Articles Posted in Outside Counsel

When it comes to pitches, the in-house lawyers at a recent panel said they’re open to the business development team’s involvement in the pitch process and cross selling. Sheri Qualters, writing for the National Law Journal, on Nov. 24, 2009, noted these comments by panelists at an LMA conference in Boston. If they meant that marketers should help with RFP responses and identify opportunities for more work, the point is banal.

If they meant that marketers should attend presentations to clients, my view is different. A pitch presentation by a law firm should include the lawyers who will work on the matter, and only those core lawyers. Legal departments should bar smooth-talking senior partners who show up only to impress and marketers who don’t understand the nuts and bolts of handling legal issues (See my post of Nov. 5, 2007: law-firm marketing with 8 references.). Legal departments hire working lawyers, not mouthpieces and sales people.

A month ago I criticized the practice of reviewing draft invoices from law firms (See my post of Oct. 25, 2009: don’t waste time on draft bills.). Sure enough, I then ran across an in-house counsel who favors the practice.

The lawyer is Paul Cushing, litigation and compliance counsel of hospital and health care organization Partners HealthCare System Inc. His views came to my attention when Sheri Qualters, writing for the National Law Journal, on Nov. 24, 2009, noted some comments by panelists at a recent LMA conference in Boston. One was Cushing: “An outside lawyer who sent him a copy of the bill before submitting it internally at the law firm impressed Cushing because it opened up a discussion instead putting the onus on the in-house counsel to question the bill after the fact, he said.”

Discussions are excellent, but you can discuss a final bill without a debilitating onus. Why review twice?

When attorneys at a firm who have worked significantly on a matter leave the firm, clients “incur significant costs to pay for both the learning curve of the new lawyers and the in-house lawyers time spent on training.” To quantify that intuitive sense, one legal department tracked the costs incurred and “estimates a minimum in-house department loss of $14,000 for each lawyer lost from an outside counsel team.” This finding comes from the ACC Docket, Nov. 2009 at 98, in an article about the organization, Balanomics.

The methodology by which this legal department calculated is figure is not disclosed, but if it is plausible, a law department might set a fixed write-off whenever any core lawyer leaves a team within a period of time. That would be a better technique than something vaguely worded about “we will not absorb the costs of replacement team members coming up to speed.”

In Australia, Allygroup “was set up by a specialist litigation manager specifically to project manage litigation on an outsourced basis.” The ACC Docket, Nov. 2009 at 18 says no more and the website too is taciturn.

Still, it makes sense to import the skills and disciplines of project management to large-scale litigation (See my post of June 24, 2007: project management with 5 references; and Sept. 22, 2009: project management with 13 references and 1 metapost.).

“Orrick, Herrington & Sutcliffe is earning a flat fee to handle all of the legal work worldwide for Levi Strauss & Co., other than its brand protection work, the Recorder reports. If work needs to be done where Orrick doesn’t have an office, it will hire an outside law firm at its own expense. Orrick wouldn’t disclose how much the Levi’s deal is worth, but the story calls the deal a “multimillion-dollar arrangement.” Twenty-five percent of its fees comes from alternative billing.” This news comes from the ABA Journal’s website.

Since Levi Strauss’s revenue for 2008 was $4.36 billion, at typical ratios its total legal spending would have been about 0.3 percent, of which 60 percent or so would have been spent on outside vendors. On those figures and estimates, the company would have spent approximately $7.8 million on external legal costs. Taking away ten percent from that for non-law firm expenditures, and guessing that brand protection work for such an important brand is substantial, the deal with Orrick could well be in the $4-to-$6 million dollar per year range. The next step would be a reprise of Continental Bank in 1991 – a wholesale transfer of the internal legal department to the law firm.

I have this belief, quite possibly fallacious, that lower-cost firms have less margin to cut, so discounts across the board along the lines of “10% from the standard rates of each of our firms” hurt them more than higher-cost, fatter margin firms. Perhaps that belief is unfounded hooey, since lower rates may be possible because they pay their lawyers less and have lower operating costs such as rent and services. In other words, margins stay comparable regardless of overall billing rates.

But assume that high-rate firms can absorb higher discounts and not suffer as much as a lower-rate firms. Why not emulate the progressive tax code and raise the discount levels faster for law firms with higher rates?

To illustrate, one combination could be that for every $50 of difference in effective billing rates, the threshold for when a higher tier of a rate discount applies drops $500,000. By that rule and for a given number of hours of work, a law firm with an effective billing rate of $300 an hour would hit the higher discount rate later than a firm with a $350 an hour rate. Alternatively, since $50 is one-sixth higher than the $300 an hour of the lower-cost firm, the threshold for the discount to rise would be one-sixth lower for the more costly firm.

I smile when I read all the survey results about what law department attorneys look for in outside counsel (See my post of Oct. 22, 2008: law firm attributes for selection with 12 references.). In the abstract, anyone can reel off desiderata.

The nitty-gritty chore, however, of rating a specific firm too often gets shunted aside or done poorly (See my post of Nov. 16, 2005: evaluations of law firms with 9 references; and Nov. 6, 2009: law firm assessments with 19 references.).

Just as all supervisors should praise their staff, all in-house lawyers who are responsible for the delivery of external services should commend good work by a law firm.

If you think that simply giving a firm more work percolates as kudos down to the associates and paralegals in the pit, you are mistaken. At the least, an email note of thanks, copied to the partner in charge of the matter, goes a huge way toward building associate loyalty and extra effort. Flowers, chocolates, theater tickets and gift certificates, with a handwritten card for gratitude, helps hold the better associates and staff and creates loyalty. Even if the hats off is not instrumental, it is simply the right thing for a manager to do. Appreciate openly expressed works wonders.

Law firms try hard to get the work done when their inside counterpart asks for it. A hallmark of service to a client is to bust your chops, as the saying goes, to pull an all-nighter, to mobilize all the associates and paralegals the task demands, to meet the deadline and deliver on time. Your client’s clock admits no slippage.

Within the company, some lawyers can move back the hands on the clock. They can decide to continue due diligence another week, or to put off the negotiating session until next Tuesday, or tell the other side they need more time, until Thursday, to come back with a counter-proposal. Inside lawyers have a fair amount of control over the clock, and often decide what time it is. Outside counsel are mostly slaves to the clock.

It is wonderful for me, blogging into mostly implacable silence, to hear from someone, whether or not they agree with me. In fact, disagreement helps me learn and adjust my views. So when Dan Williams wrote me about some of my variations on rate freezes (See my post of Nov. 17, 2009: seven permutations.), I appreciated the time he took and the ideas he expressed. With his permission, here is the “conversation,” slightly reworked.

Rees: “If any lawyer works more than 500 hours for a company, the firm can raise that lawyer’s rates.”

Dan: “That disproportionately affects the main purpose for a rate freeze – which is to keep overall costs down. It makes more sense to say you can’t raise rates if over XX hours because the larger billings give that timekeeper more flexibility and they have more revenue to keep their firm happier.”