Articles Posted in Outside Counsel

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According to InsideCounsel, Feb. 2007 at 50, “several years ago” the general counsel of Coachmen Industries, Richard Lavers – now the CEO, asked four primary law firms, “firms he had worked with for years, to bid on a package of commodity type matters.” Lavers selected two of the firms and placed with them “common compliance and transactional matters and routine litigation and warranty work under an annual fixed fee paid in monthly increments.”

All the components of a successful fixed-fee arrangement were in place: known and trusted firms, an aggregated volume of work, a multi-year period of time, buyers and sellers both willing to complete an alternative fee arrangement, and careful attention to the terms and understandings – Lavers notes that “the process was indeed time-consuming.” Other law departments have bundled a wide array of prospective matters and negotiated comprehensive, cover-all fees from one or more law firms to handle those matters (See my post of Sept. 14, 2005 on Cisco’s flat fee arrangements covering around $50 million of services.).

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I like the way in InsideCounsel, Feb. 2007 at 10, Charles James, Chevron’s general counsel, explains split-engagements. In some “mission-critical matters” it may be essential for a law department to hire the best lawyer money can buy. “But it’s not always necessary to take the full law firm package that comes along with that premier lawyer.” James gives the example of engaging a superb trial lawyer and pairing that expert trial team with a “solid, but lower cost, regional firm to handle the routine matters associated with the case.”

To create and hold together a virtual team is much harder than to let one firm handle all the integration of tasks, but it can chop fees drastically (See my posts of Dec. 5, 2005 on this technique at Cisco; and of Dec. 3, 2006 on five nuances of the term “virtual law firms.”).

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Charles James, Chevron’s general counsel, disagrees with me, according to InsideCounsel, Feb. 2007 at 10. He places that focus – “scrutinize costs as closely as fees” – ahead of managing outside counsel staffing as well as bringing work inside. Possibly the order is random, but even so, disbursements are small game (See my post of April 18, 2005 and Aug. 20, 2006 on my 10 percent estimate; and Oct. 24, 2005 on FMC’s inclusion of disbursements in rates.).

It’s fine that his department has adopted “universal outside counsel guidelines specifying [Chevron’s] policies regarding costs and disbursements,” and instructs its e-billing system to ferret out violations. The tough decisions, however, and the best return on time invested, are to closely direct what and when outside lawyers should work on (See my post of Oct. 5, 2005 on Citigroup’s GC, and his focus on staffing patterns and risk/reward decisions.).

The lure of disbursement hunting is that shooting fax charges is easy to do, easy to explain, and easy to mount on the wall. The mistake is that disbursements are a dime on the dollar, so all the big game escape.

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Amy Campbell’s Web Log has comments from a Legal Marketing Association (LMA) panel held in November 2006. The in-house lawyers on the panel spoke about how they handle budget over-runs by their firms. The prevailing concept was dubbed by Eric Cohen of Terex Corporation “into the bank.” “We pay 50% and the other half goes into the bank and depending on the outcome, they get all or part of the bank.” Northeast Utilities also uses the bank concept, although they call it “Success Fees.” The technique seems sensible, and puts some bite into the budget calculations.

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In 2005, the law department of Caterpillar was chosen as one of five law departments selected as visionary thinkers by Corporate Counsel magazine. This year, in a reprise, Corp. Counsel, Vol. 13, Dec. 2006 at 89, describes the subsequent expansion of the department’s annual law-firm grading system.

“The 1-to-5 rating scale has been expanded to include 60 questions in five major areas: strategic input, operations, cost/billing, overall performance, and technical savvy; firms are graded in each area.” Lawyers in Caterpillar’s law department apply this elaborate evaluation to all ten law firms selected to get the bulk of the approximately $32.5 million of products liability work the department has to offer each year, as well as many other firms because the grading system has been replicated in all legal areas across the company’s 27 international legal offices.

This is surely one of the most comprehensive, fine-grained assessment programs underway (See my posts of Nov. 1, 2005 about most departments’ shortcomings in this area; Nov. 16, 2005 on some evaluation tools and references cited.).

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From Amy Campbell’s Web Log comes a comment by Emily Dickinson, a lawyer with Hannaford Bros. Co.: “When I hire a new firm, I take them on store tours and show them our business.” What a fine idea, to help counsel – presumably on their dime – become more familiar with the business and culture of a new client. As to who drops the dime, I believe that law firms ought to invest non-chargeable time in getting to know a client (See my post of June 19, 2006.).

Another instance of a similar intention comes from one of my clients, which prepares brief bios of each lawyer and paralegal and give them to new counsel. The summaries describe the person’s background and key responsibilities. Both tours and summaries help and humanize a fledgling lawyer-client relationship.

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According to Dan DiPietro of Citigroup’s Private Bank group, US law firms are on a road that has six levers that drive profitability. Hearing DiPietro’s presentation on this model, it occurred to me that as to their key law firms, inside lawyers can and should directly influence each of those levers (See my posts of June 15, 2006 about meddling in firm management; and July 5, 2006 with several forms of such intervention.). Other posts on this blog have taken up aspects of these drivers from the perspective of law departments and what departments can to do affect them; some of them follow the six drivers below.

1. Productivity, which is the number of hours billed by a lawyer, is squarely within the sights of law departments (See my post of Oct. 20, 2005 on how many total hours law firm lawyers bill.).

2. Realization is something law departments can reduce or increase because they negotiate discounts and scrutinize bills to challenge excessive charges (See my posts of Sept. 14, 2005 on the time spent on invoice review; and Aug. 8, 2006 on tiered discounts from hourly rates.).

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Law departments will find their bill review process easier to slog through if the bills they receive from outside counsel have a similar format. This does not mean that each bill in its entirety must mirror some standard format, but that useful information with a common definition is available in one place. For example, if the law department wants to know effective billing rates by levels, it should specify where to state those figures and how to calculate them. A coversheet on the invoice prepared by the firm’s time and billing system might suffice for providing the requisite data in the right place.

An additional benefit from standardized data is that the law department can more readily compare performances across law firms. Eventually, it will be possible to use OCR devices to input the key data (See my post Sept. 22, 2006 for more ideas on this future.).

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The 2006 Law Firm Survey regarding E-Billing Vendors, conducted in the summer of 2006 by ALM Research, amassed 630 responses. One question asked the firm respondents to select any of eight items that they would classify as a problem or concern with one or more e-billing vendors. The results are relevant to law departments.

“We are charged a fee to use the e-billing system” (65% selected this item); “It was time consuming to set up” (56%), “It’s difficult to maintain authorized timekeepers/rates” (48%), “We have to code all-time entries (UTBMS)” (48%), “The vendor required changes to the LEDES standard” (37%), “We don’t get notice of billing problems/reductions” (30%), “We had to retain a consultant/hire new staff” (10%), “We have to recover e-billing system fees indirectly from our clients” (9%).

Each of these frictions a thoughtful law department can ameliorate, or, as to the last choice – sneak the costs back to the client – clamp down on.

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It sounds shrewd to have partners leverage work to associates, and it makes sense for a law department to use a core team of a partner and a handful of associates. The logic of both policies falters, however, when associates who are trained and experienced in a company’s legal needs leave their firm. The Legal Recruitment World in 2007, released recently by the international legal recruitment firm Laurence Simons, brings some reality to this worry.

“A survey of the top 25 [UK law] firms by Price Waterhouse Coopers at the close of 2006 found that 40% of them admitted losing as many as a quarter of their 3-5 year qualified people every year.” With that pace of brain drain, from the finest law firms no less, it is no wonder law departments are wary of placing their professional trust in junior lawyers (See my post of Feb. 8, 2006 about complaints over associates’ rates; and April 30, 2006 about disinclinations to pay for young associates.).