Articles Posted in Outside Counsel

Think about this question: Are your outside lawyers more effective when they work for reasonably long periods of time on your matters? That is to say, is it better to have four hours billed on one day than one hour billed on each of four consecutive days?

Obviously, no flat answer is expected to this question, but the notion makes intuitive sense to me that people who immerse themselves in a problem and think about it for a concentrated period of time will produce better work than scatter-shot, start-end-stop work.

We already recognize that drive-by billers, who only spend 15 minutes or so on a matter, often charge useless time. Some also think that those who bill more than eight hours a day on a matter can hardly be as effective in the final hour or two (See my post of Nov. 8, 2005 about Altria and its 200-hour maximum in a month.). Electronic billing software can track patterns of law firms on both these practices. In short, concentrated, somewhat lengthy periods of time in between the extremes may represent the best return for a law department.

Once a complaint is served on a company, the clock starts ticking. That clock may constrain the ability of a law department to negotiate a bespoke fee arrangement with a law firm. After all, there have to be appearances made and answers filed. Plaintiffs often grant extensions, but one never knows.

It takes time to figure out arrangements such as bonuses for performance and holdbacks (See my posts of Sept. 5, 2007 on probabilities in connection with premiums; and Sept. 18, 2007 on holdbacks.). Even when both sides are amenable to a novel structure, time passes while the concepts are articulated, hashed out, reviewed, and refined.

Meanwhile, it feels as if the law department steadily looses leverage as it moves down the path with its desired firm.

A profile of Mark Chandler, the General Counsel of Cisco Systems, in the Nat. L.J., April 16, 2007, Vol. 29, at 8, describes a thought-provoking possibility. Chandler asked one of Cisco’s primary law firms, Fenwick & West, “to figure out what was the 10% of their work that was the least value-added.” One of the tasks the firm fingered was fairly routine work filling out forms associated with the company’s acquisitions. Expensive associates were slogging through that drudgery.

Cisco hired a paralegal to do the forms, thus saving itself $400,000 in Fenwick fees, but it let Fenwick keep $150,000 of the savings. True, the firm lost revenue overall, but it gained a $150,000 incentive premium (almost 40% of the savings to its client) for both its honest, flexibility, and analytic ability. The article does not say whether the refund to the firm was only for the first year or would continue.

Every law department might try the same approach: “Show us how to reduce your fees and we will give you part of the savings.”

In-house lawyers want timely, specific information from law firms, not half-page advertisements, “splashing marketing brochures, newsletters and client alerts,” according to a recent piece in GC Cal. Mag., Sept. 4, 2007. Ads seem more intent on creating a favorable image of the firm – a brand image – than passing on useful knowledge. They certainly cost tens of thousands of dollars, but potential buyers aren’t swayed by metaphorical, impressionistic slogans and pictures (See my post of Feb. 19, 2007.).

Newsletters and alerts that are tailored to a specific industry or company, that arrive promptly after a relevant decision or change in the law, and that suggest somewhat specifically what the in-house lawyer should do to respond have higher rates. The article points out that a personal note accompanying the news is also likely to draw attention to the item (See my post of Dec. 17, 2006 on client alerts.).

As to other marketing techniques, the article did not comment (See my posts of July 4, 2006 and Aug. 26, 2005 on law-firm websites; Feb. 12, 2006 on law-firm extranets; Oct. 17, 2005 on surveys conducted by law firms; April 17, 2006 on schwag and lagniappe; and Aug. 5, 2007 about referrals.).

In several speeches, I have excoriated ten practices that some law departments have effectuated. Here are the ten and some of my blog references regarding them.

1. Mostly seeking discounts from hourly rates (See my posts of June 30, 2007 about how to calculate savings; and May 26, 2007 where I deride discounts.).

2. Aggressively auditing bills with third parties (See my post of Oct. 24, 2007 about audits by both employees and third-parties of bills.).

Law departments often negotiate or demand discounts from their law firms. Sometimes the amounts of the discounts rise, according to the volume of work received from the law department (See my post of Aug. 8, 2006 on tiered discounts from hourly rates.). Because these arrangements are arrived at prospectively, neither side has assurance of what the actual spending figures will turn out to be.

The negotiating lawyers may go back and forth on figures but eventually settle on some discount schedule for some volume of work expected. The disappointment is usually on the side of the law firm because it has visions of golden sugarplums while the law department dreams of higher-level discounts and praiseworthy savings. Insufficient volume disappoints both.

It might be possible for both sides to revisit the discount schedule, say quarterly, or agree to a more sophisticated algorithm. Perhaps the discount rate would be based each month on a rolling three month figure and therefore would automatically correct as the year goes by (See my post of Jan. 6, 2006 on rolling averages.).

The findings report from Fulbright & Jaworski’s Fourth Annual Litigation Trends Survey at 20 states that “Half of all respondents in the survey [303 companies] have used fixed fees, but of those, most use them rarely.”

Note that it is possible that the question was something like “Have you ever used fixed fee arrangements in litigation?” so the look-back was not “in the past 12 months” or otherwise limited. But note also that around a quarter of the companies in the survey had revenues of less than $100 million, and thus had relatively few or small lawsuits.

Ironically, when the respondents ranked their “Preferred Alternative Fee/Billing Arrangement,” fixed fees was by far the most frequently preferred, at 42 percent, followed by volume discounts at 26 percent, hourly (14%), contingency fees (11%) and success-based billing (7%).

A survey of the AM Law 200’s technology managers, reported in Law Firm Inc., Vol. 5, Sept. 2007 at 42, found which e-billing software providers somewhat more than half of those firms use (See my posts of Nov. 17, 2006 about how firms must accommodate multiple e-billing packages; and Feb. 21, 2007 on vexations for law firms associated with e-billing.). Last year I reported the results from a similar question from 116 respondents (See my post of July 11, 2006.); this year’s survey attracted 113 respondents. The year-over-year fluctuations are enormous, so there must be something about methodology that explains the swings.

The two most common in 2006 were CT Tymetrix (Tripoint/Direct Invoice) used by 31 firms and Serengeti (Tracker) used by 29 firms. A year later, CT Tymetrix dropped to 19 firm citations and Serengeti to 10! Something is amiss.

DataCert (AIMS) was third in 2006 with 17 firms citing its use, but jumped to 26 firms in 2007. LexisNexis (Counsellink, Examen) plummeted from 14 cites to one, while BottomLine Technologies fell from 8 to 3. I only have comparative market share data for those five systems. It just doesn’t make sense that last year the same number of respondents from the same pool of firms – there is no way to know if the respondents were mostly the same firms or not – reported 99 instances of those packages while this year they reported a mere 59 instances. Something is very misleading or wrong with this data.

My article on how to craft more effective requests for proposals appears in Corp. Counsel, Vol. 14, Sept. 2007 at 84.

The more I consult to RFP projects, the more I realize you have to tell law firms fairly precisely what you want back from them. Open-ended questions such as “Please describe alternative fee arrangements you might propose” will not give you sufficient specificity.

If, however, you outline the four parameters that will govern the fee arrangement — perhaps tiered discounts, rates frozen for a certain time, an expected bonus range, and the three lawyers who work most on the project — you are more likely to get back comparable and useful responses.

The 2006 ACC/Serengeti Managing Outside Counsel Survey gathered some metrics on prompt-payment discounts. Approximately one out of seven law departments received some discount from their law firms for early payment of the firms’ bills. Even that minority, however, receives such discounts from only about one out of five of their law firms.

Those two metrics suggest that about one out of 33 law firms grant a prompt-payment discount (1/7 times 1/5). According to the survey, the average discount is 6.4 percent for payment within an average of 19.7 days.

What remains unknown is whether the remaining law departments don’t try for such a discount, can’t pay promptly enough to persuade law firms to grant the discount, or law firms decline the arrangement (See my posts of June 11, 2007, with four references, and June 20, 2007 on prompt-payment discounts.). After all, firms would have to go back and write down each invoice that ended up discounted because it was paid quickly.