Articles Posted in Outside Counsel

RFP processes by major law departments break into the news occasionally (See my post of March 13, 2007 on Pfizer’s process; Sept. 4, 2005 on the auction of General Electric; April 16, 2007 on changes to GE’s process; and April 22, 2007 on Tyco.). Even so, those exceptions prove the rule. Either journalists do not find competitive bid processes worthy of coverage or the law firms that are invited to take part carefully and scrupulously honor their commitments to disclose nothing about the process.

The law firms who are winners don’t crow about their success and the firms not selected do not leak their own lack of success. Nor do the law departments see advantage in publicity, unlike their counterparts in the UK (See my post of Dec. 12, 2006 about transatlantic differences in disclosure of panel firms.).

When a law department sends out an RFP, the department can specify the format it wants the law firms to use when they respond. One style hems in the firms: “In four pages, propose a fixed fee for 24 months to cover only the work described in the appendix.” That is an example of a bun approach.

Alternatively, an RFP can say, “What is your creative economic proposal, over what period of time to cover legal services related to those described in the appendix?” This approach invites law firms to show more creativity and think outside the bun.

Within the bun makes for a much easier review of the responses. Everybody is proposing on the same terms and therefore can be compared directly. Out of the bun demands more time and thought by the reviewers for the law department. Firms can vary widely in what they propose and it is harder to assess than the overall rankings of firms.

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

There was an interesting article in the Wall Street Journal some weeks ago about law firms doing more contingency-fee work for corporations (“Knives Out? Law Firms in New Era, Mar. 7, 2007 at B1). Like many, I’m regularly surprised at the resiliency of the hourly bill, and assumed that someday it will go away for most work. As put forth in this article, efficient law firms can make more money with other billing mechanisms, and clients are always frustrated with hourly bills (at least they say they are).

But I’ve been rethinking this lately. If a law department really optimized their electronic billing system, couldn’t this take the place of alternative fees? With detailed input and sophisticated reporting, a “legal spend management” system can help the law department understand in advance what a matter should cost. With this information (dare I say “budget?”) the client can simply manage the number of hours put forth on the project. The client gets the predictability it craves without changing the way their firm wants to do business.

I heard at a conference panel about a couple of law firms, one in the United States and one in the United Kingdom, who sent their lawyers on-site to a business to watch and appreciate the operations. Much like in-house lawyers, who need to study the business activities of their client (See my post of July 16, 2005 about GC’s and business acumen.), it likewise behooves law firms to invest in their principle clients and do what they can to become more familiar with their clients’ businesses.

The mere fact that a law firm volunteers to familiarize its lawyers this way ought to distinguish the firm from the pack. And, for their part, law departments ought to invite their key firms to breathe some of the air of real work, without, of course, bills submitted for that time.

Most people would describe a strong relationship as one where over several years a law department has paid a law firm a pile of money. Revenue is certainly one gauge of the strength of an attorney-client relationship.

Another measure, however, is the importance of matters for which the law department turns to the law firm. Each retention may be a year or two apart, but if it is a very important lawsuit or transaction and the law department routinely turns to the same firm, revenue is not the only measure of the bond.

A third measure could be share of client’s wallet. If 100 percent of the work in a particular practice area goes to one firm, one would have to say that the firm has a strong relationship with the law department.

Nothing beats face-to-face. For developing trust, communicating effectively, absorbing the business and its culture, and sharing materials, less personal alternatives such as e-mail, phone, instant messaging, and fax pale in comparison. The law firm that can send a lawyer across the street for a meeting has a leg up on any distant firm (See my post of March 23, 2007 on proximity and knowledge exchange.).

True, much can be done remotely – especially after people have met at least once. But I would not be surprised if many law departments spend a third or more of their outside counsel dollars on law firms that have offices only a few minutes away. My book, Law Department Benchmarks: Myths, Metrics and Management (Glasser LegalWorks 2001), has a chart on percentage of dollars spent by proximity, which backs up this supposition, and I suspect that even in this age of ubiquitous telecommunications that the data on physical closeness still holds true.

It is my belief that most law department lawyers hire a partner first and think of the partner’s firm second. Were I to quantify my impression, I would give 70 percent to the determining influence of the partner. Most in-house counsel who select outside counsel practice in a particular area, such as employment or environmental, so they have little occasion to meet a partner from the same firm who specializes in a different area.

On this logic, therefore, there has to be receptivity to cross-selling at a higher level in a law department. The general counsel, for example, has to consider another partner from the same firm and be willing to give that partner a try. It also suggests that the attractiveness of retaining a broader selection of partners from a firm depends on an overall impression about the quality of the law firm. If Partner A is good, her partner in another area is probably also good.

Thus, cross-selling implies that the ratio between attractiveness of the firm and attractiveness of the partner shifts, say to 50-50 between partner and firm. There is also the latent idea in using a firm more broadly that if the firm obtains more work from a law department – across a spectrum of practices – the firm will collectively know more about the client’s business and may also be amenable to billing arrangements more favorable to the law department.

Tyco, a $42 billion conglomerate, has dramatically reduced the number of law firms serving it in three major areas. According to Of Counsel, Vol. 26, April 2007 at 1, “Tyco selected Kansas City’s Shook, Hardy & Bacon to handle all of its product-liability legal work and Atlanta-based Ogletree, Deakins, Nash, Smoak & Stewart for its labor and employment matters.” Ogletree replaced 33 law firms in the fall of 2004 (at 21).

As if those two massive efforts to combine all work of a certain kind with a single firm were not enough, most recently, Tyco International pared the 250-some law firms that has retained for its operations in 31 countries in Europe, the Middle East, and Africa to a single firm: the UK’s Eversheds. Fueling the project that led to that firm’s selection were concerns about global compliance, consistency in quality and standards, and savings from “fewer fines, settlements, and other costs.” The article points out that Eversheds offers Tyco a global reach, an extensive training program for its attorneys, a “legal help line,” and an extranet.

As reported in Law Dept Quart., Vol. 2, May-July 2006 at 41, in early 2005 a group led by Jeff Hodge of Datacert, a leading e-billing vendor, and Brad Blickstein, the founding consultant of the Blickstein Group, began a collective effort to update and improve the various code sets. One particular focus, according to the article, was the code set for international use.

At the time of the article, the collective counted more than 200 members from the US and Europe.

In a recent e-mail to me, Blickstein adds that “We have new patent and trademark code sets in beta. A handful of corporations are already using these. We have an updated project code set, designed to better handle transactional activity, also in beta.” The collective plans to reach out to ACC, IBA (the International Bar Association) and the ABA (American Bar Association) to ask for their imprimatur. More about all this can be found on the group’s website http://utbms.com and even more is available at a website about LEDES.

An article in Met. Corp. Counsel, Vol. 15, Feb. 2007 at 31, discusses e-billing at Aon Corporation. Aon has lawyers stationed in 17 countries and supports a truly global operation, so its law department faces a number of compliance issues when it pays the invoices of law firms in many jurisdictions. Its director of operations, David Cambria david_cambria@aon.com points out, “[T]he program had to take into account the different tax requirements at the national, state or provincial level within the countries where we operate” (See my post of July 17, 2 2005 about value added taxes; and Dec. 1, 2006 #4 about US state taxes on law firm services.).

That is far from all. Other compliance issues that arise in the accounts payable process for such an international law department include “data privacy issues in Europe, and local rules concerning the adjustment of final invoices.” The article also mentions the tangle of currency conversion. Aon is not alone in wrestling with these vexing irritants