Improving the Business Relationship with Primary Law Firms
Author: Richard Stock - CCCA Magazine (Summer 2014)
FULLY 50 % OF companies that carry out a detailed analysis of their spending patterns for external legal counsel do not act on the findings. Many General Counsel accept that they must have better data than what their accounting systems can produce — information such as number of matters, their relative complexity, how law firms staff the work, and what the remaining fees and hours are on approved matters.
Framing the Question
The use of external legal resources needs to be managed regardless of the annual legal spend. While it is possible to do this one matter at a time with one or two law firms, most legal departments do not have the time to ask for or take the time to review detailed matter plans and budgets prepared by their law firms. Inside counsel do not have the templates, the training or the appetite to challenge matter plans and budgets. This is especially true for litigation budgets.
Most law firms have clients demanding innovation in matter budgeting, work allocation, the use of technology for service delivery, alternative fee arrangements, and more. Most firms can be quite responsive on each of these points, but the client has to ask. The responsibility is with the client. Framing the questions, perhaps as an invitational request for a proposal, having a discussion, and then drawing up the terms of engagement should take about 15 hours for a portfolio of legal work — but only a couple of hours for a single complex matter.
For those instances where a formal request for proposals is sent to a select number of law firms, quality responses are received by including the selection criteria in the body of the RFP. Yet, inside counsel usually back away from doing this, in part because they may be forced into making a change from their existing law firms. In fact, the real benefits in being explicit about expectations and selection criteria are in leveraging current service providers to improve their service offerings.
The Role of Procurement
Procurement, or strategic sourcing departments, can serve as project managers in conducting a RFP for legal services. For the most part, legal departments believe that procurement is for purchasing “widgets” and not really helpful for securing professional services. As long as the legal department provides the scope of work, selection criteria, and a list of firms to be invited, then Procurement can assemble the RFP and manage the process efficiently. Insurance companies, banks and pharmaceutical companies have been doing this for years. This was unheard of 10 years ago because retaining law firms was a relationship-based process with very little structure in it. Today it is a recommended management practice to formalize the process by which external legal resources are retained. With or without the support of a strategic sourcing department, legal departments should negotiate comprehensive terms of engagement every three years or so. Annual adjustments to historical pricing arrangements are not enough.
Estimates and Guarantees
Most organizations have accurate data showing total legal expenditures by law firm. But they cannot break down the information by legal specialty or determine the number of hours paid for each category. Inside counsel need to determine the scope of work when calling for proposals. The first step is to describe the types of matters and their frequency for each category of legal work.
The second step is more difficult and consists of quantifying volumes of work by category — that is estimating the number of hours for each category. This is essential if the company wants to move beyond a list of preferred law firms with discounts, to favourable fee arrangements with a degree of predictability and serious cost savings.
It is frequently better to ask law firms to provide the raw data (hours, number of matters, and categories) for the last 2 – 3 years. From there, the legal department can project volumes and incorporate their plans into the RFP’s scope of work. Projections are only estimates, yet too many inside counsel shy away from showing the estimates in the RFP for fear of having these used as guarantees or commitments of work to successful law firms. Estimates are essential to law firms if they are to prepare competitive fee proposals and if they are to commit professional teams properly configured for the work.
Experience suggests that most RFPs result in legacy firms winning the process. So, why bother “going through the motions?” There are at least four reasons: law firms can commit to using legal project management and budgeting, to alternative fee arrangements, to re-configured legal teams and to lower and stable prices. It often takes a formal procurement process to introduce new terms of engagement with external counsel, especially if they are an existing provider.
Experience suggests that most RFPs result in legacy firms winning the process. So, why bother "going through the motions?" There are at least four reasons: law firms can commit to using legal project management and budgeting, to alternative fee arrangements, to re-configured legal teams and to lower and stable prices. It often takes a formal procurement process to introduce new terms of engagement with external counsel, especially if they are an existing provider.
Terms of Engagement
Legal departments too often stop short of the finish line when it comes time to paper the deal. Retaining external counsel depends on the usual elements of professional services: competence, coverage and price. But it must also be business-based. Many companies have moved past billing guidelines for a list of preferred law firms and introduced partnering agreements or comprehensive terms of engagement. Legal departments must become more proficient about stating their requirements on how best to manage scope of work, the use of legal project management methodologies and budgets, migration to non-hourly pricing, and the use of performance-based fees. Annual review and adjustment mechanisms applied to service delivery, outcomes and costs are appreciated by law firms wanting to improve their competitive position.
Improving the business relationship with primary law firms takes less than 50 hours per year. All stakeholders benefit from the investment of time and money.