Unfavorable settlements if the law department is pressured to reduce law firm costs

Where law department budgets include outside counsel fees, and cost cutters are trampling out the vineyard where the grapes of costs are stored, a latent tension arises: a law department might be tempted to recommend a higher settlement than might otherwise be obtained, to lower its payments to firms and thereby improve its budget figures.

Everyone disparages such an idea, but when you measure something, people change their behavior to look good on the measurement. If you tell a law department to cut its spending, and if settlement payments are not part of the department’s budget, you must accept that a perverse incentive has crept into the deliberations.

To be fair, I have never heard of this ploy being used, but the conflicting demands certainly are very real.