Articles Posted in Outside Counsel

The Altman Weil 2005 survey of law departments found that only 18 percent of them “formally evaluate” their outside counsel. Those 26 law departments, from a participant group of 140 that included 40 with revenues over $5 billion, certainly vary in the degree of formality, discipline and coverage of their evaluations, so even that broad statement may grant too much (Legal Week, Vol. 7, Oct. 13, 2005 at 84).

How can law departments think they effectively control law firm costs if they haphazardly and subjectively assess their firms’ performance? Even a few simple metrics and procedures will give law departments a much better sense of value delivered and will help them guide their key firms to better service. (See my posts of April 14, 2005 on difficulties doing evaluations; Aug. 5, 2005 on some questionable savings claims; Aug. 31, 2005 on Royal Bank of Canada; Sept. 10, 2005 on evaluations of firms by clients; and Oct. 17, 2005 on ranking and rating law firms.)

From my experience of having consulted on seven competitive bids, I cannot stress too much the crucial step of identifying assumptions. The proposing law firms and the law department should both state as many assumptions as they can and how they are relying on them. For example, “our bid assumes no more than four investigations in any 12 month period.” Only by doing that can both sides narrow the range of uncertainty. Thus, if the law department says, “No, assume no more than two investigations,” the law firms can more accurately bid on the work.

It is best to circulate all assumptions to all proposers, so that the information level remains equally high all around.

Data from Legal Week Intelligence’s 2005 Client Satisfaction Survey of more than 220 companies in the FTS 1000 ranks 11 categories of law firm attributes. (Legal Week, Vol. 7, Sept. 22, 2005 at 4.)

“Quality of legal advice,” “Service delivery,” and “Responsiveness” share the highest scores (median 9 out of 10). “Quality of commercial advice,” “Personal relationship/accessibility,” (median of 8) followed, with “Cost” and “Billing transparency” below them (7.5). At the bottom came “Added value,” “Partner involvement,” “IT/knowledge management,” and “International capability” (median 6).

I am unsure what “commercial advice” means (as compared to “legal advice”), but it may be advice on the business side, as compared to the legal side.

JennerNet is Jenner & Block’s system that collects information from the firm’s accounting, e-mail, conflicts, records, HR, document management, customer relationship management (CRM), and other unstructured databases (Law Practice, Vol. 31, Oct./Nov. 2005 at 8). JennerNet apparently allows law departments to see billing information about their matters, documents and e-mails related to those matters, all by way of an extranet and at no cost.

Is that what clients want? Do law department lawyers want to know what has been billed on a matter as of yesterday? Will they care about internal law firm documents and drafts, or only finished product? Is this a technological marvel looking for a need?

Law departments, especially those with big budgets and brand names, like to thump their chests and demand from their firms the best rates the firms give. Setting aside my mistrust for rates-based billing (See my posts of May 4 and August 24, 2005 savaging discounts on hourly rates and Sept. 5, 2005 on Citicorp’s GC and discounts.), this is a delusional quest.

A law firm can distinguish any client from any other client, and honestly (though disingenuously) swear that “your company gets the best rates of all our clients like you.” And, how can a law department find out what a competitor is being billed by the firm, in part because matters differ so much in staffing, complexity, prior familiarity, write offs, billing policies, availability of law firm resources, urgency, partner personality, firm compensation systems, and a host of other dimensions.

You can be sucked into the quicksand of focusing on rates, and tilting at the mirage of MFN rates, but Sancho Reeso says that effort is only for crazy squires.

Consider asking your major firms to state at the top of sizeable bills the handful of activities that accounted for most of the bill and the total amount of each of those activities. “Reviewing documents from the Oak Plant, $11,000; researching memo on EPA pre-emption; $7,000; appearance at Oak Zoning meetings, $12,000.” The summary should also state where the matter is against its budget: “We are about 40% through the agreed-to budget.”

A piece in GC New York, Oct. 11, 2005 at 15, by Geoffrey Parnass, supports this suggestion. “In complex matters with lengthy time charges, it is helpful to have the invoice accompanied by a letter spelling out the cost of specific elements of the representation so the company can see the actual costs of the parts and link these with the benefits.

Seven characteristics of “least successful outside counsel” showed up in Fulbright & Jaworski’s Second Annual Litigation Trends Survey (Full report at 84). From respondents at 103 companies with revenue of $1 billion or more, here were the black marks that can blackball a firm (with the percentage of law departments mentioning it in parenthesis; respondents could give more than one in their open-ended replies and in fact averaged 2.35).

“High cost” (62%); “poor communication” (44%), “incompetence, lack of knowledge” (40%), “non-responsive” (25%), “don’t know our company” (21%), “slow, late” (16%), “unreliable” (13%). It could be that not knowing the company encompasses lack of industry knowledge. (See my post of Oct. 29, 2005 on the value of industry knowledge.) Only one of the seven rests on knowing the law; the other six turn on bedside manner and a discipline of client service.

Most surveys that ask law departments to rank the criteria they use for choosing outside counsel report in the top two or three criteria “industry experience.” In-house counsel like working with external lawyers who know their industries’ issues, terminology, history, and business models.

Yet Geoffrey Parnass, a New York City lawyer writing in GC New York, Oct. 11, 2005 at 14, holds the belief that “[I]ndustry knowledge doesn’t have to be deep. In fact, too much knowledge can be counterproductive.” He gives no rationale for this contrarian view, and I completely disagree with him.

In the following paragraph, Parnass writes, “But don’t expect too much industry knowledge in outside counsel. Look instead for lawyers who have a broad knowledge of several industries. … Like bees moving from flower to flower, outside counsel with experience in a number of industries can bring new ideas and solutions.” My view: if you retain someone who lacks familiarity with your industry, you are much more likely to get stung.

A recent report states that “40% of the [103] $1 billion-plus companies considered diversity important in selecting outside counsel, 30% reported having had a dialogue with outside firms regarding diversity, and 16% had written diversity policies to which outside counsel were required to adhere.” Fulbright & Jaworski’s Second Annual Litigation Trends Survey at 21. (See my post of Sept. 4, 2005 on the unclear definition of “diversity.)

Doesn’t that mean that 60 percent of the largest companies disregard diversity when choosing counsel? Among US law departments, only 20 percent in that size category regard diversity as “very important” or “important” (Full report at 121). Further, how many factors are considered equally or more “important?” Doesn’t the question cry out what were the dialogues about that only one out of three big departments had with a firm (in the full report, the header says “dialogue with outside firm” during what time period)? And, what did the “written diversity policies” require of the firms? All these questions and underwhelming data, yet the report headlines “Diversity is Clearly a Growing Issue.”

The Siamese twin of outside-counsel cost management is alternative billing arrangements. No one can write a word about the former without bemoaning the latter, yet 90 percent of law firm invoices show hours worked multiplied by hourly rates.

For many reasons, this clash between concept (alternatives to hourly rate billing) and practice (billing by the hour) has continued for years, with the concept going down in flames. I wrote a piece as a member of the ABA Commission on the Billable Hour in 2004, and revised it recently for the New York State Bar Association’s law department newsletter. The piece explains hourly billing triumphant.