What if a law department took the 12-to-20 law firms it most commonly turns to and calculated the percentage of the firm’s revenue that comes from the department? You know your spend and you can estimate the firm’s revenue from league tables or extrapolations from them. If a firm has hundreds of lawyers, even a seven figure spend might be only a small part of its revenue – not much clout (See my post of Feb. 20, 2008: Latham & Watkins as $2 billion revenue.).

If you were being aggressive on cost control or other requirements, you can lean more on the law firms that depend on you the most. I have not heard of any law department that explicitly quantifies and exploits its leverage in such a way, but the concept may have applicability.

An article describes a fixed-fee basis arrangement between Brunswick Corp. and K&L Gates. ‘Following the first year of representation, the fixed-fee contract had to be modified in order to provide more protection for the law firm.” Brunswick and K&L Gates agreed to set “a ceiling on fixed fees” and to switch a case to hourly billing if that ceiling is met.

I read into this brief reference several points to note. A ceiling on fees and the switchover operates somewhat like a collar (See my post of Dec. 7, 2005: collars to prevent injustice.).

Note that the two parties let a year go by so that they could spot the kinks and figure out improvements.

Note also that these fixed fees involved litigation, the most notorious work to handle on a set cost. The reference suggests that each case stood on its own; it did not state whether there was a portfolio approach.

Finally, note that reasonableness needs to prevail even when both sides hammered out the terms. If either side felt they cut a really raw deal, they will toss in the hand.

The full article is in Met. Corp. Counsel, May 2011 at 30 and it cites a Chicago Tribune post in January 2010 under lawblogs,

An article says that Applied Discovery defines value as “partnering with clients to achieve their objectives, with thorough cost assessments and efficient project management as methods for aligning cost with value at the very onset: in the bidding stage.”

Stated differently, value is working closely and efficiently with clients. Admirable as that goal may be, it is not value as properly define as output mostly, not input. This is all input, and every provider of services to law departments could (and should) strive to team with the department as efficiently as possible. With no emphasis on what results from that lean teaming, it remains in the realm of “try real hard,” not of deliver something appropriately useful and worthwhile.

Deeper, if the client’s involvement is viewed as so integral to the value delivered by a service provider, the burden lessens on the provider. By that I mean, if two must tango tightly, the provider bears less responsibility for the value of what is delivered, since the client was right there making decisions, pitching in, shaping the result. If your value depends so intimately on the client’s actions and decisions, how can you claim you independently have delivered it? Value, in this light, goes beyond performance excellence to specifications set by others, but also to independence, judgment, and risk taking.

The full article is in Met. Corp. Counsel, May 2011 at 35.

If your company operates in a regulated industry and also has unregulated businesses, you may need to track your time so that the allocation of your lawyer’s time is fair to the public. When rate applications go to the regulatory agency, costs of providing the utilities service, for example, are supposed to fairly represent what they are. If lawyers work for unregulated activities but bill that time to the regulated side, that is a problem.

There may be other situations I am not aware of where regulatory requirements dictate some form of time tracking by internal lawyers (See my post of Nov. 22, 2008: internal time tracking with 16 references; and Jan. 5, 2011: internal time tracking with 9 references).

Two of my friends, Bruce Heintz and Nat Slavin, both experts in interviewing corporate law departments and clients, reacted to my post on client interviews on behalf of law firms (See my post May 19, 2011: pros and cons of partners or consultants.). I have merged and shortened their comments and avoided individual attribution.

Both consultants strongly disagreed with my comment that consultants might not know much about the business of the client being interviewed. They both stressed that professional preparation for such interviews dictates that they bone up extensively on the client. They might, indeed, better understand the industry and its environment than would law firm partners. Moreover, “We, as consultants actually have a much broader experience in interacting with business and tend to know about a multitude of industries than does the typical law firm partner.”

There was also disagreement with my view that a consultant might “aggregate” or “conceal” the specifics learned in interviews. One of them, particularly, takes great pains to “relay all of the law department’s concerns, with specific attribution, back to those individuals at the firm who can take remedial action.” He then added: “In contrast, after a busy partner of the firm completes his/her interviews (possibly scattered over a long period of time), the ‘message’ to the correct recipient partners may get shortchanged.” The other chimed in: “A partner has inexperience, little training and no systematic approach or methodology to delivering the information, and also has biases that come through. They also don't have accountability to deliver clear and precise messages that an outsider does.”

The veteran consultants raised two points I had not considered. “The latitude granted to a law firm partner regarding who may be interviewed at the client might be narrower than if a third party were employed. For example, a General Counsel, wanting to maintain control of the relationship with a law firm, might not want one of the firm's partners to meet with the CEO. Or, in the case of lower-level interviewees such as working-level lawyers or managers, the client may not feel that it's fair for them to be interviewed by a firm's chair, because of the disparity in their relative positions. However, when I conduct the interviews as an independent consultant, it seems very natural to corporate clients and, hence, I'm usually given the opportunity to meet with whichever executives or managers the firm suggests might be appropriate.”

One person singled out speed. “Using a third party gets the interviews done, often within two to three months of designating which client is to be interviewed. In contrast, by the in-house route, the availability and, sometimes, the foot dragging of the firm's personnel – both on the part of the Relationship Partners and those who are assigned to complete the interviews – often stymies progress.”

In the course of rethinking these points, I also realized that I had overlooked costs. Out-of-pocket cost certainly could be said to be a disadvantage of consultants, but no partner’s time is free. In fact their hourly opportunity cost may be much higher.

A panelist from EBay, speaking at the InsideCounsel SuperConference, mentioned four specifics about the practices followed by the procurement group. They are to be involved with any project that expects to cost more than $1 million or any vendor who is likely to receive more than $1 million during a year. Wouldn’t that snare retentions of law firms in many acquisitions, all major litigations, and even some licensing or transactional deals?

Second, everyone in the company who wants a contract executed must complete and submit a Contract Request Form. The law department of EBay monitors the flow of those Forms and I believe handles each one in some fashion.

Third, she said that Procurement is underway with risk-ranking suppliers. That initiave is unlikely to implicate law firms, I suppose, but there may be broader definitions of risks than I am taking into account.

Fourth, members from Procurement and from the Law Department have met to iron out their respective roles and responsibilities. They have even brought in an operational excellence person to prepare process maps that will help clarify the boundaries and expectations.

I saw a presentation the other day that looked at matter management systems and deconstructed their reports into eight levels of increasing sophistication and value. What they called “standard reports” are the canned choices that come with system implementation. Quite a few law departments rarely need to go beyond their capabilities, especially if they export the results to Excel and refine the output there.

Next up the ladder of sophistication were “ad hoc reports” where a user picks and chooses some fields, some parameters, and some layout. With report wizards, this has become fairly routine. Above that level the presenter said are “query/drill down” reports, where the user can click on an output field and look at the underlying data to get closer to the understanding the input of the report.

Five reports were listed above those three, each claimed to be of more value. To that list I could add “trend reports,” because to look at data from one year compared to previous years seems most insightful. My point, in summary, is that law departments should be aware of report types that are more powerful than the one’s they customarily use.

Law departments have to provide to their company’s outside auditors sufficient information for them to prepare their reports on contingent liabilities. The law department administrator from The Williams Companies, speaking at Mitratech’s Interact 2011 Conference, said that the department had developed a tool to help with the “complex and not fun to do” task.

Such a tool would quite naturally complement a matter management system See my post of March 12, 2005: comments about major reserves taken for litigation; March 12, 2005: funded matter management system in return for reductions in reserves; July 20, 2005: special-purpose reserve accounts; June 15, 2005 about credit for releasing reserves; Dec. 10, 2005: huge swings when huge litigation requires budgets and reserves; March 13, 2006: a crude summary of FASB Rule 5; June 15, 2006: releasing reserves; Dec. 3, 2007: savings targets, cash basis and reserves and P&L; Dec. 31, 2008: proposed FASB rule on disclosure of reserves for individual litigations; and Jan. 4, 2009: multiple cost centers, and one may be for reserves.).

A speaker at a customer conference for users of a leading e-billing system gave some data about questions law firms asked when their invoice had been rejected. The leading cause of a question was the rules that had been invoked (about 20%), followed by “manual return,” unapproved billing rates (about 15% each), and invalid timekeepers. Block billing, math errors, and duplicate invoices made up the remainder.

What this data says to me is that law firms should make their e-billing rules explicit to their law firms. Tell them what you expect and try to drive down the number of rejections thereafter based on violated rules (See my post of Nov. 6, 2009: reports that out inside lawyers who flout e-billing rules; June 1, 2010: firms should test invoices against e-billing rules before submitting them; and June 4, 2009: e-billing rules with 6 references.).

Every law department that tries to institute a knowledge management program thinks of department-wide efforts. “Let’s set up an intranet for the legal department!” “Let’s put in document management!” “Let’s create a memo repository!” Those across-the-board efforts almost always peter out, lead to spotty participation, and usually languish (See my post of May 19, 2011: collective action problems.)

If a department has several lawyers who handle similar problems, such as government contracts, that group will have a far better chance of implementing some kind of knowledge capture and dissemination. They have more reason to pitch in for the common good. What they collect is more tailored to their needs, and peer pressure operates more acutely (See my post of July 25, 2005: knowledge management and communities of practice; Sept. 10, 2005: practice groups and communities of interest; and Jan. 2, 2009: grass roots knowledge management.).