Articles Posted in Outside Counsel

“Less than three-fourths of in-house counsel involved in convergence (68%) state that the strategy met their expectations, with a significant minority stating that the process did not meet expectations (25%), and a much smaller number stating that it exceeded expectations.” The quote comes from the 2008 ACC/Serengeti Managing Outside Counsel Survey, reported in ACC Docket, Vol. 26, Nov. 2008, at 14. For more information, write Rob Thomas at Serengeti. rob.thomas@serengetilaw.com

We can’t know whether convergence expectations are unrealistic –“We should save 25% of our outside spend!!” – or whether they were realistic and the fees did not decrease much. Or perhaps other expectations than cost savings were disappointed, such as closer partnering with the firms or less administrative effort on invoices. Perhaps the convergence process took too much time, snubbed too many firms, or cost too much in consultancy fees. It might even be that not enough time has passed for the full benefits to accrue. In any case, the bloom is off the rose

Earlier, I collected my posts on convergence (See my post of Feb. 16, 2008: convergence with 26 references.). Eleven more posts have followed that compilation (See my post of March 25, 2008: 7 steps in a convergence project; April 4, 2008: law firms “fired” through convergence; May 5, 2008: NEC’s extreme convergence; May 7, 2008: Union Pacific’s process; June 10, 2008: Serengeti survey on percent using the process; July 28, 2008: Linde Group shrinkage of firms used; Aug. 5, 2008: GE’s reduction of law firms it uses; Oct. 22, 2008 *2: a dozen arguments in favor of convergence; Oct. 19, 2008: a dozen arguments in opposition to convergence; Nov. 21, 2008 *2: keep the same average firm size; and Dec. 16, 2008 *4: what is predicted by 2013.).

A gaggle of companies offer to review bills of law firms (See my post of Dec. 4, 2006: cottage industry of legal bill auditors; Dec. 16, 2007 #2: a law firm that reviews bills; Feb. 20, 2007: John Toothman; and April 16, 2007: Stuart Maue and huge amounts audited.).

Generally, I have disparaged bill audits by third parties (See my post of Dec. 3, 2006: instigates adversarial attitude; Oct. 24, 2007: criticism of the practice; May 4, 2005: bad blood between carriers and insurance defense firms; and Nov. 14, 2005: audits not being “strategically sound”.).

Legal departments, however, continue to find value in outsiders poring over bills of law firms (See my post of Jan. 20, 2006: a fee audit’s findings; Jan. 10, 2006: a bill auditor of Bayer and challenges to fees; Oct. 1, 2005: early adopters may have benefited more than laggards; May 1, 2005: ROI from Proprietary Bill Review Services; Aug. 26, 2005: $3.3 million of bills reviewed per day; April 16, 2007: huge volume of bills audited by third-party bill reviewer; and Nov. 25, 2006 about OxyContin.).

Most of the observations on this blog about timekeepers have to do with too many timekeepers billing on matters (See my post of June 27, 2007: Pareto’s law and the number of timekeepers on matters; Nov. 8, 2005: number of timekeepers on a matter; March 28, 2005: rule of thumb of one lawyer and one paralegal on a matter; Nov. 15, 2005: 17 timekeepers per law firm in claims work; Sept. 5, 2005: Citigroup’s views; Nov. 22, 2007: number of timekeepers for a financial institution; and Nov. 15, 2005: during a year AIG used 34,000 timekeepers on claims.).

One reason for this profusion is that many roles have evolved to fit specialized needs or cost constraints (See my post of Jan. 19, 2008: vast array of other timekeepers; June 24, 2007: project managers in law firms; and Oct. 21, 2005: litigation support consultants; June 27, 2007: timekeepers other than partners; Feb. 4, 2007: partner time to other timekeepers’ time;

Timekeepers who record small numbers of hours on bills are a peeve (See my post of Jan. 21, 2008: those who bill short time periods on matters; Sept. 4, 2005: quick billers; Nov. 8, 2005: drive-by billers; and Nov. 6, 2007: concentration of time by firm timekeepers.).

All general counsel think about getting discounts from at least some of their law firms. Two collections of posts here have addressed many considerations about discounts (See my post of Nov. 26, 2006: discounts with 15 references; and Jan. 21, 2008: 10 more posts on variations on discounts.).

I even contributed an article for Legal Times on several problems with discounted billing, which you can read here. Click here for a PDF of the article.

The onslaught of my posts on discounts continues. A dozen more are available (See my post of Dec. 11, 2006: discounts on billing rates; Jan. 19, 2008: volume discounts at British Columbia Transmission; June 20, 2007: Circuit City’s 3% discount for payment within 30 days; March 11, 2007: increased frequency of discounting; Jan. 28, 2008: rebates are harder to administer; Dec. 18, 2006: ripples from discounts; June 30, 2007: test to see if discounts achieve savings; March 2, 2008 #3: rate increases perhaps build in expected discounts; April 8, 2008: rate freezes are better than discounts; April 13, 2008: effect on firm margins; Aug. 15, 2008: percentage of bills discounted; and Nov. 21, 2008: converge if you can get volume discounts.).

My research into the antiquities of law department benchmarks unearthed an Altman Weil Special Report, dated 1982. A quarter century ago it reported data on 96 companies that had $1-$2 billion in revenue (possibly $5-10 billion dollars today). Dividing the outside counsel spending figures given by the mid-point of the revenue range results in 0.03 percent of revenue at the first quartile, 0.06 percent at the median, and 0.12 percent at the third quartile.

Fifteen years later, the 1992 Price Waterhouse Law Department Spending Survey for about 20 companies with revenues of $5-10 billion provides another set of figures as to outside counsel spend as a percentage of revenue. The quartile figures for that survey were 0.07 percent of revenue, 0.15, and 0.29 percent respectively. The most recent survey of Thomson/Hildebrandt’s Jonathan Bellis found that for 156 law departments and their US revenue, outside counsel spend at the quartiles were 0.14 percent of revenue, 0.25, and 0.47.

The median figure, therefore (subject to methodological constraints) rose from 0.6 percent 25 years ago, to 0.15 percent ten years later, to 0.25 percent recently. It certainly appears that the expense of outside counsel fees has increased steadily and dramatically over the quarter century.

The basic benchmark metrics relied on by general counsel change very little over time (See my post of Dec. 7, 2007: stability of staffing benchmarks.). For example, I exhumed an Altman Weil Special Report, dated 1982, that presented data on 96 companies that had $1-$2 billion in revenue (1982 dollars, so that might be the same as $5-10 billion dollars today). The report gives the “salaried lawyers” for those companies by quartile.

Mathematically crude though it may be, I divided the salaried lawyer figures by the mid-point of the revenue range, which results in 4.7 lawyers per billion dollars at the first quartile (25% of the lawyer/revenue figures were below that), 7.6 lawyers per billion at the median, and 12.9 lawyers per billion at the third quartile.

Ten years pass. The 1992 Price Waterhouse Law Department Spending Survey reported on about 20 companies with revenues of $5-10 billion. The quartile figures for that survey as to lawyers per billion were 4, 5, and 8.

Broadly speaking, my preferred approach to change in law departments has three components: (1) dive in without over-thinking, (2) encourage emergent change from the ground up that is flexible and multi-pronged, and (3) honor kaizen, the constant tinkering – or rubbishing – of practices to improve them.

One way to unleash all three of these values occurs to me in the context of outside counsel cost control. Have each lawyer in who manages outside counsel try some cost-reduction action each quarter. The lawyers then report to each other, candidly and constructively, about what they tried and what happened. Those discussions should spur some of them to introduce variations on another person’s idea, adopt a good idea wholesale, or strike out in another direction. All to the good, I say, as it lets intelligent people pick among a cluster of ideas for those that appeal to them, it pushes for innovation and adaptation, and it is populist (See my post of Aug. 21, 2008: techniques to save costs with 24 references.).

Terms of disparagement slouch in every time you read about the last stage of a competitive bid: when the finalists bring their team members to meet with the selection group from the law department. Whether it is a “beauty contest,” a “dog-and-pony show,” a “beauty parade,” or a “Wizard of Oz charade,” those necessary evils are reviled by law firms (See my post of Aug. 20, 2006: I dislike the term beauty contest; May 30, 2005: “beauty parades”; July 21, 2008: bait and switch; and Oct. 11, 2008: dog-and-pony.).

Still, in-house counsel know full well they need to meet the lawyers they will work with, rely on, and pay large sums, so the final, stilted presentations continue to take place (See my post of April 2, 2005: presentations by panel hopefuls; and May 19, 2006: Nestle’s presentations.).

Whatever you can do to have the firm send the lawyers who will actually do the work and get them off their rehearsed and controlled messages will help you figure out if the group is compatible with your needs (See my post of Aug. 4, 2007: have the core team appear; and Jan. 19, 2008: script the meetings.).

If projections come true, five years from now law departments’ efforts to have law firms compete for their work are foreseen will be only somewhat more common. Surveyed on Legal OnRamp, (See my post of Sept. 21, 2008: social networks with 7 references.).

84 lawyers responded who work at companies that have revenues of at least one billion dollars. The American Lawyer’s Aric Press put the survey in context.

One third of the respondents look ahead to 2013 and foresee that 10 percent or more than their spending today under competitive-bid arrangements will be awarded after a competitive process. A quarter of the respondents foresee spending in the range of 5 to 10 percent more than now while 7 percent think the increase will only be 1 to 5 percent. Over the five year period, therefore, the increase in fees paid law firms who have been selected after a competitive bid is foreseen to be modest. And these are big law departments prognosticating.

My sense is that adherence to the venerable Uniform Task-Based Management System codes is declining (See my post of April 20, 2008: precursor to the code system; Dec. 1, 2006: criticize UTBMS efforts; and May 1, 2006: shrinking usage of codes.). Those who debate the merits of the UTBMS can make points for and against them (See my post of April 23, 2006: UTBMS; Oct. 15, 2007: use the data to contest a bill; Feb. 21, 2007: difficulties law firms have with the codes; and May 26, 2006: the possibility of rate changes by code.).

Proponents continue to tinker with the codes (See my post of April 22, 2007: updates to the system.) but I think it’s too late for the defibrillator.