does not want to have the itsy-bitsy matter block it later on from a large piece of work for a competitor or adversary. As firms swell in size, they more insistently seek prospective waivers (See my posts of March 24, 2007 about DuPont’s struggle with waivers; and Dec. 18, 2006 on law firm engagement letters and assumptions of prospective waivers.).

Firms and departments have negotiated all kinds of language to address the scope of pre-waivers. Still, the issue makes it more complex and time-consuming even when you need to quickly retain specialized counsel.

One general counsel I have worked with suspects that e-billing systems make it very easy for lawyers to click a box next to a bill and thereby discharge their responsibility to actually review the bill. In the old days, when there was a hefty paper bill in front of a lawyer, it was more likely that the lawyer would pick up the bill, leaf through it, and perhaps scrutinize some portions. With the new software, it’s so “e”asy and intangible; just click! and you’re done.

E-billing still has obvious advantages for checking math and disciplining compliance with guidelines, but if the simplicity of a keystroke diminishes the already weak motivation of lawyers to pick apart a bill, an ironic volte face is apparent (See my post of May 1, 2006 about how little time inside lawyers spend on bill review.).

If your law department has outside counsel guidelines (See my post of Aug. 1, 2006.), you will find that many law firms negotiate revisions or supplements to your terms. You need to keep track of those variations in a central database.

Furthermore, from time to time you may negotiate special fee or staffing arrangements with law firms for particular matters. Again, you need to keep track of those arrangements in one place.

If you do not maintain a repository of firm-specific terms, you and other people in the department later on will not be able to recall the terms you have reached nor will you be able to look back after several alterations have occurred and perhaps adjust your outside counsel guidelines (or responses to engagement letters) in light of your experience negotiating them (See my post of May 19, 2006 regarding law-firm engagement letters.).

As I wrote about recent efforts to rank law firms, both by groups of law departments and individual departments (See my post of Nov. 19, 2007.), my thoughts went to an alternative method: shared, blind ratings of work product. For example, what if 10 law departments each volunteered a recent brief in a motion for summary judgment. Each department would redact any clues as to itself or the firm – but bear in mind that a pleading is a matter of public record – and a third party would assemble the briefs.

A panel of accomplished lawyers would grade the motions on two or three attributes – persuasiveness, quality of writing, depth of research, perhaps – without knowing which law firm wrote which brief.

That qualitative assessment would be even stronger if the law departments would estimate the fees charged by the firm for the motion and if an outcome were attached to it.

Patrick Hurley, Vice President of the LEDES Oversight Committee sent me the quoted material below. I urge law department readers to take a few minutes and complete the survey.

“Last year, the LEDES Oversight Committee (LOC) surveyed over 120 law firms regarding the submission of electronic invoices and the back-and-forth communication regarding those invoices until the bill is finally paid. The survey found that these can be extremely painful and resource-intensive processes for law firms. In order to streamline these processes and lessen some of the burden and difficulties law firms face in the ever-expanding use of electronic invoicing in our industry, the LOC is considering developing standards around the communication process. If all vendors involved in the process utilized the same protocols for submitting invoices, acknowledging receipt and communicating problems, much of the process could be fully-automated, reducing the additional resource requirements of law firms and general overhead expense of same.

The LOC would like input from corporate counsel legal departments. Please take a few moments to fill out the survey accessed by clicking the link below. The survey is brief and shouldn’t take more than a few minutes to complete. Your efforts are greatly appreciated. Here is the URL for the survey:

A friend of mine, Andrew Shipley, Assistant General Counsel – Litigation with Northrop-Grumman, wrote regarding my comments about setting minimum experience levels for associates (See my post of Nov. 8, 2005.). I quote him below.

‘The issue raises an interesting dilemma. Clients don’t want to pay the high price for what it perceives to be low-value-added first-year associates. But does a blanket prohibition on the use of first year associates actually solve the problem? Only if the client and the law firm have a sufficiently good relationship to ensure that the more experienced associate who is assigned represents good value. Otherwise, the fourth-year tasked with typical first-year work may be the weakest associate in his class, as the firm might prefer not to alienate its more talented colleagues. Such an assignment could yield even less value to the client than if a talented first-year had been given the work. So, why have a blanket prohibition if it may not achieve the desired end?”

Shipley makes a very good point.

InsideCounsel, Nov. 2007 at 4, explains that its revised website, InsideCounsel.com 2.0 will “allow in-house lawyers to rank the firms they use based on 10 different factors, including “value of service,” “responsiveness” and “billing accuracy”. However, law departments won’t find out the overall results until the October 2008 issue.

To a similar point, Legal Week, Vol. 9, Nov. 1, 2007 at 20, describes the extensive system UBS has set up for ranking its external firms. “By looking at seven different criteria — including practical, technical, deal-making, strategy and managerial skills as well as pace of work and cost — and ranking external firms in these areas on a five-point scale,” the legal department hopes to rein in its legal bills, which are “estimated to have reached nearly 1% of the banking giant’s revenue.”

The article mentions that UBS is looking to take into account additional factors, such as the profitability of law firms, their infrastructure and administration. It also sketches a comparable effort by Zurich’s legal team.

Law departments have not lacked for ingenuity when asking law firms to provide services beyond legal advice (See my posts of June 28, 2006 on added-value services – IT support, access to work product, CLE, secondees, extranets, recruitment, and contract tracking; July 21, 2005 with a higher-level listing; and Feb. 25, 2007 about law firm training of in-house counsel.).

Here are some more offerings by firms that departments might explore.

1. Analyze and report internal data (See my post of Nov. 5, 2007 about Cisco and Fenwick & West.).

A previous post presented a recent study’s findings on hourly billing’s strengths (See my post of Nov.11, 2007.). The same study, by Commerce & Industry (C&I) and BDO Stoy Hayward, gathered from 171 UK law departments their views on the drawbacks of hourly billing by law firms. Here are their views with the percentage of respondents who selected them:

“There is no certainty over the final cost.” (94%)

“There is no incentive for the firm to be quick or efficient.” (82%)