Six non-financial and eight financial elements are listed as objectives when negotiating fees with external counsel. Provisional work allocations by law firms and two rounds of fee negotiations are described. Negotiation logistics and administrative support requirements are proposed.

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.

A pathway to non-hourly fees for regular and complex legal work is outlined. The most appropriate configuration of alternative fee arrangements will stimulate efficiency, effectiveness and innovation in external counsel. The article simulates a costing of work allocation to multiple firms. Four factors are proposed when evaluating the projected costs of external counsel when conducting a sourcing initiative.

Scoping is that portion of the Request for Proposals designed to inform law firms of the scope of work to achieve the company’s objectives. The article focuses on portfolios of work and multiple jurisdictions. The importance of historical data, preferred practice patterns by legal specialty for law firms, and four considerations when developing multi-year projections are outlined.

The article describes some steps for the Law Department and Procurement to formalize a collaboration arrangement for sourcing external legal services. These include a formal program, non-financial objectives and financial targets, and detailing responsibilities for legal leadership, legal operations, and Procurement.

As one of 17 co-authors, Richard wrote the chapters on Securing Sponsorship from Legal, Scoping Legal Services, Pricing Legal Services, Negotiating Legal Fees. Released in early March 2021, the Definitive Guide contains insights from North American and European procurement, management consultants, and legal and technology professionals. It should be read by law department leadership and law firms alike.

One study reported that 65% of 316 companies surveyed did not consider or did not heavily use Alternative Fee Arrangements (AFAs). Legal and Procurement departments must be highly proficient in law firm economics, AFAs, law firm culture, and partner compensation systems. Specific questions are recommended for inclusion in the Request for Proposals (RFP). Fee arrangements must demonstrate efficiency, effectiveness, and innovation in legal work and in service delivery.

There are preparations critical to effective sourcing of external legal services. A formal set of financial and non-financial objectives should be reduced to writing and agreed upon between the Law and Procurement departments. The roles and responsibilities for each should be explicit with the law department focused on non-financial negotiations with law firms. The Request for Proposals or Invitation should detail the scope of work for the reference period and it should ask a range of financial questions as well as address operating and professional practices.

Traditional legal panels cannot be strategic for three reasons. First, hourly-based fees mitigate against the client’s objectives. Second, companies rarely commit to a volume of work over time. Third, hourly fees make it difficult to target innovation.
The 8 critical elements for non-hourly pricing are: solid historical data; scoping the demand for legal services; a clear strategy for the preferred way to retain counsel; a well-designed RFP; a well-configured alternate fee arrangement; two rounds of fee discussions with preferred law firms; ad a master agreement with each firm that goes far beyond billing guidelines.

Our survey of 50 matter budgets from 20 law firms revealed that 80 % of the firms did not have standards and templates for budgeting complex matters in several specialties. Detailed matter budgets set out the hours for individual timekeepers by phase and task. They also set out the planning assumptions as well as a probability, expressed as a percentage, for each assumption. Law departments should master legal project planning and budgeting.