While there are many areas of a legal department that typically fall within the scope of responsibilities of the head of legal department operations (LDO), almost none impact the legal department’s finances as profoundly as outside counsel spend and legal vendor management. In fact, most law departments spend more than 60 percent of their budgets on outside counsel and legal vendors. Efforts encompassing outside counsel and legal vendor management may involve the identification, selection, utilization, measurement, or some other aspect of a legal department’s law firms and other vendors. Optimizing outside counsel and legal vendor management only results when the general counsel and LDO make productive changes to the internal and external relationships that consist of the right mix of in-house professionals, outside counsel and clients.
Talking from experience and with decades of collective experience in building and managing outside counsel and legal vendor management programs, we have experimented with many types of approaches to managing outside counsel and legal vendors. We have had many successes, and a few efforts that were less successful. But after all of these years and through all of these efforts, we have several observations that are important to consider when building world-class outside counsel and legal vendor management programs.
Manage relationship at the matter level
While great things can be accomplished by looking at the big picture and implementing comprehensive programs to address different aspects of outside counsel and legal vendor management, one of the most significant accomplishments has been achieved by focusing on managing relationships at the matter level. Unless the in-house attorneys, LDO’s, and other professionals are actually rolling up their sleeves and managing a matter on a very active level, the big picture programs may make little difference in achieving the goals of the legal department. The key to a matter spend management approach is constant and active participation in the alignment of activities and work performed to the strategy and risk tolerance of the individual matter. For example, if corporate legal departments focus their efforts only on those activities that involve rates, the actual goals, or cost savings, are rarely achieved. In fact, pressuring outside counsel and legal vendors to lower their rates accomplishes very little. In-house attorneys, LDO’s, and other professionals need to focus more on the work being performed and by whom. Negotiating rates is certainly one of the early steps in the process, but this should not be the primary focus and in and of itself does not necessarily produce any savings unless the spend is managed on a matter level.
Similarly, just obtaining a fixed fee from an outside firm or legal vendor, in the absence of other efforts, is not really an effective management tool or a cost savings initiative. While often getting a fixed fee to handle a matter can help accomplish a legal department’s goals of certainty in expense and possibly other objectives, just because a fixed fee is negotiated does not mean the company is obtaining value or saving money. In some ways a fixed fee often results in a winner and a loser — the corporation wins if more work is performed than it would have paid under an hourly or other arrangement and the law firm wins if it can spend less time on the matter than it might have if it was billing on an hourly basis. In many respects, when a fixed fee is in place, the interests of the corporation and outside service provider are not totally aligned.
There is no magical plug-and-play form or best practice
Unfortunately, it is important to recognize that there is no universal form or best practice formula that legal departments can adopt from another company’s outside counsel and legal vendor management program. Each company, its legal department, and its legal needs are unique.
For example, while the convergence approach of law firms and legal vendors may make sense for one company, for another it may make no sense at all as one may need to increase the number of law firms or vendors that they should use while the company should decrease the number of firms. And just because one company’s outside counsel guidelines are accomplishing great things for that company, this does not mean that if you change the heading on the guidelines from their company to yours that you will achieve similar greatness. While there is much to be learned from others, one must actually spend the effort to assess the nature of outside counsel and legal vendor management programs that will be most effective in their own company.
Measure and report results to stakeholders
Moreover, related to the notion that every company’s outside counsel and legal vendor management program results are unique, an important aspect of designing and implementing these programs that is often forgotten is to ensure that the results of such efforts are regularly measured and periodically reported to all stakeholders. While there are many goals to an outside management effort, cost savings is almost always of most interest to senior management. Senior management needs to be reminded often that the LDO efforts in this area are accomplishing remarkable results. After all, when funding is needed for certain initiatives elsewhere in the legal department or in the area of legal operations specifically, some corporate cultures reallocate the cost savings from these management efforts, in whole or in part, to cover the funding for those other areas of need.
Structure and manage relationships from the onset
Finally, it is important that all stakeholders invest significant time up front in structuring and maintaining relationships with outside counsel and legal vendors. Considerable energy should be spent ensuring that mutual goals and objectives are understood, work is properly scoped, appropriate project planning is in place, available resources are optimized, “success” is properly defined and understood, and other aspects of the relationship are fully discussed. This upfront time and energy will be well spent if surprises are avoided and ultimate outcomes are in line with expectations.