Articles Posted in Outside Counsel

A survey conducted by the International Legal Technology Association (ILTA), reported in ILTA, March 2005 at 12, found that even two years ago many law firms that submitted bills electronically had to comply with systems and procedures of multiple vendors. Some law firms had to cope with as many as 10 different formats. The proliferation has undoubtedly grown since those early days of electronic invoices.

What worsens this multiplicity is that even with the same software between a law firm and a law department, some law departments tweak the file formats or other aspects of the system. Thank goodness for the standardization of LEDES, but efforts to streamline the e-invoicing process may be unraveling with the profusion of systems and variations on them (See my post of July 11, 2006 on multiple e-billing systems.).

Research conducted by Eversheds, referred to in a Fall 2006 advertisement, found that in business disputes one in four clients are “now demanding … cost predictability from their external legal advisers.” That figure startles me because no one else has talked about clients insisting on predictability of legal expenses, let alone in litigation.

The research also found that “cost, wasted management time, bad publicity and brand damage are the key concerns for businesses when involved in a dispute.” Startled again, I wonder why damages are not key concerns.

After noting that Eversheds had pioneered Early Case Assessment, the ad introduces RAPID Resolution™, which addresses predictability with project management skills and cost sensitivity with budgeting skills. Startled thrice, but this time because I have not previously heard who claims to have originated early case assessment.

Promising most-favored nation (MFN) treatment to a client, a law firm commits that the client will be charged on the best terms the firm has agreed to with any other client. To my understanding, MFN agreements govern the billing rates of individual lawyers. The firm says: “The hourly rates we charge you will be as low as the rates we charge our client who gets the most advantageous billing rates.” An MFN assurance could also apply to flat-fee arrangements.

What MFN does not apply to are discounts off a bill for a matter. After all, no matter can be the same as any other matter, so a firm cannot with any justification promise a favored client that it is getting the best deal possible. Hours are hours, but each matter is unique. Write downs on an individual matter can’t adhere to MFN commitments.

If this reasoning is true, and write offs don’t fall under the MFN guarantees, the barn door hangs wide open.

As this year draws to a close, law firms mull how much to raise their billing rates – and law departments grapple with whether to accept the increases. One force driving up rates within law firms is likely to be internal calculations about firm profitability – what partners want to earn. Another vector for a firm’s rate hikes are rate changes announced by competitor firms (See my post of May 1, 2006 on “signaling” functions.).

The third vector is the one that law departments can most affect: with what tenacity will the department dissect and reject requests for rate increases. Law departments are not responsible for law firm profitability nor should they roll over before the “going rate” at peer firms. Law departments ought to thumbs up or down rate increases based on changes in productivity or experience of the law firm’s lawyers, not extraneous forces or the passage of time (See my posts of Nov. 21, 2005 on need for law firms to show productivity; and March 12, 2006 on billing rate differentials by lawyer within the same class year.).

For several reasons, a law department should include specific historic spending data in its requests for proposals (See my post of Sept. 13, 2006 on the confidentiality of this data.). One reason is that firms that have not worked for the law department know nothing about the department’s spending, so incumbents are favored if there is not equal distribution of information. A second reason is that if firms do not have some sense of your spending, they cannot estimate how large a team they might have to devote to your services.

Third, if the data is combined with the number of new matters per year, dividing the two figures gives some indication of the complexity of matters. Law firms may decide, as the fourth reason to provide data, whether or not to propose on a bundle of work based on the estimated spend. Lastly, it is impossible to propose a fixed fee if there is no reasonable basis to estimate the amount of work to be done.

Attendees at the General Counsel Roundtable in 2005 sponsored by the Economist Intelligence Unit Ltd. and FTI discussed how a virtual team of law firms can help during a major crisis. One law firm could be national trial counsel, supported by local counsel in different states, along with another firm devoted to issues of law, still another firm to specialize in discovery, and yet another devoted to advance settlements.

The demands of a high temperature crisis can overwhelm a single firm. According to one participant, the virtual-team approach demands significantly more management by the law department and raises costs “by probably 25%, but the advantages and results far outweigh any disadvantage” (at 17) Compared to a network of specialist firms, one-stop shopping is no bargain (See my posts about virtual firms of Dec. 5, 2005 on Cisco; Jan. 4, 2006 on Halliburton; and June 5, 2006 on why virtual firms are not more common.).

Law departments see on some bills and law firm engagement letters (See my post of Nov. 5, 2006 on engagement/retention letters by law firms.), a right asserted by the firm to assess a monthly service charge equal to one percent of all fees and disbursements which are past due. In one instance of this, the firm asserts a lien on all of the department’s files in its possession until it receives payment of all amounts due.

It is fair that law firms receive some recompense when payment of bills is long-delayed. Even so, it is probably rare that firms actually try to collect from clients any interest to which they are entitled – at least from those clients whom they want to keep serving.

The counterpart of a law-department retention letter is a law-firm engagement letter (See my posts of Aug. 24, 2006 that compare inside retention letters to outside counsel guidelines; Sept. 25, 2006 on the integration of retention letters and other guidelines and tools; and May 19, 2006 on AXA Konzern’s concerns.). You can find online a good example of an engagement letter, one prepared by the Pittsburgh law firm Meyer, Unkovic & Scott.

The posted engagement letter states clearly the terms under which the firm will represent a client (See my post of Nov. 3, 2005 on the importance of stating fixed charges.). In other posts I touch on two paragraphs of particular interest: late payment charges and storage of files (See my two posts of Nov. 5, 2006.).

A study done in 2005 determined how many law firms required its lawyers to bill a minimum of 2,000 hours per year. It found that 24 percent of New York firms, 38 percent of Chicago firms, 57 percent of Miami’s, and 26 percent of Houston’s set such mind-numbing expectations. This data comes from Amelia J. Uelmen, The Evils of “Elasticity: Reflections on the Rhetoric of Professionalism and the Part-Time Paradox in Large Firm Practice,” 33 Ford. Urban L.J., Nov. 2005 81, 89 n. 26, citing Judith N. Collins, Nat’l Ass’n for Law Placement, Billable Hours: What Do Firms Really Require? 1 (2005).

Law departments should heighten their scrutiny of bills from law firms that belong to the 2,000 hour club – with the pun on “club” intended – because they make bill padding almost inevitable (See my post of Aug. 26, 2006 on bill padding.).

A previous explanation of total cost of resolution (See my post of Dec. 10, 2006 on TCR with the example of BellSouth.) defines that term to include law department time, outside counsel and vendor costs, client time and costs, and settlement amounts spent on litigation.

If a law department has tracked its settlement costs for a few years, does the following billing arrangement based in part on TCR make sense? If the law department knows that over the past three years its settlements for the kinds of cases a certain law firm will handle averaged $1 million per year, then resolution of a similar set of cases at a lesser number entitles the firm to a premium. Thus, if the firm resolves 14 cases – the three year average – and the total settlements hit $.8 million, perhaps the firm would be entitled to 25 percent of the $200,000 below average.

If the total settlements hit $1.2 million, on the other hand, would the firm contribute 25 percent of the overage? Insurance could protect the firm (See my posts of July 25, 2005 about patent litigation insurance; March 23, 2006 #5 about EPLI litigation insurance; and April 23, 2006 about litigation insurance generally.).