Articles Posted in Outside Counsel

For the head of litigation of Altria, Bill Ohlemeyer (Corp. Counsel, Vol. 12, Nov. 2005 at 93), no one may bill more than 10 hours a day to his company for every business day of a typical month. Stated more precisely, his immutable rule stops the clock at 200 hours in a month, “trials excepted.” (See my post of May 20, 2005 on spending soaring just before and during trial.)

Admittedly, I push for limiting the team that works on a department’s matters, but there is just no way a human can be cost effective and deliver good value for 200 hours in a month. Even this cut off number, which can only be enforced effectively by electronic bill analysis, sets the bar too high.

An article about William Ohlemeyer, Altria’s litigation chief (Corp. Counsel, Vol. 12, Nov. 2005 at 92), quotes him as saying that in large lawsuits, “you can very quickly get dozens, if not hundreds, of people involved in … a case.” He invoked the 80/20 rule, since a few of those timekeepers do most of the work (See my post of Sept. 4, 2005 on Pareto’s rule.).

It could be a useful exercise for a law department to count how many timekeepers billed to a set of recently-closed lawsuits. Next, calculate what percentage of them accounted for 80 percent of the time billed. Or, for other insights, look at the levels of timekeepers and the distribution of work between them (See my post of Aug. 26, 2005 on measuring delegation to paralegals.). An even more sophisticated analysis would show when the timekeepers billed – throughout the matter, in one lump, episodically?

Would it be squeezing the screws too much to announce that in any six month billing period, the law department will not pay for timekeepers billing less than some number of hours, or those that account for the smallest five percent of the hours?

The 2005 ACC/Serengeti survey of US law departments reports that the “average percentage of matters for which budgets are required has been steadily increasing over the years from 37.5 percent in 2001 to 56.4 percent in 2004.”

It is possible that matter budgets have become this widespread, although I am doubtful. Perhaps budgets on the largest matters skews the average coverage up, but I don’t see in my consulting projects such prevalence of budgets.

I am even more skeptical about the following sentence in the press release. “Budgets are a key indicator of whether in-house and outside counsel are discussing the expected strategy, staffing, and levels of activity in a meaningful way before representation begins.” “Key indicator” waffles the statement, but I question whether the topics listed are covered by most budgets, whether the budget dialogues and critiques are meaningful, and whether they take place before the firm starts work. (See my meta post on budget entries, Nov. 7, 2005.)

An article (Corp. Counsel, Vol. 12, Nov. 2005 at 23) described the three phases Domino’s seeks budgets for in class actions. It also cites ACC survey data that found that law departments “require budgets 67.4 percent of the time in litigation cases, compared with 46 percent of the time in transactional matters.” I haven’t seen data on the relative frequency of litigation and non-litigation budgets, but had not thought the ratio was as low as 7 to 5. I assumed most budgeting came in litigation.

I have written previously on law-firm matter budgets, so here is a meta-post of 2005 entries (See my posts of March 24 on a modest proposal for firms, April 5 about a governmental budget form for transactional work, April 14 on budget adjustments, April 27 on budgeting and time period covered, May 20 and budget depletion just before trial, Aug. 5 on questionable savings from budgets, Aug. 26 on retainer billing and budget control, Aug. 31 on budgets compared to liability risk, and Oct. 24 on local counsel costs in the lead firm’s budget.)

With local firms that defended the bulk of its slip-and-fall and other small cases, Walmart used to demand flat per-case fees, reportedly as low as $2,000. That scrimping backfired, as firms cut corners, so Walmart dropped that policy after 2002 (Corp. Counsel, Vol. 12, Nov. 2005 at 23).

That policy diverges greatly from an alternative Walmart could have adopted. If it had paid firms a flat fee to handle all of the same mix of cases for a period of time in a given area, its system might have survived longer (See my post of Sept. 14, 2005 about Cisco’s flat fees.). With a portfolio, firms can quickly handle some cases, invest much more than the average fee amount on a few cases, and otherwise balance their resources better, and thereby obtain better results for their client.

Research by Tom Collins of Juris has found that law firms appear to be moving away from specific recovery of soft cost transactions such as internal copying, faxing and even phone service. Some simply consider those costs to be covered by the law firm’s service fees. Other law firms, however, have implemented a surcharge on professional services fees.

Let me quote from the post on Juris’ site: “Numerous firms have implemented such charges—generally between 3 and 5% of fees. This typically covers all soft costs (fax, copies, postage, etc.). The firms with surcharges higher in the range (for example those charging 5%) included express and courier delivery such as FedEx ® as items covered by the surcharge. Firms usually labeled the new fee item as an “administrative charge.” Implementation starts by including the charge in their engagement letter along with a clear explanation.”

Law departments should do their own study to decide the fairness of these bundled fees. Certainly, departments will lose detailed information about vendors and costs if they accept a single charge.

The Juris® User International Group’s annual conference in October included a panel with Steven Levy from Microsoft® and Michael Gruskin from General Motors speaking about e-billing. I have extracted portions of an online report.

Levy identified three levels to e-billing:

Level 1 assures law firm compliance with engagement rules.

I started to list the practices that a law department should consider standardizing in the area of choosing and managing outside counsel. Feeling like Bubba on Forrest Gump, who endlessly listed dishes with shrimp, I note a starter set for appropriate development and enforcing of the SAME:

form of retention letter; outside counsel guidelines; format of bills, method of delivery; bill review and payment process (See my post of Oct. 30, 2005 on rules of one law department.), budget forms and thresholds, evaluation methods, reports back to firms, analysis from the matter management system, format and frequency of status reports, early case assessment (See my post of Sept. 14, 2005 on savings from ECA.), and on an on.

I heard an unusual question about discounts from standard billing rates. The standard rates of law firms vary, with the result that law firms A and B may be doing identical work, but law firm A charges 10 percent off a $500 an hour billing rate while law firm B charges the same 10 percent discount but off a $400 an hour billing rate. Why aren’t GCs asking all firms to work for a specified rate, rather than asking for a discount off widely divergent rates?

Law departments would realize that a single-rate for lawyers at a certain level – such as $400 for 15 year partners – would lop off the top echelon of law firms. It would effect a regionalization or second tier policy under the guise of reducing billing rates. (See my rant of Oct. 30, 2005 on most favored nation rates and the posts cited there.)

Some law departments balk at paying for more than one attorney’s time when attorneys hold internal conferences to discuss a client’s matter. For example, I understand that Wachovia just amended its outside counsel guidelines to make clear that limitation. Firms view such internal conferences as important and effective ways to exchange information efficiently and to make sure that all attorneys are moving in the right direction. Even so, meetings can burn up the bills.

Wachovia’s position is extreme. I have heard of a variant: a firm can bill the time of the highest billing rate lawyer at a meeting, and no others’ time. To beat my drum again, with fixed fee arrangements, no client cares about the amount of internal caucusing. On hourly arrangements, as Pres. Reagan said, “trust but verify.”