Articles Posted in Outside Counsel

If an inside lawyer who is responsible for a law firm on a matter manages it well, there should be no write-off on any invoice. The firm will have staffed the work appropriately, timekeepers will have toiled efficiently and billed correctly, the budget (real or could-have-been) will have sufficed, and the bill itself was accurate, complete and in accord with the department’s guidelines. All is well with the world.

The ugly conclusion from that prelapsarian idyll is that when inside counsel lop something off a bill, all was not well. One or more of the optimal circumstances hit a snag. Hence, even modest bill write-offs criticize someone, which may be one reason why they are unusual (See my post of March 6, 2009: barbell of write-off percentages from poll.).

Worse, swingeing write-offs really embarrass someone: the in-house lawyer managed poorly, the firm flubbed it, the invoice mechanics were out of whack – Murphy’s Law was upheld by the Supreme Court of Life. On top of tedium, on top of difficulty, on top of no-win, if you write amounts off an invoice, you indict yourself or your law firm (See my post of Nov. 8, 2005: partners write off time of new associates; Nov. 13, 2006: most-favored-nation agreements and write-downs; Jan. 23, 2008: write off non-core time; Dec. 18, 2006: don’t overdo tracking write offs of invoices; March 1, 2006: economics look bad for bill review; Oct. 15, 2007: inductive vs. deductive bill review; Nov. 28, 2007 on billing disputes, getting paid, and little difference in bill review; and March 2, 2008: bill review with 25 references.).

I am surprised that the fifth most common obligation imposed on law firms, according to the most recent Serengeti survey, is “periodic written matter updates.” It takes time for firms to prepare write-ups, even if the style is formalized, and that time costs money. Maybe in all my consulting I just don’t hear about it as a cost-control tactic (See my post of Aug. 21, 2008: techniques to save costs with 24 references.).

Semantics might explain the surprising finding. Perhaps the time between reports is very long, such as semi-annually. Perhaps firms can relatively easily update a field or two in a matter management system. Perhaps some law departments view materiality reports for auditors on litigation as falling into this category. Perhaps materials prepared for an early case assessment mean to some in-house lawyers “periodic written updates.” Perhaps, even more cynically, the remaining choices on the list were even less palatable. The data can be found in the ACC Docket, Vol. 27, March 2009 at 12.

One week after this blog unveiled its first poll (See my post of Feb. 26, 2009: first blog poll.), I thank each of the dozen or so readers (as of yesterday) who took a moment or two to answer. The question was “If you reviewed bills submitted by law firms over the past six months, what do you estimate was your overall percentage reduction of the total billed amount?”

At mid-day on March 5rd, the 0-2% reduction showed 41%; 6-8 percent showed 8%; 9-11 showed 16; and 12+ percent showed 33%.

Those results, admittedly a tiny and self-selected population, are very hard to reconcile. One-third of the respondents average virtually no write offs on invoices, one third clobber the invoices to the tune of more than 12 percent. Personally, I put more faith in the former, where “we barely lay a glove on bills from our firms.” The lawyers who fall into that group will claim that they manage the firms efficiently in the first place, so the bills are what the bills are.

In-house attorneys who advocate discounts from standard billing rates assume law firms still maintain standard billing rates. Like the astronomical room rates that used to be common on the doors of hotel rooms, “standard rates” may be fading into myth. Few of them are charged.

The ACC Docket, Vol. 27, March 2009 at 12, informs us that according to the most recent Serengeti survey, the third most common retention term required by in-house counsel is “discounts from standard hourly rates (59.0%).” Thus, right after requesting monthly bills and bills that have a certain format and data, almost two-out-of-three law departments mandate discounts.

Soon it will be the odd duck out that pays rack rates. “Standard hourly rates” will be like C grades at elite colleges: a theoretical possibility, but not actually observed in the wild. Instead, firms and clients mate with a wide array of discount levels and arrangements, such as tiered or retrospective or only applicable under certain conditions (See my post of Jan. 21, 2008: 10 more posts with variations on discounts; and Dec. 26, 2008: third metapost on discounts, with 12 references.).

Approximately forty of the Fortune 500 law departments provided data abut their technology use and Corp. Counsel, Vol. 16, March 2009 at 72, summarized some of the results. One question asked, “What percentage of outside counsel does your department use e-billing with?” The survey found an average of 58.5 percent.

That figure seems low. It could be that those firms account for 80 percent or more of the external spend by the companies, which would make sense. But then surveys should ask “what percentage of outside counsel spend do you receive through e-billing.” Second, it is possible that some law departments believe that if they receive bills in PDF that they are doing e-billing. They are not. E-billing means receiving the invoice data in a format that allows software to review it and populate a matter management system.

Corp. Counsel, Vol. 16, March 2009 at 17, recounts that Jeff Carr, the General Counsel of FMC Technologies “sent a letter to FMC’s law firms in which he asked them to cut their bills by 10 percent on matters less than half done, and by 5 percent on matters more than half done.”

If you are a firm, how precisely can you tell where you are in a matter? And, given the financial incentive, won’t lots of matters be “over half done?”

Perhaps once a matter has passed the half-way point, that is like a point of no return; the law department does not want to change firms so it lacks the leverage to demand a 10 percent slice (See my post of Sept. 12, 2008: transfers of matters to new counsel with 8 references.).

A partner at Ogilvy Renault, Brian Daley, succinctly contrasts the perspectives on litigation of law departments and law firms. Writing in the ACC Docket, Vol. 27, Jan./Feb. 2009 after page 48, Daley observes that “When approaching litigation, outside counsel focus on legal issues, litigation strategy, and winning. At the same time, in-house counsel and management approach the litigation from the viewpoint of costs, probability of success, the potential value of litigation either in terms of potential benefit or potential loss, and whether settlement is feasible.” Being outside counsel, Daley demurely passes over lucrative fees.

Thus, the buyers in companies view litigation in business terms. They want budgets, early case assessment, decision-trees, status reports, informative billing, and cost-effective resolution of a peripheral activity. The sellers in law firms view litigation as legal dueling. They want victory based on legal prowess with the tab on the buyer.

How two such different perspectives can be expected to align (to be in a “partnering relationship”) is beyond me.

Although frustratingly difficult to measure or proved, these tell-tale signs of settled contentment can alert you to the entitlement expectations – and diminished levels of service – of complacent law firms. I have not tried to list them in order of their frequency or their deleterious effect.

1. The best associates don’t seem to be assigned as much (or choose to work) on your matters.

2. Periodic meetings with the relationship partner take on a stilted and scripted feel.

… enthused the GC, as he was describing his primary law firm to a third-party interviewer conducting a client satisfaction assessment for the law firm.

But, what does a law firm have to do to get this kind response? Is it the people? Quality of the work? Responsiveness? Reasonable billing practices? Once and a while, saving the corporation’s ass?

I’d appreciate hearing your suggestions for the one or two things that would cause you to rate your outside law firm, or lawyer, with the highest client satisfaction scores?

… pleaded the GC, as he shared the weight of his responsibility for building a strong law department during a chat with the relationship partner from one of his primary law firms who had achieved the level of Trusted Advisor.

But, is this right? How much input can and should a GC or other law department manager seek from outside law firms regarding the careers of the inside counsel that report to him/her?

Outside law firm partners are certainly often in a position to observe the performance and competency, and make judgments about the career potential, of inside lawyers. For sure, outside senior law partners have rubbed elbows with some of the best examples of legal talent and most likely have had a front row seat while watching various inside lawyers do their dance in a number of other corporate law department settings.