Successfully managing your relationship with outside law firms often involves a delicate balance between cooperation and oversight. Outside counsel generally offer specialist expertise, an independent perspective, and – in some cases – sheer numbers of people to address challenging problems. In-house legal departments contribute team co-ordination, experience, and a thorough understanding of the needs of the corporate client. How can general counsel and their legal teams ensure that they are effectively managing outside law firms? The following ten recommendations are a good start.
1. Create clear guidelines – and follow them
Legal departments must not only create clear guidelines for their outside counsel, but they also must consistently enforce them. The best practice is for firms to confirm agreement to the guidelines in writing, with any additional terms in a mutually agreed addendum. Avoid side agreements.
A good legal spend management system can help streamline the monitoring of compliance with agreed guidelines (see point ten below).
2. When assigning new work, consider alternative firms and stop giving work to under-performers
Legal departments often send work to the same large law firms. However, considering smaller law firms and firms outside of the largest cities, and soliciting bids for large projects, is key when it comes to assigning new work. The legal department should regularly evaluate the work performed by outside counsel (generally at the conclusion of projects) to identify opportunities for improvement. Under-performing firms that do not take corrective action should not be considered for new work.
3. Require relevant experience when staffing legal projects and insist on pre-approval of any changes
In-house lawyers can work with outside counsel to create appropriate legal teams for major projects, including confirmation that experience levels match the work.
We also suggest that in-house departments remain vigilant to ensure that a project team is not changed without your approval. There are many instances where clients hire a major firm because of perceived expertise, only to find dozens of inexperienced associates —or even temporary lawyers—on the bill doing the actual work.
Your legal operations team should carefully monitor bills to watch for additions that could create inefficiencies and increase costs. Left to their own devices, firms could assign many extra timekeepers to your matters, some experienced and some not, all billing part-time to multiple matters. This increases the number of people who must be educated on the matter and kept up-to-speed.
4. Confirm that hourly rates and expenses are (and remain) reasonable
Be sure that your currently negotiated discounts are reasonable for the market. You can do this by comparing them with internal colleagues, peers at other companies, and public reports such as the Thomson Reuters Institute’s annual Legal Department Operations Index. In addition, require pre-approval for any changes to negotiated rates.
Finally, make sure large law firm expenses are supported by receipts. Review them for both reasonableness and to eliminate inappropriate overhead charges like word processing or administrative expenses.
5. Put project plans in place and regularly monitor progress
In addition to agreeing on a project team, work with your outside team to plan manage projects. This includes tactics for reaching potential early resolution points. From there, monitor milestones to determine whether the firm is sticking to the plan, or whether the plan needs to be adjusted. You can do this as you review their bills or in periodic status updates.
6. Require detailed legal bills that specifically describe the services performed
By requiring more detailed bills, GCs and their teams can gain insight into what outside law firms are actually doing, not just what they claim they are doing. Vague descriptions and “block billing” can hide duplication of effort, inefficiency, and time erroneously billed to the wrong project. The legal department can also maintain a record of challenged entries and amounts written off to ensure that law firms follow through on billing revisions.
7. Obtain project budgets and track bills against them
While the legal department may have clear guidelines requiring budgets, they very rarely actually receive them. Therefore, we recommend withholding payment on your matter until a budget is in place.
To make it easier to track spending against the budget, budgets should be broken down by phase, major activity, or time period. Then, as you receive bills, you can compare them with corresponding budget categories to quickly identify projects that may be getting off track.
8. Obtain electronic copies of documents to re-use work products
Obtain electronic copies of all important records. These help you monitor and review legal work, and they serve as backup in case there is an issue with the firm. This could include dramatic events like the firm losing materials in fires, floods, or firm breakups, etc. It will also be helpful if you decide to terminate the firm’s contract or conduct fee or performance reviews.
This also enables you to reuse work product and avoid duplication of effort. By maintaining such information in a shared electronic repository, the legal department avoids having to pay multiple times to obtain the same information.
9. When projects are completed, track results achieved, and lessons learned
If you want to compare law firm performance, you must track results. We recommend keeping track of the following:
- Duration of the project
- Total fees and expenses
- Results achieved (payments/recoveries)
- Predictive accuracy of initial matter budgets from outside counsel
In addition, capture lessons learned and share them with appropriate business clients to reduce future legal exposure and spending.
10. Put in place a legal department management system that is easy for both in-house lawyers and outside counsel to use
You can use matter management and e-billing systems to efficiently accomplish many of the goals described above. This includes alerting bill reviewers of staffing or hourly rate changes, flagging violations of expense guidelines, automatically comparing spending with budgets, enforcing requirements of regular status updates, capturing results and lessons learned, and evaluating law firms.
If they are to be truly effective, such systems need to be easy to use on a regular basis.
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These ten practical suggestions can help legal departments gain a better understanding of the fees they pay and the components of those fees so that they can choose wisely and negotiate the best fee arrangements and pricing – and ultimately get the most out of their law firms. Legal Tracker can also help your department manage spend and matters more effectively.
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