Articles Posted in Outside Counsel

Many people have had trouble defining “quality,” and I won’t join that struggle. Even so, in-house lawyers value quality legal work by law firms (See my post of Oct. 16, 2006: survey data about quality as an attribute of law firms; Dec. 18, 2006: survey of several surveys; July 19, 2007: “quality of work” is top attribute; Dec. 20, 2005: firms have doubts whether inside lawyers can judge quality; July 14, 2006: adverse selection makes it more difficult to find quality firms; Nov. 13, 2007: hourly billing makes it harder to assess quality; and July 30, 2008: inside lawyers perceive quality differences among law firms.). Quality is a crucial concept, despite its elusiveness (See my post of Feb. 1, 2009: one of the ten most important management concepts for chief legal officers.).

Several posts make the point that high rates and large bills signal law-firm quality (See my post of May 26, 2007: high prices suggest quality; May 1, 2006: quality conveyed in price; Feb. 17, 2008: wine tasting experiment; Oct. 19, 2008: neuroscience evidence of quality equated with cost; and Oct. 22, 2008: high quality commands a high price.).

From my collected posts on law firms and quality, one clear theme emerged: in-house lawyers perceive that many circumstances diminish the quality of law firm services (See my post of July 3, 2007: convergence, according to a survey; Nov. 13, 2005: mergers by law firms; March 15, 2006: quality is uneven in large, international firms; Aug. 5, 2007: fixed fees worry law departments about quality drop offs; Sept. 4, 2006: fixed fees are compromises between quality and cost; Feb. 16, 2006: leverage in law firms causes quality to suffer; Oct. 20, 2005: billable hour requirements cut into quality; May 5, 2006: uncommitted associates; Dec. 16, 2006: complacency by law firms; Dec. 19, 2006: tight management by a law department may dim quality; and Sept. 12, 2008: transitioning matters from one firm to another reduces quality.).

A white paper entitled “eLawforum: Transforming Legal Services,” published in February 2004 at 11, describes a large-scale competitive bid. The unnamed Fortune 500 company packaged its labor, employment and ERISA litigation over a projected five-year period. The package envisioned that there would be 450 cases in these practice areas, and most of them would be future claims. The company agreed to pay the fee in 20 equal quarterly installments.

The company invited 44 law firms to propose, including 31 incumbents. Later in the monograph, the authors state that “of the 50 eLawForum competitions we studied, incumbent law firms won half the time” (See my post of March 16, 2009: rigged competitions with 6 references.). It’s always good to solicit bids from good firms that you haven’t used.

The highest fixed fee proposed was $56.3 million while the lowest was $10.5 million. A chart that accompanies this description shows the fees proposed by 14 law firms. Aside from any other benefits of fixing its costs for this block of work, the law department would certainly have a good feeling for what the market would charge to handle these services.

Many Codes of Business Conduct lay out ground rules that limit what employees, including lawyers, can accept from outside business contacts, such as law firm partners or vendors wooing them for business (See my post of Nov. 5, 2007: law-firm marketing with 8 references.) . One Code states: “You may accept an occasional invitation from an outside business contact if the event or function is an opportunity for you to have a substantive business discussion or otherwise conduct [company] business and the cost does not exceed U.S. $100.00. The business contact must attend the function “or the invitation falls into the standard for receipt of gifts.”

As for receipt of gifts, the Code continues, “You must not accept any gift or gratuity in connection with your position at [company] unless it is given solely as a matter of custom or courtesy and has a value of U.S. $100 or less.”

When law firms wine and dine in-house lawyers, invite them to ballets and bull-fights, or send fruit baskets at holidays, those lawyers have to be mindful of the restrictions placed on them by a code of business conduct (See my post of Feb. 20, 2009: Codes of Conduct with 5 references.).

To share thoughts about regional law firms, we need a definition, and one part is the negative definition that they are not large, national law firms (See my post of Dec. 27, 2008: definition of “small” law department; and Dec. 29, 2008: definition of a medium-size department.). Those firms are “rim biggies,” multi-hundred-lawyer firms based around the rim of the United States, firms with hundreds of lawyers in one of the Bos-Wash corridor cities (Boston, NY, Philadelphia, or DC), metro Texas (Houston or Dallas), LA and SF, and Chicago. If the bulk of a firm’s lawyers are not in those cities, but the firm has well more than 300-400 lawyers, many general counsel categorize them as “regional law firms.”

More importantly, many general counsel think of regional law firms as offering a lower cost alternative to the brand-name, rim biggies (See my post of Aug. 21, 2005: differences in billing rates between firms; Jan. 3, 2006: favor regional firms if you can be a primary client to them; Jan. 10, 2006: a cost comparison; March 12, 2006: global, international, regional and local firms; Aug. 24, 2006: GE’s Manhattan Project; March 4, 2007: Chevron and regional firm paired with rim biggie; Sept. 12, 2008: Burger King quantifies value of regional counsel; and Oct. 24, 2008: in 1962, Shook Hardy became Eli Lilly regional counsel.).

Talk about the fox guarding the henhouse! How can a general counsel realistically expect the lawyer who is ostensibly managing the staffing and services provided by law firm to review the invoices of that firm and materially reduce them? If that lawyer has been on top of the matter and has been truly managing the services of outside counsel, is it realistic to expect that person to criticize his own work? I think they might take the Fifth Amendment.

Not to mention they have little incentive to save other people money when their own career may ride on the efforts of the law firm (See my post of April 27, 2008: forget alternative billing on huge matters; and June 26, 2008: key to cost control are the decisions of in-house lawyers.).

Compounding all of this, clients may ignore or reject cost-control efforts. In the context of large acquisitions, The Bus. Lawyer, Vol, 64, Feb. 2009 at 313, puts this irony well. “A corporate officer (especially of the buyer) who curbs the lawyers could be blamed if a major defect is overlooked. Further, if the client is a public company, the lawyers’ fees are borne by the public shareholders. The self-interest of the officer, then, is to instruct the lawyers to spare no expense.” If the inside counsel share that self-interest, and outside counsel welcome the cornucopia from their cost-is-no-object attitudes, kiss the budget good-bye.

As no good deed goes unpunished, so no good idea goes uncriticized (See my post of March 23, 2009: pros and cons of various practices, with 13 references and two metaposts.). Although I like the idea of a law department designating core staff at a firm, I can anticipate objections to the practice.

https://www.lawdepartmentmanagementblog.com/examples-that-show-why-management-practices-all-have-strengths-and-weaknesses/

Core staff have less opportunity to learn new tricks from other clients.

Many law departments would like to have an arrangement with a law firm whereby in-house lawyers or clients can telephone with a quick question and yet not worry about racking up fees. The solution is a retainer agreement whereby the law department pays a firm that has the requisite specialists a fixed fee to cover all such quick-advice, “counseling” calls. The law department and firm can structure the commitment in a number of ways.

The law department might agree to restrict the calls to clients of a certain level and above, such as only Vice Presidents. Those executives are busy, smart, and won’t waste time.

The department might agree that only phone calls of less than 30 minutes are covered, after which the meter starts running. If the facts and law are complex, they fall outside the scope of the retainer.

A co-panelist recently mentioned as a cost-control method the practice of requesting higher discounts for work that the law department deems to be of less value. There may be a kernel of a useful idea in that practice, but I am doubtful.

Perhaps different discounts make some sense if you use one law firm to handle both the valuable work and the less valuable work, but otherwise it would makes more sense to choose a less costly firm to handle the lower value services (See my post of Dec. 26, 2008: third metapost on discounts, with 12 references.).

When they seek competitive bids, many law departments tell firms very precisely how the firms should present their proposal (See my post of March 30, 2008: RFP with 22 references.). Most specify the content they want and don’t want as well as the desired order of the material. A few go so far as to include a spreadsheet formatted to force the proposer’s data into specified fields. Format specifications help in several ways.

1. It is easier to score the proposals because the information comes neatly packaged.

2. Law firms can’t as easily plump up the proposal with marketing fluff.

If an inside lawyer cannot call a partner to instruct the firm without first getting permission from a superior, that is a gating process. Without having to obtain approval, the first lawyer might not have thought much about the cost; with an approval process, even a minor delay and explanation will serve to moderate costs, improve the choice of firm, and assure timeliness.

A further advantage of gating is that the disclosure process can require the instructing counsel to estimate the amount of payments to be made to outside counsel. This step may create more of an administrative burden to track but it does put the inside lawyer to some degree on the line for cost control.