Articles Posted in Outside Counsel

A small finding from PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007 at 27, got me thinking about full hourly rates compared to discounted hourly rates and the distribution of fees paid by law departments between those two categories. The report acknowledges the continued popularity of billing based on time, and then continues: “with standard hourly rates accounting for 20% of overall outsourced work, and discounted hourly rates accounting for 50%.”

The chart that accompanies this text shows that the hegemony of hourly rates continues. For law departments in four size bands, the percentage of bills that they pay based on standard hourly rates plus discounted hourly rates ranges between 80 and 100 percent.

The larger the department, the more likely it is to pay discounted rates, which partly explains why total legal spending as a percentage of revenue declines with revenue growth.

PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007 at 17, lists eight suggestions for how to conduct a competitive bid (See my post of Nov. 11, 2007: ten more suggestions.).

1. “Minimize box ticking,” by which they mean forcing the selection into a process-driven exercise. Allow firms the opportunity to distinguish themselves by the material they submit.

2. “Tailor your company’s standard procurement questionnaire.” If you don’t revise the template so that it addresses law firm practices, you will spend much time answering questions from law firms.

From PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007 at 15-16, comes survey data about how many mostly European law departments http://ld.practicallaw.com/2-214-7952 require information on “flexible working policies” within the law firms they might retain. According to the article, 4.8 percent of the responding departments ask for that information on what I presume covers policies on telecommuting, alternatives to the traditional 9-5 hours, maternity leave, and other arrangements (See my post of March 24, 2007: family-friendly as a term for flexible arrangements; Nov. 30, 2007: whether family-friendliness in firms matters to law departments.).

Even so, when it’s crunch time to pick a firm, I doubt that lawyers in law departments that say they ask about flextime polices, are swayed much by a firm’s stance on flexible working policies (See my post of April 22, 2008: “ethical infrastructure” of law firms unlikely to influence selection of firms.).

Half of all the work that goes to external counsel goes because those lawyers know more about an area of law than does the law department. This finding comes from PLCLaw Dept. Quart., Vol. 3, Jan.-March 2007, at 15, based on a survey of mostly European law departments

This blog has explained that specialist legal knowledge, manpower, lack of confidence in internal opinions, and conflicts of interest drive outside counsel usage (See my posts of Aug. 16, 2006: brains versus brawn and CYA; and Dec. 28, 2006: second opinions.). What is new from this survey is a directional metric on what percentage of the services retained turns on specialist expertise.

To these four reasons I can add volatility and geography, which means that litigation often goes to outside counsel because it has high peaks of demand for time – just before hearings, or in the midst of a series of depositions – and may require travel.

“For its law firms, GM sets a target of 20 percent minority lawyers and 33 percent women lawyers of the total number of lawyers working on GM matters per firm it hires.” This quote comes from InsideCounsel, July 2008 at 60, but it leaves me puzzled as to what exactly GM requires of its firms.

Assume a law firm handles ten matters for GM during a year. Does it count all the lawyers who billed time on all those matters during the year and check to see whether 20 percent were minority and 33 percent were women? If so, wouldn’t a more meaningful measure look at the percentages of hours billed by members of those groups?

Or does GM look at each matter and check for the percentage of diverse lawyers recording time? That would be a harder hurdle for firms to clear.

I do not think that payment of an invoice forecloses a law department from challenging any charges on it at a later date. Prompt payment arrangements expressly reserve such a right, but otherwise what is the law for how long the law department has?

One law department’s outside counsel guidelines reserve the right to reopen a bill for up to one year following receipt of it. The department also preserves its right to “examine the billing and disbursement records of the firm” which creates a right to a deeper inquiry than simply a review of an invoice.

When Brackett Denniston became General Counsel of General Electric Co. four years ago, the company used 450 outside law firms. Denniston thought that many of those firms were not used enough for them to develop a strong feel for the company’s products and needs, according to a profile of him in Corp. Bd. Mbr., Vol. 11, July/Aug. 2008 at 76-77. He unsheathed a convergence program.

The article notes: “Today 108 firms get the bulk of GE’s business, which resulted in a 12% reduction in costs between 2003 and 2005, the latest year for which there are final figures.” Does that mean about four percent per year for each of 2003, 2004 and 2005? How did GE calculate the amount it saved from convergence? It should not be based simply on choosing firms with lower billing rates, because that change might be accompanied by increases in hours billed.

The churlish side of me also has to scratch at the fact that in 2008 GE still does not have “final figures” for the savings through two years before, in 2006. Perhaps that is because analysts have to wait for matters to close in order to calculate the savings?

“By hiring an outfit the government views as credible, thorough, and capable, directors make it more likely that the government will trust the firm’s investigation and forgo its own, which would be more disruptive.” The perspective of this quote, predictably as it comes from Corp. Bd. Mbr., Vol. 11, July/Aug. 2008 at 63, makes it sound like the Board of Directors retains the investigatory law firm (See my posts of 25, 2005; Sept. 27, 2005 #3; Oct. 30, 2005 #2; Feb. 18, 2006 #2; Feb. 19, 2006 #2; and Nov. 24, 2005 #3: independent counsel retained by Boards of Directors.). Bear in mind also that the quote comes from a partner at an AMLAW 20 law firm.

Anyway, in another manifestation of the benefits of cachet, firms that are well known and usually large (and certainly expensive) appear more credible to government agencies, who in effect deputize them to conduct investigations.

Faithfulness to key partners at a law department’s primary firms is a hallmark of most law departments (See my posts of June 13, 2006 and Oct. 4, 2005: loyalty to primary firms and fearful myths of partners; July 30, 2005: fear of losing the department’s favored firms; May 4, 2005: supposed statistics about loyalty; and March 6, 2007: loyalty to firms.).

Some people attribute loyalty to the avoidance of negative repercussions, such as how disruptive it is to replace a firm (See my post of July 21, 2006: issues when you to replace a firm.). The upset caused by change is so high that few lawyers in law departments abandon their primary law firms unless another firm holds out promise of being substantially better. To fire a law firm is an unusual decision (See my post of Feb. 19, 2007: firing law firms and 8 references.)

At the same time, forces work against long-term relations. Some believe that lateral mobility of partners erodes client loyalty (See my post of March 11, 2007: implication that attachment of department is to firm.) while others blame the trend toward panels of law firms (See my post of June 9, 2007: panels contribute to breakdown of loyalty.).