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A panelist from EBay, speaking at the InsideCounsel SuperConference, mentioned four specifics about the practices followed by the procurement group. They are to be involved with any project that expects to cost more than $1 million or any vendor who is likely to receive more than $1 million during a year. Wouldn’t that snare retentions of law firms in many acquisitions, all major litigations, and even some licensing or transactional deals?

Second, everyone in the company who wants a contract executed must complete and submit a Contract Request Form. The law department of EBay monitors the flow of those Forms and I believe handles each one in some fashion.

Third, she said that Procurement is underway with risk-ranking suppliers. That initiave is unlikely to implicate law firms, I suppose, but there may be broader definitions of risks than I am taking into account.

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I saw a presentation the other day that looked at matter management systems and deconstructed their reports into eight levels of increasing sophistication and value. What they called “standard reports” are the canned choices that come with system implementation. Quite a few law departments rarely need to go beyond their capabilities, especially if they export the results to Excel and refine the output there.

Next up the ladder of sophistication were “ad hoc reports” where a user picks and chooses some fields, some parameters, and some layout. With report wizards, this has become fairly routine. Above that level the presenter said are “query/drill down” reports, where the user can click on an output field and look at the underlying data to get closer to the understanding the input of the report.

Five reports were listed above those three, each claimed to be of more value. To that list I could add “trend reports,” because to look at data from one year compared to previous years seems most insightful. My point, in summary, is that law departments should be aware of report types that are more powerful than the one’s they customarily use.

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Law departments have to provide to their company’s outside auditors sufficient information for them to prepare their reports on contingent liabilities. The law department administrator from The Williams Companies, speaking at Mitratech’s Interact 2011 Conference, said that the department had developed a tool to help with the “complex and not fun to do” task.

Such a tool would quite naturally complement a matter management system See my post of March 12, 2005: comments about major reserves taken for litigation; March 12, 2005: funded matter management system in return for reductions in reserves; July 20, 2005: special-purpose reserve accounts; June 15, 2005 about credit for releasing reserves; Dec. 10, 2005: huge swings when huge litigation requires budgets and reserves; March 13, 2006: a crude summary of FASB Rule 5; June 15, 2006: releasing reserves; Dec. 3, 2007: savings targets, cash basis and reserves and P&L; Dec. 31, 2008: proposed FASB rule on disclosure of reserves for individual litigations; and Jan. 4, 2009: multiple cost centers, and one may be for reserves.).

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A speaker at a customer conference for users of a leading e-billing system gave some data about questions law firms asked when their invoice had been rejected. The leading cause of a question was the rules that had been invoked (about 20%), followed by “manual return,” unapproved billing rates (about 15% each), and invalid timekeepers. Block billing, math errors, and duplicate invoices made up the remainder.

What this data says to me is that law firms should make their e-billing rules explicit to their law firms. Tell them what you expect and try to drive down the number of rejections thereafter based on violated rules (See my post of Nov. 6, 2009: reports that out inside lawyers who flout e-billing rules; June 1, 2010: firms should test invoices against e-billing rules before submitting them; and June 4, 2009: e-billing rules with 6 references.).

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Every law department that tries to institute a knowledge management program thinks of department-wide efforts. “Let’s set up an intranet for the legal department!” “Let’s put in document management!” “Let’s create a memo repository!” Those across-the-board efforts almost always peter out, lead to spotty participation, and usually languish (See my post of May 19, 2011: collective action problems.)

If a department has several lawyers who handle similar problems, such as government contracts, that group will have a far better chance of implementing some kind of knowledge capture and dissemination. They have more reason to pitch in for the common good. What they collect is more tailored to their needs, and peer pressure operates more acutely (See my post of July 25, 2005: knowledge management and communities of practice; Sept. 10, 2005: practice groups and communities of interest; and Jan. 2, 2009: grass roots knowledge management.).

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Come listen and learn while you lunch! I will be holding forth on the latest data from the General Counsel Metrics global benchmark survey. (Have I mentioned that survey here before?) Even better, ask any questions you may have if you call and dial in for the one-hour webinar, arranged by Mitratech, to take place at 1:00 PM Eastern time that Thursday.

Sign up now so that you or someone who works with you can take part in this hands-on discussion of law department benchmarks for spending and staffing. Click on this link for the short webinar registration. While you’re at it, click on the icon upper right, put in your department’s data, and get your report by email in about a month.

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Back in the day, there was a moderate amount of talk about and acclaim for discounts on law firms bills automatically applied when the company paid quickly. A common combination was about two percent if a bill were paid within a week.

You don’t hear about cost control by prompt payment discounts, and I think I know some of the reasons why. In the first place, law firms routinely grant discounts of five percent or more just for the asking, so the glare of deeper discounts washes out the paltry two percent. Another nail in the coffin has been the difficulty accounts payable has had with compliance; you can promise five days but if the average check cycle is 45 days, good luck. Nor did the interest accrued of the deferred payments prevent early payment discounts from sliding into extremis.

Maybe it became complicated to rush payments and then sometimes have to rewind a part of it, or perhaps general counsel had the sneaking suspicion that promptness led to rubber stamping – any “savings” were wiped out by the lack of invoice review.

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If a general counsel normalizes the hourly rates charged be various law firms – an effective-billing rate calculation – it is almost always calculated at the firm level. Take a pile of firm’s bills and divide their total by lawyer hours. A variation, and one that can produce significantly different effective rates, does the same calculation but within types of matters. Look at IP-related bills, or M&A bills, or the employment-related bills. Variations by the firm in staffing and managing matters in different substantive areas can create widely different numbers. By the way, your fully-loaded internal cost probably differs as dramatically by practice area.

For background on effective billing rates, my first metapost is available (See my post of March 9, 2009: effective billing rates with 9 references.).

Since then several other posts pertain to effective rates (See my post of May 22, 2009: total hours of legal work per unit of revenue; Sept. 1, 2009: effective billing rates adjusted for cost of living; Oct. 11, 2009: some differences in costs between firms and departments; Nov. 25, 2009: adjust discounts by effective billing rates; April 21, 2011: cautions when departments compare internal to external billing rates; and May 29, 2011: effective rates and trimmed means.).

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At a customer conference for users of a leading e-billing system, one speaker gave some data about inquiries from law firms about invoice processing. That category of inquiries, by the way, accounted for the most calls (about a third), with invoice rejection accounting for about a quarter more.

Of the processing questions, predominantly they regarded either submission or status. In fact, 65 percent of those inquiries fell under those two, followed by 10 percent each for invoice deletion, appeals and payment inquiry.

I mention this data because a law department should focus training of its law firms on these frequently asked topics.

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To calculate the effective billing rate of a law firm, divide the amounts of several of its representative invoices by the number of lawyer hours charged under the invoices. Law departments calculate that figure sometimes to compare it to their own fully-loaded cost per lawyer hour. The range for U.S. law departments can be something like $350 an hour outside and $215 an hour inside.

One problem, however, arises from including the law firm your department paid the most during the period. That firm may well have handled your biggest law suit or largest acquisition. Cost discipline may have been less and the firm was probably large and therefore expensive.

At the other end of the scale, your department might use a one-person firm to handle very simple kinds of specialized work, or hyper-efficient boutiques to handle workers comp questions. The effective billing rates of those lower-end providers will be as unrepresentative of your normal effective rate paid as the top-of-the-line rates for the largest matter.