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Problems with asking in-house attorneys to cut their individual budgets from the prior year’s level

A financial institution a few years ago told each lawyer who managed outside counsel to reduce by 10 percent the amount the lawyer had approved the previous year. That mandate makes little sense. Consider five unwanted consequences.

Frustration – in-house counsel may face more matters – and therefore more outside counsel spending – through no fault of their own. If the goal were expressed as a reduction in costs on a per matter basis, that makes a bit more sense.

Gaming – I would expect November and December to be low billing months for lawyers who fear they will fall short of their target and thus their bonus. Perhaps some kind of burn rate test would address such a drop off in that the general counsel could compare the last month or two of the year with the rolling average spend on outside counsel for the 9-10 months beforehand. A steep drop off would stand out and would be even stranger since law firms strive mightily to bill and collect toward the end of their fiscal year.

Controversy – Sometimes law firms handle issues that cut across more than one in-house lawyer’s domain. Who picks up the tab, how much time does it take to calm a dispute between two lawyers, or do the lawyers arm-wrestle to avoid the bill? Sometimes lawyers are promoted or assigned new responsibilities, with commensurate changes in their oversight of outside counsel spending.

Ineffectuality – If convergence prohibits a lawyer from hiring less expensive firms, the lawyer fights the budget battle with one arm tied behind his back.

Complexity – If more than one lawyer works with the same law firm, the might insist on different behavior. The lawyer who struggles to hit the goal of a smaller spend may demand discounts, for example, whereas a counterpart does not. Firms will be pushed and pulled differently, whereas the legal department does better if it enforces consistent guidelines.