Articles Posted in Outside Counsel

A 1997 study by the California State Auditor of expert witnesses used by the California Department of Transportation’s Legal Division looked at practices of expert witnesses when they bill for travel time. Out of 16 expert witness firms, 13 of them billed travel on behalf of a client at standard hourly rates. The other five firms (38%) billed at partial rates.

Law departments should tell each law firm in their retention letters or outside counsel guidelines the policies they agree to regarding travel time. Even when the law department takes a position, it needs to state when the clock starts running.

You can find a list of 15 points to consider in guidelines for outside counsel at the website of Global Law Review. The points touch no new areas, except one: “terms on which outside counsel may use the relationship with you for promotional purposes.”

Every now and then, ads quote a general counsel or articles refer to a client of a law firm. That permission by the law department to allow the firm to market with the department’s name has value. Part of the tradeoffs of billing rates and other terms can include rights to use a company’s name or a law department member’s name to market.

Consider this permutation on billing. A law department I know has arranged with a law firm to have its lawyers work on a blended rate (about $220 per hour) with the exception of the lead partner, who bills at his hourly rate less a discount.

By this balancing act, the department encourages that particular partner to devote sufficient time to matters, yet gets the benefit of a fixed rate for the rest of the firm’s lawyers. Many of the techniques for alternative billing have mix-and-match potential, as demonstrated with this arrangement.

Nancy Anderson, Deputy General Counsel for Microsoft, manages a legal staff of 200, of whom 250 are outside the US. She and her group often need to retain local counsel. A recent piece, Counsel to Counsel, Jan. 2006 at 27, summarized her recommendations and those of David Kleiman, AGC of ATI Technologies, for law departments that need to do the same.

First, “you have to go and establish a personal relationship and visit the law firm.” Second, “bring along the local business head to assist with the evaluation.” Third, “ensure that the firm isn’t also working with competitors, but still holds expertise in the pertinent area.” Fourth, when agreeing on fees, have the local business person get a “local” price as opposed to the “foreign company price.”

A survey conducted by LexisNexis Examen at the ACC 2005 annual meeting obtained responses from 86 law departments. Those departments had many excuses for having not succeeded in seceding from hourly billing. Here is how they ranked their reasons, from Counsel to Counsel, Jan. 2006 at 15, with the number of departments choosing a reason in parenthesis.

1. Law firm resistance (37)

2. Not a priority (34)

Some general counsel subscribe to this view regarding their key law firm: “Our philosophy is we want to be one of the most important clients for the firm. A company our size [Coachmen Industries] isn’t that important to the mega-firms” (Richard Lavers, its general counsel, in Corp. Legal Times, July 2003).

If your revenue accounts for a significant portion of a law firm’s billings, or even the largest chunk of a major partner’s billings, you will be treated with respect, deference, and extra efforts. If the same amount of gold rarely gets caught in the sieve of a huge firm or a huge biller, your prospects will be much worse.

Hearing that one law department urges its primary law firm to give ample bonuses to associates who have provided stellar service, and learning of a general counsel who actively lobbied for a favored associate to make partner, I mused that partnering might lead law departments to hitherto unheard of interventions.

A department that closely tied to a firm should care about associate training and retention. I recall Lucent Technologies law department and Orrick Harrington at one time jointly interviewed for new lawyers. Secondments might become something insisted on, and evaluations of partners and associates who work on the dominant client’s matters could face evaluations by that client that outweigh partner evaluations.

The two parties should together make the decision about which lawyer serves as the relationship partner (See my posts of Oct. 8, 2005 on successor relationship partners, Sept. 22, 2005 about Wal-Mart and diversity of relationship partners, April 27, 2005 on Cummins and quarterly meetings with them, and Dec. 3, 2005 on having a relationship partner with each of your key firms.)

A summary of comments by 43 law-firm managing partners of law firms on the topic of “burning issues” (Of Counsel, Vol. 24, Nov. 2005 at 8), contained a quote from one who heads a firm of more than 500 lawyers.

“[C]lients really can’t distinguish between quality and mediocrity. Thus, we invest in quality, which means investing in providing leading compensation packages, a commitment to diversity and pro bono, time spent on professional development, and then few clients even know the difference.”

Law department lawyers, presumably “clients,” by all means assert that they can tell a first-rate firm from a second rater. Their judgment, however, does not take into account the firm’s pay scale, CLE efforts, or commitment to those who can’t afford lawyers. No, their judgments depend mostly on delivered, practical experience, business shrewdness, institutional knowledge of the client, responsiveness, and the scarcity of digits on invoices. Outputs matter; the infrastructure and inputs that the quoted managing partner holds so dear matter little.

Having reduced the number of outside firms it uses from approximately 750 in 1999 to 300 in early 2005, and having chosen approximately 80 of the survivors as “preferred counsel,” who currently receive close to 75 percent of United Technologies’ spend, the law department has learned some lessons (From Jan. 2005 materials of ACC provided at a conference organized by the ABA Section of Business Law and ACC, Nov.18, 2005 at 11-12).

Volume discounts “shifted our base costs down a solid 15-25% in the first few years,” but renewals of those agreements dragged the law department back up the cost curve. The department started to shift to off-the-clock alternatives, and by early 2005 “around one-third of the department’s outside law firms are completely off the clock.” Some of them work against “targeted band fee structures.” UTC has also worked with its matter management and e-billing system vendors to have those programs accommodate alternative billing arrangements.

In my post of May 30, 2005 I referred to a dozen legal networks: Lex Mundi, AM LF Association, Interlaw, Interlex, Meritas, Pacific Rim Advisory, State Capital, Multilaw, TAGLaw, US LF Group, Terralex, and World Law Group (See my post of Nov. 11, 2005 and skepticism on whether departments rely on such groups.).

A recent article, Legal Week, Vol. 7, Nov. 24, 2005 at 24, assembled some data about the size of these referral groups. Terralex has 12,000 lawyers in its 150 member firms across almost 100 countries. Lex Mundi has 17,000 lawyers in 160 firms; World Services Group (WSG) has 19,000 “professionals” in over 150 firms and 135 jurisdictions (law firms make up 74% of its membership). Meritas has 5,000 lawyers in 170 firms covering more than 100 jurisdictions; TAGLaw has 5,600 lawyers at its 137 member firms, operating in 77 countries; and Interlex has 33 firms in 27 countries.

In broad strokes, the six networks appear to offer more than 50,000 lawyers in more than 800 law firms.