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  Managing Total Legal Spend

The costs of legal services increase every year because the demand for service increases, the nature of the work becomes more complex, and unit prices keep climbing in every market. Legal departments must call on a broad range of measures to address the economic challenges that accompany legal services. Our experience is significant with

preparing multi-year demand forecasts for legal services
budgeting internal & external costs
preparing RFPs and Invitations for Strategic Pricing
convergence and partnering with law firms
non-hourly pricing for external counsel
litigation management

For further information on managing total legal spend, contact Richard Stock at rstock@catalystlegal.com or (416) 367-4447.

Articles on Managing Total Legal Spend

Fixed Fees and Performance
Legal Business World, Edition 8 (Sept 2018); and
Lexpert, Vol. 18, No. 4, March 2017

Corporate clients should systematically request detailed matter budgets with the planning assumptions and hours by phase and task for each fee earner when the file is likely to exceed 50 hours. This is good, basic practice management.
The article suggests that putting more eggs in fewer legal baskets and making long(er) commitments of work to law firms makes it possible to introduce fixed fees for portfolios of work. It also removes barriers to introducing key performance indicators and to truly innovating in legal service delivery.

Four Questions for Legal Sourcing

Lexpert, Vol. 19, No. 7, July-August 2018 and
Legal Business World, e-Mag Issue 5 2018

A survey of 153 legal sourcing professionals by the Buying Legal Council leads to four questions. How do the savings get measured? To what extent is the entire portfolio of legal work scoped and then sourced on a non-hourly basis? Is the company able to evaluate law firm practice patterns as a way to select the best AFA? To what extent is complex, strategic work subject to the legal sourcing process?

Failure to Delegate
Legal Business World, e-Mag Issue 6 2018

Leverage is central to law firm profitability. Most levels of lawyers can delegate 20% of their work to less senior lawyers or to paralegals. Delegation should be optimal, not optional. Turnaround time, knowledge transfer, and stable legal teams are influenced by proper delegation. Failure to delegate tasks is a much more widespread challenge in legal departments since counsel usually does more than 90% of the work on a file. General counsel must monitor file count, file complexity, and cycle times against objectives.

The 8 Critical Elements for Successful Non-Hourly Pricing
Buying Legal Council, Buying Legal Brief 2nd Instalment

From the law department’s point of view, the top four measures that produce improvement in the economic performance of law firms were enforcement of guidelines for billing, expenses, matter staffing and matter management (75.4%), fixed, capped or alternative fee arrangements (74.7%) , provision of guidelines for billing, expenses, matter staffing and matter management (62.4%), and mandatory budgets for major matters (59.6%). Altman Weil found that 55% of Chief Legal Officers believe that they do not have enough buying power to negotiate more effectively. Proficiency with the business part of dealing with law firms is essential for corporate law departments.

Negotiating with Law Firms
Legal Business World, e-mag Issue 4 2018

The article highlights the findings from Altman Weil's 2017 Chief Legal Officer survey. The lack of data analytics and the non-enforcement of billing guidelines, matter staffing ratios and budgeting can cost a company an additional 10% in legal fees. Law departments should formalize and centralize the role of pricing and tracking legal work for complex transactions, litigation and regulatory work as a pre-requisite to non-hourly billing and to reducing legal spend by 15% beyond the best discounts.

Innovative KPIs Are Critical to Secure Greater Value from Law Firms
the Australian Corporate Lawyer, Vol. 27, No. 3, Spring 2017

Three steps are proposed to secure greater value from law firms. The first is a preparation of a multi-year forecast of the demand for internal and external counsel, taking into account business unit plans. Too few law departments have this information readily available. The second step is to use of Key Performance Indicators (KPIs), such as results, service, cost and innovation in conjunction with non-hourly fees for individual matters and for portfolios of work. The third step is a semi-annual evaluation of law firm performance against the agreed KPIs.

From Vendor to Strategic Partner
Lexpert, Vol. 18, No. 3, January-February 2017

The 5 stages of relationships between law departments and law firms, described in Heineman's “Inside Counsel Revolution”, are summarized in the article. Very few companies have moved beyond panels of preferred law firms to a strategic integration with one or two primary firms. The article concludes that making longer term commitments to a handful of firms is a pre-requisite to non-hourly fees for portfolios of work and to significant innovation in legal service delivery that will change the behaviours of inside counsel and their primary firms.

Changing Law Firms
Lexpert, Vol. 18, No. 2, November-December 2016

With an hourly billing model, a company can take its time to phase out legacy firms as part of its convergence program. Fixed and hybrid fee arrangements require other approaches to manage law firm transitions. The first approach is to carve out some on-going files for legacy firms and reduce the fixed fee accordingly. The second is to have the successful primary firm oversee, pay and phase out the work of the legacy firms as part of its fixed fee. This second approach contains costs and greatly reduces the amount of administrative time that law departments would otherwise invest.

Design of a Successful RFP
Lexpert, Vol. 17, No. 8, June 2016

This case study shows how three different law firms can offer simpler work intake and allocation protocols, and move away from hourly billing in order to secure predictable pricing that is effective for multi-year portfolios of legal work. The prerequisite is a well-drafted RFP based on solid data analytics. The scope of work should set hour work volumes and complexity levels for each legal specialty.

Closing the Gap
Lexpert, Vol. 17, No. 6, April 2016

Only three out of 20 law departments have written business plans, key performance indicators, and use formal RFPs to retain external counsel. Up to 50 % of law department time is spent on routine matters, typically by lawyers with more than 10 years of experience. Twelve areas are listed for improvement in law department management. An increasing number of Canada’s top law firms have the resources to help law departments improve their efficiency and their effectiveness.

Extracting More Value
Lexpert, Vol. 16, No. 9, September 2015

Fourteen out of 15 successful responses to RFPs are from existing providers of legal services. Few companies link fees to performance. Surveys suggest little evidence of cost pressures on firms. Five questions are proposed for incorporation in RFPs.

Sourcing External Counsel: Strategic or Tactical?
CCCA Magazine, Vol. 8, No. 3, Summer 2015

Legal procurement has come into its own as a value-added contributor. There are a good number of corporate procurement and strategic sourcing departments that lend structure and support to the law department. This article profiles Dr. Silvia Hodges Silverstein’s “Legal Procurement Handbook,” a thought-provoking collection of 27 articles. Every GC should read the book.

Getting to LPM
Lexpert, Vol. 16, No. 2, Nov-Dec 2014

The article suggests six ways that legal project management (LPM) and budgeting add value in complex matters. The roles of external counsel and law departments in LPM are detailed. Law departments should ensure that matter budgets for complex work include planning assumptions for phases and tasks, together with a percentage probability of correctness.

Legal project budgeting should be correlated with a suitable pricing model if it is to provide the right incentives for all involved.

Improving the Business Relationship with Primary Law Firms
CCCA Magazine, Vol. 8, No. 2, Summer 2014

External counsel are an important resource. The relationship with primary law firms must be structured insofar as it applies to the composition of legal teams, service standards, effectivness ⁄ results, and pricing. Good usage data and reliable demand estimates are essential. Performance-based fees should be integrated with all types of fee arrangements.

Power of a Well-Drafted RFP
Lexpert, Vol. 15, No. 8, June 2014

Effective Requests for Proposals for legal services are based on good data about past usage and clear projections for demand in the future. RFPs should inquire about law firm business plans, legal project management, quality assurance mechanisms, and pricing. RFPs ask for references to other clients and strong relationship partners. They introduce structure in evaluating law firm performance.

When Your Partner Leaves
Lexpert, Vol. 15, No. 7, May 2014

The departure of a relationship partner from one law firm to another represents a period of uncertainty for corporate counsel. The dissolution of a law firm is disruptive to say the least. GC should secure a detailed, in-person briefing about the new law firm. It is also a good time to negotiate more favourable economic terms. The opportunity to re-think professional and business relationships for legal services should not be missed.

Striking a New Bargain
Lexpert, Vol. 15, No. 1, October 2013

Performance and outcome-based fee arrangements will represent less than 50 % of fee arrangemens for at least 5 more years. Legal departments shy away from securing detailed matter budgets for complex and unique work. Inside counsel do not invest the time to engage in analysis and discussion of resource plans for legal work. A combination of legal project budgeting and performance-based fees for complex work is the only way to compel legal departments to ascertain and pay for the real value of legal work.

The Enigma of Hourly Billing
Lexpert, Vol. 14, No. 9, July-August 2013

Recent application of value-based fee principles to long-term partnering arrangements with law firms proved to be a partial success only. Patrick Lamb’s three-part test for non-hourly fees is presented. The article argues in favor of fee arrangements which depend, at least in part, on outcomes for the matter or group of matters.

Ask and Ye Should Receive
Lexpert, Vol. 14, No. 8, June 2013

RFPs for portfolios of work typically result in partnering agreements with the same primary law firms. The process of “going to market” or a formal, non-competitive process is an opportunity to state new expectations for geographic coverage, succession in the relationship with the firm, value-based pricing combinations, and technological advances. Ten probing questions for law firms form part of the article.

New Life for Old Relationships
Lexpert, Vol. 14, No. 6, April 2013

The top 6 factors influencing the selection of a law firm are profiled. For an established relationship, one law department evaluated its primary law firm by looking at service, costs, and results for each of four legal specialties. Each member of the law department prepared an evaluation. A composite performance profile was then assembled. A formal, explicit approach to evaluating firm performance is an effective management practice, and far better than assuming that no news is good news.

Actively Managing Relationships with Law Firms
CCCA Magazine, Vol. 6, No. 3, Fall 2012

Active management of relationships with external counsel depend on business unit support for protocols underpinning alliance and partnering arrangements for legal services, on designating a member of the legal department to oversee innovative arrangements with law firms, and on using the procurement department for data analysis and tracking.

Negotiation Jitters
Lexpert, Vol. 13, No. 10, September 2012

Meetings held over 2 days with the GCs and AGCs of 14 companies focussed on the types of arrangements in place with preferred firms. Most of the companies spend $50M to $125M per year on external legal fees. There is little evidence of formal selection criteria or competitive processes in place although most of the GCs were very well-informed of the range of programs and innovation of other companies. Almost none had plans to introduce more cost-effective arrangements with their preferred firms despite their interest in serious cost reduction. Law departments are getting great service and good results, they continue to step back from regular and fundamental reviews and the re-design of their financial arrangements with their law firms.

Paying the Right Price
Lexpert, Vol. 13, No. 3, February 2012

Recent discussions with 50 legal departments suggest that there is not much evidence of cost-reduction initiatives. There is little interest in competitive processes (RFPs) to retain external counsel, as most General Counsel believe that the pain is not worth the gain". Five steps were proposed to find the right price to pay external counsel: the Request for Information (RFI); a multi-year demand forecast; a review of practice patterns; aligned pricing arrangements; and disciplined measurement of value.

The Quest for Cost-Effective Counsel
CCCA Magazine, Vol. 5, No. 4, Winter 2011

Not much has changed in 10 years with the average for non-hourly pricing stuck at 10%. Forty percent (40%) of legal departments achieve few or no reductions in external legal spend in the last two years. Another 18% achieved only 6% - 105 inh cost reductions. One survey found that only 17.2% of legal departments almost always require detailed matter budgeting for complex matters. Five suggestions are made on how to improve terms of engagement with law firms.

Eight action tips are offered on how legal departments can reduce external legal spend

Four Smart Questions
Lexpert, Vol 12, No. 7, June 2011

The article answers four questions posed by the AGC of a national bank. What strategies work when aiming to reduce legal spend on M&A and litigation matters? Do alternative fee arrangements (AFAs) impact quality or timelines of service? How does one disconnect the law firm perception of value from billable hours where it is billing against an AFA. Apart from saving money, what are the indirect benefits of AFAs?

   
 
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