In this article series, I have been discussing tools and techniques to support an outside counsel management program. Today, I will describe how to use data to maximize the outcome of two common activities: 1) a convergence process and 2) an annual meeting with a law firm.
Convergence is a process through which a law department seeks to limit the number of law firms to which the department gives a large proportion of its legal work. The goal of the process is to gain cost savings, efficiency and value by working with a preferred group of firms. Departments undertaking a convergence effort often poll in-house legal teams to understand preferences. They may also ask firms to bid for the position on the preferred panel, requesting special pricing and services. Departments may augment the information received through these activities in the following ways:
1) Departments that have collected cost and outcome data within their matter management and eBilling system are well positioned to mine historical information to build a picture of past performance by firms. The idea of an outside counsel scorecard is not new, but relatively few departments have developed a truly useful set of comparison metrics amongst the firms with which they have done business. Some ways a department could compare one firm to another is by evaluating:
- Average effective billing rates for specific matter types or even tasks with matters (e.g., the average of rates charged, including computing the effective rate of alternative fee arrangements assuming the number of hours worked is known)
- Common staffing profiles (e.g., what percentage of the time was staffed by partners versus associates or paralegals)
- Average cycle time (e.g., from matter open to matter close, or from first date of service to last date of service)
- Percentage of matters completed favorably within a certain time period
2) Another mechanism which may help to compare firms is rate benchmarking. Law firm rate benchmarking data is becoming more readily available from industry vendors, particularly those with access to large volumes of billing data. Departments often are surprised to see what other companies are paying for similar services. For departments that may be paying more than peers for certain legal services, knowledge of going rates improves negotiation position significantly.
Annual Firm Meeting
Some law departments meet regularly with relationship partners from key law firms. These meetings may include discussions about rates as well as ways in which the firm can change or improve services for the department. The department should review data on the firm’s performance in a number of areas in preparation for the meeting.
1) Building upon the metrics suggested above, additional performance metrics might include:
- Percentage of invoices rejected or adjusted for reasons due to noncompliance with department billing guidelines
- Percentage of matters completed within budget and/or average variance of final matter cost from original fee estimate
- Percentage of matters utilizing alternate billing arrangements and associated performance characteristics such as volumes billed under volume pricing and outcomes associated with different arrangement types.
- Results of outside counsel evaluations
- Use of lower cost resources, including outsourcing, for routine or lower risk activities
2) Trending rates and revenues from internal matters can be insightful. Trend average effective rate, minimum rate, and maximum rate over time for different levels of lawyers for different types of work. I once had a client that had focused on negotiating rate decreases and moving some work to lower cost regional firms. Though the data supported that these changes in billing were in fact occurring, the department’s top firm’s revenues continued to increase. The culprit was an increase in the effective rate for lower level associates despite the use of alternate fee arrangements.
As long as departments require their vendors use eBilling and submit invoices using task codes, eBilling systems provide a wealth of data that can be used to understand pricing and performance of a department’s vendors. Importantly, departments need only to enter relatively little data at matter opening and closing (such as matter outcome or a vendor evaluation) to be able to produce meaningful information to support outside counsel management activities.