Expert Guidance On Controlling Legal Costs

Monday, February 1, 2010 - 01:00

Finding strategies for managing legal costs is relatively easy. Many cost-reduction alternatives and programs, such as the ACC Value Challenge, are readily available to corporate law departments. However, figuring out whether and how to apply a particular strategy to the facts and circumstances of a particular company's legal situation is more difficult. This article addresses one critically acclaimed source of expert guidance for selecting and implementing strategies to manage corporate legal costs.

Comprehensive coverage of numerous strategies to control the costs and improve the value of legal work for corporate clients is found in Successful Partnering Between Inside and Outside Counsel, a four-volume, 7,000-page treatise that is a joint project of West and the Association of Corporate Counsel (ACC). This treatise provides detailed analyses of the potential advantages and disadvantages of each of these strategies as well as concrete, practical guidance for implementing each strategy.

The 275 authors of Successful Partnering include the General Counsel of more than 80 Fortune 500 companies and the senior partners of many major law firms. The Editor-in-Chief is Robert L. Haig, a partner at Kelley Drye & Warren LLP in New York.

The 81 chapters in the treatise cover all aspects of corporate law department operations and management, 30 substantive law subjects, and all aspects of the relationships between inside and outside counsel. Each chapter in the Successful Partnering treatise is updated every year. The updates cover all of the important developments during the preceding year in the provision of legal services to corporate clients.

This article will identify certain techniques and methodologies analyzed in the Successful Partnering treatise that a corporate law department might implement to control legal costs, while at the same time maximizing the value of legal work for corporate clients. Comprehensive discussion of each of these, and many other, strategies for managing corporate legal costs can be found in Successful Partnering.

Alternative Fee Arrangements

With corporate legal departments under mounting pressure to cut expenses, it is not surprising that alternative fee arrangements (AFAs) are gaining popularity. AFAs have the potential not only to reduce costs but also to cut down on the time spent by corporate counsel reviewing or arguing over invoices. Successful Partnering provides detailed analyses of a wide variety of AFAs, such as flat fees, task-based pricing, blended rates, discounts, and incentive or value fees. In addition, the treatise contains in-depth discussion of specific steps that inside and outside counsel should take to determine if a particular AFA is appropriate for the engagement in question. For example, the authors advise that it is crucial for both inside and outside counsel to be aware of each other's pricing goals from the start, because entering into an AFA that does not meet both parties' pricing goals will hinder the development of a rewarding long-term relationship.

Billing Guidelines/Engagement Letters

In an effort to control costs and maximize efficiencies, a growing number of corporations are issuing and enforcing stricter billing guidelines that limit staffing and the types of expenses and disbursements billable by the law firm. The Successful Partnering treatise observes that, while legal departments can avoid significant legal costs by implementing clear and comprehensive billing guidelines from the outset of an engagement, simply having billing guidelines is not sufficient. In order to effectively control costs, inside counsel must make sure that outside counsel complies with the guidelines. This can be a tedious and time-consuming endeavor, and the treatise notes that some corporations have turned to third parties or computer programs to review legal bills and ensure compliance with billing guidelines. In addition to stricter billing guidelines, the authors demonstrate how law departments can control costs and maximize value by including an agreed-upon staffing plan, containing provisions as to changes in the team, in either the engagement letter or billing guideline. As pointed out by the authors, a complete staffing plan should take into consideration not only use of outside counsel, but also other personnel such as local counsel, consultants/experts, or auditors.

Budgeting as a Means of Strategic Planning

As law departments focus on reducing costs, budgeting has become increasingly important. As one author has noted, "A budget is not an end in itself, but rather a translation of the case strategy into financial terms." To that end, the Successful Partnering treatise contains in-depth discussions on how outside counsel can prepare strategic budgets for each engagement. The authors caution that the budgeting process should not merely be outside counsel's unilateral attempt to predict future costs. Instead, outside counsel should engage in a joint effort with inside counsel to examine the types of costs that could arise during the engagement and develop ways to contain those costs. Recognizing the uncertainty involved with budgeting, the authors suggest ways to address the uncertainty without leaving the budget open ended, including agreeing on a certain margin of error or building in conditional departures from budgeted cost projections.

Litigation Avoidance and Prevention

Avoiding litigation can save corporations valuable time, energy, and money. The authors of Successful Partnering provide readers with a wealth of practical and innovative ideas on how to avoid and prevent litigation. The treatise discusses ways that inside counsel can enhance the quality and scope of their relationships with their clients and shows how proactive communication can help avoid future potential litigation. The authors also discuss how to approach and handle electronic material in light of recent amendments to state and federal law relating to the retention and discovery of electronically stored information (ESI). In addition, the treatise addresses certain technological advancements, and their potential impact on litigation and litigation strategies, of which law departments should be aware. For example, new technology can convert voicemails into e-mails, bringing them under the realm of discovery. As a result, the authors note that face-to-face communication is often the ideal method for communicating sensitive information.

Early Case Assessment

When litigation is imminent, law departments can reap significant benefits by implementing a well-designed early case assessment program. Although early and ongoing case assessment may initially result in higher costs, the Successful Partnering treatise notes that such an assessment can reduce costs and help counsel avoid potential problems down the line. The authors present certain steps that inside and outside counsel should take to effectively control costs, such as collecting and organizing key information outlined in the treatise as quickly and efficiently as possible. The authors also note that conducting legal risk analysis as part of this case assessment can help corporate counsel make a more informed settlement decision or provide strategic direction to business negotiators. This, in turn, can help resolve disputes before litigation commences. Because of the benefits provided by effective early case assessment, more corporations are requiring that their outside counsel offer proactive risk analysis.

Staffing Innovations

In recent years, outsourcing has become a principal way for law departments to manage legal costs. However, the authors note that failing to consider certain risks and pitfalls prior to hiring outside counsel can result in wasted time and resources. The treatise lays out considerations that inside counsel should take into account when deciding whether or not to outsource legal work. Once the decision to outsource is made, the authors provide a step-by-step plan to assist inside counsel in maximizing the value it receives from outsourcing, including suggestions on how to develop a well-thought-out outsourcing strategy and maintain a productive relationship with the outsourcing provider. In addition, the treatise discusses numerous types of outsourcing strategies such as convergence, offshoring, unbundling, secondment, and use of contract and temporary attorneys, as well as the benefits and potential drawbacks of each.

Benchmarking Methodologies

The Successful Partnering treatise also features detailed discussion of various performance metrics that can help inside and outside counsel meet their goals during an engagement. Among other things, law firm invoices can be used as a quantitative benchmark. The treatise explains how inside counsel can glean valuable information by analyzing invoices and comparing the invoices of multiple law firms. Benchmarking can also be used to "re-engineer" a law department. The authors articulate steps that a law department can take to improve its performance, as well as problems that can undermine the effectiveness of benchmarking.

Technological Innovations

Technology continually progresses at a rapid rate, and law departments can take advantage of these developments to reduce costs and maximize value. The authors note numerous ways in which a law department can utilize existing technology, such as having inside counsel fulfill CLE requirements through CLEs hosted by their outside counsel via video-conferencing to reduce time and travel costs. Other examples of cost-reducing technology are web-conferencing, extranets, portals to consolidate legal research, and social networking sites such as Legal OnRamp. As the authors note, a law department recently used Legal OnRamp to select its outside counsel for a particular engagement - the first time a social networking site has been used for that purpose.

Diversity

The treatise discusses at length the business benefits a law department can realize by embracing the "diversity principle," which recognizes and respects cultural, racial, and gender differences but does not use such differences to prejudge. While many corporations are seeking ways to achieve diversity, the authors caution that efforts to improve diversity can be derailed by certain pitfalls, such as giving up if initial efforts don't produce immediate results - the "we tried, but it just didn't work for us" mentality. In addition to addressing these pitfalls, the authors provide in-depth analyses of the risks associated with implementing the diversity principle, problems that can arise during and after implementation, the mechanics of developing and executing a diversity program, and the business case for diversity.

Quality Management Strategies

For some corporations, project management skills are a practical and valuable way of managing costs. The Successful Partnering treatise contains detailed analyses of various quality management strategies, including the more recently developed principles of Six Sigma, an alternative way to implement the key ideas of Total Quality Management (TQM). While some law departments have achieved a significant reduction in costs by applying the Six Sigma principles, which are discussed in detail in the treatise, the authors note that disagreement exists over whether formal quality management strategies are suited for law departments.

Cost Reduction Through Quality Legal Work

Of course, one of the most effective ways to reduce costs is to do high-quality legal work. For example, the treatise points out that knowing when to make and successfully making a Twombly or Iqbal motion can stop a litigation in its initial stages, saving corporations significant legal costs. Inside counsel can also reduce costs by mastering the effective early use of electronic discovery. The authors note that this may become increasingly important as changes to statutes and rules governing electronic discovery - such as Federal Rule of Evidence 502 relating to privilege and waiver - are implemented.

More information about Successful Partnering Between Inside and Outside Counsel is available by calling West at 1-800-344-5009 or online at www.west.thomson.com.