The value of data to the rate review process

The adage of “garbage in garbage out” certainly applies to the effective use of law department data

The general counsel assumes many roles: overseers of corporate governance and compliance, outside counsel supervision and tactical and managerial oversight of their own law department functions. Faced with continued pressure to increase efficiencies and cost reductions while delivering more value, general counsel need to champion the benefits of enhanced data analytics to ensure their law departments meet internal customer needs. Increasingly, they are turning to new methods of research and reporting when looking at outside counsel costs.

Data-driven analysis

Fortunately — and perhaps somewhat daunting — for law departments, there are abundant opportunities to utilize data analytics to assist with cost containment opportunities. According to HBR Consulting’s 2013 Law Department Survey, data-driven analysis is used for:

  • Alternative fee arrangements (82%)
  • Internal guidelines for outside spending (73%)
  • Matter planning and budgeting (62%)
  • Use of analytics to improve negotiations (43%)
  • Outside counsel billing guidelines (37%)

While 95 percent of companies report taking steps to control outside counsel costs, fewer than half have implemented best practice analytics to improve the annual rate review process with their outside counsel.

Leveraging consistent data

Most leading organizations today are analyzing data received through existing e-billing platforms during the rate review process. While this may be sufficient for determining cost on small-scale matters, the complexities of outside counsel arrangements demand a proactive approach that employs more sophisticated data analytics. The reliance on data obtained from the e-billing systems creates an underlying challenge as many law departments’ e-billing data has consistency issues. Some of these data issues involve:

  • AFAs: How are alternative fee arrangements (AFAs) being captured? Are fixed fee and retainers tied to a specific timekeeper, or is the firm creating a new “fixed fee” or “null” timekeeper?
  • Discounts: Are discounts consistently applied to the individual timekeeper rates or only at the aggregate firm or matter level?
  • Timekeeper rates: Do specific timekeeper’s rates fluctuate by matter? How is this tracked or flagged?
  • Titles: Is the law department requiring a standard methodology to capture timekeeper classes or titles?

As the complexity of fee arrangements increase, so does the number of data inconsistency issues. The question of consistency has become a critical objective to address during fee discussions. Consistent data directly determines a law department’s ability to apply a consistent benchmarking methodology across all firms and matters.

The second method of obtaining information is from the law firm itself. These reports are often generated internally by the law firm’s pricing departments with limited knowledge of the particular matters or billing arrangements. This can lead to unreliable information presentation that makes decision making difficult.

Need for cleansing and monitoring data

A more effective way to enhance the rate review process and drive value for the law departments is to proactively cleanse and monitor the data. Making sure that timekeepers are all classified using a consistent methodology, for example, allows a law department to determine rate variations across similar timekeepers doing similar work. Another example is the application of discounting. Make sure that any discounts applied to specific matters are easily applied and allocated to the appropriate timekeepers. There can be a large variance between billed rates and effective rates in many instances.

Interpreting the data results

There are several ways to use technologies that focus more on the reporting aspect of data (as opposed to capture) to enhance your strategy and cost reduction initiatives, including:

  • Create a process to budget matters and closely track when thresholds are reached
  • Benchmark consistently, across various firms and matters internally as well as externally
  • Monitor staffing allocations and flag when the mix is not as anticipated or per arrangement
  • Observe when matters are being saturated with too many timekeepers
  • Track success of AFAs and other alternative billing arrangements

Clean data, coupled with enhanced e-billing guidelines, is essential to the rate review process. Using data with enhanced reporting and benchmarks, allows law departments to improve their rate review process which in turn helps maximize the value received from outside counsel and maintains a fair cost structure.

Law departments continue to build upon and add to their stockpiles of e-billing and matter management data. To enhance performance monitoring and truly push for greater value, law departments should leverage consistent data, which can be particularly impactful during rate review. By effectively leveraging data and analytics, general counsel will maximize efficiency and value from law firms and ultimately achieve greater value. The adage of “garbage in garbage out” certainly applies to the effective use of law department data.

Contributing Author

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Scott Springer

Scott Springer is a director in the Global Strategic Sourcing and Business Operations Practice at HBR Consulting. He has extensive experience in providing business intelligence...

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