Legal operations tips for controlling outside counsel costs

The strategic path to controlling law firm expenses often begins by getting the legal department’s affairs in good order first
A photo of Helen Lowe and Nicholas d'Adhemar

Helen Lowe and Nicholas d'Adhemar

Outside counsel easily accounts for half of all corporate legal spending. This is why legal operations professionals often look there first when seeking to rein in costs.

While it’s possible to squeeze law firms to obtain a better price, that’s a tactical manoeuvre that puts clients and firms at odds. There’s a more strategic way to control costs – built around alignment and a shared vision for the outcome.

The key to getting a handle on outside counsel costs begins with organising in-house legal operations first. It may seem counterintuitive, but it gets the whole team – inside and outside counsel – focused on the right things.

Below are five tips for getting started, with illustrative examples from easyJet which recently completed this exercise:

1. Get your arms around legal spend data

Peter Drucker famously said, “What gets measured, gets managed.” Collecting data may not seem glamorous, but it’s impossible to control costs if you don’t understand where, how and why they’re being incurred. This means identifying how much your business has spent on legal fees, for what matters and with which law firms.

If this task seems overwhelming, begin by carving out a manageable piece. For example, apply the 80/20 rule and start with your top three law firms. Even a newly-hired legal operations professional will know these firms within a few days because they’ll hear the same law firm names mentioned repeatedly.

Most law firms are willing to help clients get a handle on spending – if you share why you’re doing it and avoid weaponising the data. Their systems can provide you with spreadsheets of historical data. If you aren’t able to get this from the law firms, ask your finance department for help.

It’s not just the collection of data, but the insights you can gain from it. Categorise spending by matter type. This will answer questions such as: 
●      Are the most expensive matters aligned with the top corporate risks? 
●      Are matters being assigned to the best-qualified firm?
●      Is the legal department investing appropriately relative to industry benchmarks?

2. Document and (re)engineer the processes associated with legal spend

Documenting processes is an important part of getting your house in order. If spend data tells us what has happened, the exercise of documenting our processes shows us how.

For easyJet, this involved mapping out how matters were instructed, checking progress, measuring results and reviewing invoices to pay law firms. The result was a formalised process of instruction that was engineered for efficiency. Law firms typically benefit from this because those in good standing are paid faster.

We have seen successful results when standardising the way law firms are instructed. For example, easyJet created a legal service request form that outlined the scope, agreed fees and required project checkpoints. The legal operations team worked with the finance department to ensure that the creation of a purchase order was part of the process – since invoices aren’t paid without one. Any project valued at more than £10,000 would be sent to the law firm panel for tender as a matter of course.

Changing such behaviour requires planning and persistence because it requires people to rethink how they initiate legal projects. However, this should be viewed as a temporary challenge that is valuable in the long run, since it shapes shared expectations both internally and externally.

3. Put more effort into scoping legal projects

We have experienced situations in several law departments where poorly-scoped matters and a failure by law firms to think about what the client is likely to need led to misaligned expectations. Left unchecked, such examples have resulted in unnecessary work being carried out by law firms – much to the frustration of both parties when negotiating the resulting invoice.

This happens when one-line requests are thrown over the proverbial fence to the law firm. It can also lead to instances where the scope is filled with corporate jargon that the law firm doesn’t understand. In those events, they’ll set about solving a problem that doesn’t need solving.

Even when clear with instructions for a brief response, without putting themselves in the client’s shoes, it can be very easy for firms to deliver standardised “all risks” advice. Whilst diligent and thorough, it will almost always be more than a company needs.

Standardising how legal projects are scoped and setting clear expectations in the overarching relationship are quick wins for legal departments. At a minimum, it should be in writing, cover the purpose and intent of the project and clearly define the scope of what should and should not be included in the final product.

4. Centralise all corporate legal spending

Centralisation ranked third on a list of the 10 techniques financial services firms use to control legal costs, yet this has broad utility across the corporate legal sector. When the business instructs law firms directly, they can unwittingly run up the bill.

It’s a bigger problem on larger projects too. It usually happens when the business knows they need legal advice and are familiar with a firm. For example, in financial services, investment managers will go directly to the same law firm they’ve worked with for years to support corporate transactions. For airlines, this can happen in the process of acquiring new aircraft.  

These are big-ticket expenses that the legal department won’t see until they get an invoice. Costs can easily spike in the interim. In addition, it leads to stakeholders selecting law firms they know, rather than the best-value firm for the job. It defeats the purpose of having a vetted list of preferred legal service providers.

This is a sizable business process shift that requires a change management plan. When easyJet centralised its legal spending, a pilot program was started in one practice area to inform good practices before being used as a model to build on the initial success. This included significant efforts from the in-house legal team who spent time coaching law firms and business partners through the transition.

5. Refresh your panel of law firms

easyJet found that just two or three of the law firms on their panel of 12 were being used. This meant the panel wasn’t bearing out the competitive pricing it was designed to provide. This was a good justification for conducting a panel review.

The review extended an opportunity to reshape engagement expectations too. The legal operations team developed a two-page document of “golden rules” which governed all law firm engagements. A short, well-conceived document like this will have a greater impact than a 50-page billing guidelines document that has little chance of being read, let alone followed or enforced.

The key changes enforced by easyJet included:
●      All legal projects required a fixed fee or capped fee arrangement;
●      Surprise cost overruns on invoices would not be paid;
●      Guidance for providing advice; and
●      Expectations for responsiveness.

easyJet solicited a request for proposal (RFP) from 34 firms, short-listed 12 and ultimately selected nine for the panel. All legal work would be sent to these firms – unless there was a unique need for an off-panel skill, in which case a new process was developed for making such requests.

Controlling costs over mere reductions

When it comes to controlling costs, it’s tempting to begin by aiming to cut external fees before examining in-house affairs. This can be counter-productive and most corporate clients aren’t merely looking for the lowest-cost service providers. Instead, they’re looking for good counsel at a reasonable and transparent price with predictable invoices and no surprises. In other words, getting a handle on legal expenses is more about controlling costs than it is about simply cutting them. Getting to that point requires getting the internal legal operations in good order first.

Helen Lowe is the Head of Legal Operations at easyJet. Nicholas d'Adhemar is lawyer turned entrepreneur and the founder and CEO of Apperio, a legal spend analytics and matter tracking platform for in-house counsel. 

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