We’re all in the same boat whether it’s a law firm or in-house—we’re just on opposite sides of the table in the game of invoice and billing ping pong. To change these practices, it takes both sides coming together, realizing a change is needed.
This is a very important point and sheds light on some of the issues we see at the root of engagement problems. There are differences of opinion on how successful it would be to apply standard procurement processes and centralize spend management to control the decisions of which law firms are used. That probably isn’t the fastest path to success.
Maybe some in-house teams have been successful with that, but for the most part, the culture is still that of respecting the autonomy of the practicing attorneys and their decision-making. The belief is that they’re going to be best positioned to know which law firm has the core capabilities and legal expertise to provide the service needed. The budget owners and the in-house team are still going to be the ones that will make the final decision.
What wrapper can we add around it to help provide some oversight to help provide guidance and set guardrails? Here are some ideas I suggest.
One Way to Enable Better Selection: Convergence Program
One way in-house teams are trying to manage to spend is through convergence programs. A convergence program rationalizes spending across the number of law firms that in-house teams are engaging. It’s a term of art, but really it is about reducing the number of firms. It’s thinking about how to bring together certain types of skills, identifying those in a way that then limits the pool of law firms legal departments are engaging with. Is there certain work that is done by a handful of firms and that’s all that is needed?
Why are there so many other firms doing lower volume, less frequency work, but that requires a lot of oversight and management? The volume of work sent to a firm is not in correlation with the time and effort it takes to manage that law firm relationship. Meaning, a firm that does only small pieces of work still needs to be managed: Invoices need to be reviewed, rate increases need to be monitored, feedback should be provided, and so on. Not to mention when work is done with gaps of time in between and in lower volumes, the learnings are slower and there is more need for substantive engagement from the in-house team on risk tolerance, preferences, and internal business goals.
There’s some substantive benefit that comes from engaging a smaller number of firms because in-house teams will have more concentrated work in a smaller number of law firms that will provide expertise and learn so much. With that expertise comes efficiency gains.
Engagement Guidelines Help Create Consistency
Another pragmatic tactic legal departments use to manage to spend is a set of engagement guidelines. These will answer some important questions: What are the general rules around engaging? What can the law firms expect when they are doing business with the in-house team? And what are the expectations from the in-house team when doing business with a law firm?
These can be basic guides, such as:
•We will not initiate any conversations until you sign a set of policies.
•We will not open a matter until we have an agreed-upon budget.
•We will put a clear work description in place before we actually authorize the work.
•The law firm is not allowed to begin actual work until we have made some sort of a clear, designated marker of authority from the in-house team that says the work can now begin.
Note that this is much easier to do when there are a limited number of law firms used.
Taking that a step further, the in-house team won’t pay any bills that have time tracked or billed in the calendar before an authorization is issued from the in-house team.
It comes down to establishing rules of engagement. They can be simple to begin with, some very basic rules like sending invoices within a certain period of time of the work being completed. Or making a clear policy that says certain invoices after a certain date simply won’t be paid.
It’s really hard on the in-house budget when firms invoice such late payments, so engagement guidelines are recommended for those who want to avoid the challenges of unpredictable late payments. This keeps things for firms on track rather than waiting six, seven, eight, or nine months for payment when, at that point, the budget for the in-house team has already been allocated or repurposed.
Stratification of Work—It’s Worth the Effort!
Stratification of work is a third way for in-house teams to take control of spending, but it can take a bit more hands-on work. This isn’t just about reviewing the bills. What I mean specifically is that work stratification is aligning the list of firms to the work being done, to understand what kind of work they actually are doing for the in-house team by type of work, geography, or teams within the legal department. If the department is big enough, certain teams will begin to work with certain firms, potentially doing similar work as other teams do with a completely different set of firms.
It is an important exercise to create a matrix around the type of work, geographies, and firms that are doing it; also the business unit that is the ultimate beneficiary of the legal support, or however it makes sense in the corporate environment to organize the work. This exercise becomes more challenging in big complex corporations, certainly. The more established a department is, the deeper the engagement needs to be to do this stratification exercise. It requires interviewing many of the in-house attorneys who are making the decisions on what they spend and with who, so it takes a more manual assessment—especially if the technological infrastructure for the billing and invoicing isn’t as robust as some would like it.
Differentiating among legal work opportunities is probably one of the first places to start. It’s simple, because it comes down to whether the right firm is doing the right type of work. If you think about it, not all firms should be doing all kinds of work. At the same time look at how many generalist firms there are. It seems like every major firm is a general firm, right?
There are always some specialties, but it’s pretty interesting if you look at how many firms there are doing the same kind of work. It’s amazing how many of them have not just the same client, but the same client in the same practice area.
At first blush, it seems odd for legal departments to hire multiple firms for the same work. But it’s easy to see how that happens—clearly there’s something missing since work is spread across so many firms, and every firm has experts in just about every area. The truth is that there is often plenty of work to go around, but no firm can manage it all, and no one firm is good at everything. For law firms looking to outsource some of their work, it’s no different.
To get started with work stratification, legal departments think about overflow work as its own bucket and then start subdividing that work.
Routine Work
For general recurring overflow, that kind of work is sent out to law firms because there’s just too much of it to be done in-house, and the in-house team needs a release valve. It could range across several practice areas. For example, you might see it in litigation, commercial transactions, or maybe some IP or employment work. Another bucket in the more general recurring work includes the bet-the-company litigation. That’s a great example of where there should not be too many firms involved. But how do you really set apart that bet-the-company litigation? Who should that go to? Take some time to assess who the right providers are and how many are needed as the ones your firm turns to for bet-the-company type of litigation.
There is something to be said for putting some tension in the system and spreading the wealth. You also learn by having different experiences coming from different firms. Just remember, there’s no one way to slice and dice this. Go for the option that resonates the most for you in your particular setting.
Just a note—there’s a risk when there is only one trusted firm advisor; they become so embedded and so part of the corporation’s culture, and tendencies and policies, that they actually forget one of their biggest values: They bring in an external perspective.
Specialized Services
Then there’s heavy, subject matter-specific advice that is needed on particular legal issues. Not everybody can be an expert in privacy law and not everybody’s an expert in patent matters litigation or prosecution. There are very unique spots and room for paying top dollar for deep expertise. But not every firm should be claiming to have deep expertise and if they do, that means there are quite a lot of experts. So it follows that if there are, that market condition should drive costs down—but we know that that’s not happening.
How do you identify the real experts and focus on those? Once you’ve done that, the level of service obtained should be quite different. Not only should it be top advice from a substantive perspective, but now expect a trusted advisor role from the subject matter expert because there will be much more engagement time spent with them to educate them about the business.
Why spend time educating more and more providers about the deep knowledge they need to support the business for some very unique and narrow legal issues? It really benefits everybody to have the best advice provided by a small number of experts within a small number of law firms. So then why is the work continuing to be billed in the same way? It always happens. If you’ve spent time now thinking about the right firm delivering the right kind of work, isn’t it also the perfect time to say, OK, we know we’re now committed to a handful of firms? We’re going to have deeper relationships with these firms. We expect them to be experts in the particular type of work where support is given, whether it’s the recurring overflow of the bet-the-company litigation or other types of work.
This may be the right time to talk about the billing structure and whether tracking the billable hour in six-minute increments is the best way to pay for recurring overflow work. That is a loaded question. Simply put, it’s not. You don’t want to have to pay for it that way, especially if it’s recurring and especially if you have some predictability. It’s just a good reminder at this point when thinking about differentiating the work: Once it is differentiated, it is the right time to think about whether to pay by the billable hour.
