The Second Annual Law Department Operations Survey at 9 lists 16 initiatives that respondents, all administrators in large US legal departments, ranked by effectiveness. The list is solid. It covers techniques that any legal department can put into action to reduce outside counsel expenses and I have written or will write several posts about them.
Meanwhile, some of the methods to reduce external spend that are not on the list include
Budgets;
I ran into a study that found the timing of payment to law firms varied significantly around the company and that the particular company often paid outside counsel more rapidly than it paid other vendors. Unless prompt payment discounts apply for law firms, this should not happen (See my post of May 11, 2008: prompt payment with 10 references.).
Much as I respect law firms, they are vendors in the eyes of corporations and ought to be subject to the same fundamentals of vendor management and payment as all other third parties who serve a company.
To your list of law firm associations, add one more: the CIUS Leading Counsel Network. From the write-up in the European Lawyer, Issue 91, Nov./Dec. 2009 at 9, the nine firms cover Turkmenistan, Kazakhstan, Armenia, Russia, Azerbaijan, Kyrgyzstan, Ukraine, Moldova, and Belarus (my spell checker collapsed).
For general counsel who have to find local counsel in any of those countries, contacting a member of the group would be a reasonable step (See my post of Feb. 21, 2008 #2: law firm networks with 7 references.).
The Second Annual Law Department Operations Survey at 9 lists 16 initiatives that respondents, all administrators in large US legal departments, ranked by effectiveness. At the top, selected by seven out of ten of the operations managers who took part, is “Use less expensive attorneys (i.e., regional firms)”
Six of the sixteen techniques lean on the lever of billing rates: “Aggressive rate negotiations” (65% chose it), “Flat fee arrangements (55%), “Limit when rates can increase” (54%), “Volume discounts” (40%), “Cap rate increases” (40%), and “Discount rate with bonus for success” (24%).
Implicitly, these operations managers accept the billable hour as the dominate mode of valuing legal services so they want lower rates. They can rollback standard rates based simply on negotiating muscle or they can tamp down the rate of increase or they can escape hourly billing altogether. In fact, the top method in essence looks for law firms that are capable and that offer lower hourly rates. Show me the money, and reduce it!
A firm in England, with all the outward trappings of what in the United States would be a white-shoe law firm (elite office location, phone number, resumes, spiffy website) and regulated as a law firm, actually bases nearly all its 14 lawyers in Jerusalem. Asserson Law Offices, as described in Law Bus. Rev., Winter 2009 at 64, pays its lawyers at top Israeli rates, “less than half of the London equivalent.” According to the article, “the savings from the ‘salary arbitrage’ is passed on to the client” (See my post of Nov. 27, 2007: LPO in Israel.).
The point made is that clients have no particular care where legal work is done, only that it is done competently and efficiently.
Several cost-reduction techniques ranked in a recent survey rely on in-house lawyers, more so than administrators, to make them happen. In fact, the top rated one requires much more of lawyers than of operations managers, “Use less expensive attorneys (i.e., regional firms).” The full list of sixteen techniques comes from the Second Annual Law Department Operations Survey at 9.
For other examples where the role of the business manager is secondary, consider “Early case assessment,” which certainly has a process component that an administrator can push along, but the ultimate judgments are legal. Likewise “Preferred Provider Network” involves RFPs, bidders’ conferences, deadlines, and quantitative analysis – all steps that administrators can run – but the ultimate choices of firms fall to lawyers. Finally, “Staffing controls” allows enforcement through administrative oversight, but rests mostly on the evaluations of in-house attorneys regarding the competencies of external counsel.
A British firm, Shoosmiths, has an “umbrella” arrangement with Hewlett-Packard, as reported by the Financial Times report, “Innovative Lawyers 2009,” dated Oct. 23, 2009 at 36. The report discloses neither the amount nor the time period of the deal. The fixed price deal covers all employment, property, and medium-sized litigation. Once the annual fee is agreed, if the firm comes in below the figure, it can keep half the difference; if above, it absorbs half the difference. That is the widest “collar” I have seen (See my post of Dec. 7, 2005: the collar technique.).
The firm has a strong incentive to handle the range of services efficiently because its partners profit by half of every pound they come in below the budget. Just reading that sentence, however, it also means they lose half of every pound less than budget so they would want to hit the budget spot on if there is work to be done.
The legal world might not quite be ready for “blooks” – books made up of organized and annotated blog postings. Even so, scores of readers of this blog have visited the Mitratech website to get my blook on outside counsel management. Just click here, register, and you too can brag about blooks and the Web4.0 forefront of legal management publishing!
Researchers from the General Counsel Roundtable on outside counsel management practices defined these two terms in a sensible way, and this blogger will adopt the definitions.
A fixed fee is an amount a law department agrees to pay a law firm to handle all work in a given area for a period of time. For example, all SuperFund preliminary assessments in the United States during 2010.
A flat fee, by contrast, is a set fee to be paid a law firm for a particular matter. For example, $150,000 to obtain the zoning variance for a warehouse extension.
A presenter at a December conference cited research from the General Counsel Roundtable on outside counsel management practices. The GCR found that “seven of the top ten … practices with the highest return on investment were alternative fee arrangements.” The rest not being given, I would nominate selection of firms, budgets, and staff controls to round out the top ten.
Interestingly, while legal departments perceive volume discounts to be the most effective in reducing costs, the GCR tagged them as least effective. “[F]ixed fees (defined as a set fee ‘for all work in a given area for a period of time’), risk sharing, and flat fees (defined as a set fee for a particular matter) were the most effective, in that order.” This information comes from the Met. Corp. Counsel, Vol. 18, Jan. 2010 at 18. Those three fee arrangements make sense to me based on my consultancy (See my post of Oct. 12, 2009: tiered discount levels with 11 references.).
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