Whether an in-house legal department is large or small, having a solid understanding of the time and cost being billed by outside law firms has become more important than ever as executives eye the bottom line.
“For us, it was a necessity just based on the volume of invoices we were receiving per month,” says Michael Maxwell, manager of IP administration at Waterloo, Ont.-based Research In Motion Ltd. “When I arrived at RIM, invoices came via an e-mail with attachments and it was not sustainable.”
Maxwell was speaking Jan. 11 in Toronto as part of a panel discussion entitled Maximizing Outside Legal Relationships, moderated by Rob Thomas, vice president of strategic development with Serengeti Law, the matter management and e-billing system used by corporate legal departments.
“The top priority for most general counsel these days is reducing spending on outside counsel,” says Thomas.
At the time RIM migrated to Serengeti, Maxwell says his area of the IP department was taking up to 100 days to pay its legal vendors.
“That didn’t go over very well, but now we’re down to an average of 42 days from the time the firm submits the invoice to payment,” says Maxwell. “Our goal was to reduce attorney time on reviewing bills. We used to hear complaints about reviewing bills, but now they approve them quickly after they’ve been pre-reviewed.”
Last year RIM processed 33,000 invoices. “Over the last year, we have become more sensitive to reducing our outside counsel cost, but the biggest problem is we’re very patent-driven and our patent filings go up every year so our budget is increased every year. But since we’ve introduced Serengeti, we know where the money is going now and I can’t honestly say that was the case before,” said Maxwell.
In Maxwell’s department, a task-based billing system has been established and they only allow certain caps and flat fees for specific legal functions.
“So for drafting a patent application or responding to an action we have a set amount. It’s up to the lawyer — if he’s charging $500 an hour or $1,000 an hour he only has a certain amount of money. We do keep our eye on it. We also use a wide cross-section of firms. These individuals are very specialized — some bill at $200 but it’s all based on our task-based billing system.”
Maxwell says RIM has more than 1,000 patent applications every year. “We couldn’t hire enough people to do that work so we have to outsource almost everything. We keep a small group of cases in-house but it’s probably less than one per cent.”
Most in-house departments these days are trying to reduce their outside legal spend or at least get a better handle on where the money is going. The challenge can be equally trying for smaller departments such as Kruger Products, which outsources the majority of its legal work.
“In our case, we wanted to get away from paper files,” says Serge Reynaud, vice president of human resources and legal with Kruger Products. “We had huge files and it was difficult to get to information you wanted. That’s why we went to e-billing and we’re very happy we did so because now we have the information at our fingertips and it’s easier to manage our costs that way.”
Reynaud is the sole member of the legal department at Kruger and outsources most legal work to primarily one law firm.
“We’re relatively smaller and much of our concerns are around how much we spend on legal work and how we can keep it under control. How do we make sure we don’t get into legal problems especially since we’re heavily inclined toward intellectual property issues and dealing with giants such as Georgia-Pacific, Kimberly-Clark and Procter & Gamble,” he says.
Thomas pointed out that there are several ways an electronic billing platform can help law departments triage their legal budgets by gathering data from their law firm bills and help answer the tough questions that come from the finance department and the c-suite. For example, unbilled spending or accruals — getting data on the unbilled time law firms need to report.
“This can be a real challenge for law departments to collect information on unbilled time they have not received bills for yet so they can report that in their accrual based financial statements,” says Thomas
At RIM, Maxwell says his department used to send an e-mail asking law firms for unbilled spending amounts but they rarely received 100-per-cent compliance. “Going to Serengeti, it’s all automated. Our finance group loves it and it helps us determine budgets.”
RIM also uses the system to survey its lawyers after an outside firm has completed work on a matter.
“We started this eight months ago and we have it tied to just patent drafting,” says Maxwell. “Once drafted by outside counsel, a docket will go into our patent database at which point a survey is sent to the in-house counsel who worked with the outside counsel. They are required to fill out the survey and it keeps showing up until they complete it.”
Thomas points out that by having a review process when it comes time to send out new work, in-house counsel can see if the firms received good grades from other law departments in the company.
“We have one GC who when he sits down with his primary firms he shows them their ratings in Serengeti and how they compare with other firms they are working with; it gets the competitive juices flowing,” says Thomas. “You can, using data coming out of the bills, check to see whether certain lawyers or firms are better at staying on budget than others. You can also see if they are coming in way under budget, which probably means they are sandbagging you when they provide you the budget — they give a high budget to make themselves look good down the road.”
For large organizations, the system is often primarily used to follow the money. Navine Aggarwal is director of the office of the general counsel with Thomson Reuters in New York. His department used Serengeti even before Thomson Reuters bought the company in October 2010.
“Now we have a few years of Serengeti data at our disposal, we can say that for the last two years a business unit generated this much work in employment, M&A, or IP,” he says. “We don’t really track what a lawyer’s charging and compare it to other firms, but what we do through the system is we say to firms: ‘You can’t increase your fees until you complete a matter.’ The system has a flag to tell us when that is happening.”
And how do law firms feel about being asked to implement a platform like Serengeti? There can be resistance, but the software is provided free to law firms to help encourage adoption.
“Initially there was a lot of skepticism by the law firm and perhaps even resistance, but we sat down and went over it with them,” says Reynaud. “Try to take it away from them now. I wouldn’t say they went into it kicking and screaming, but it wasn’t with overwhelming enthusiasm. Now they are very enthusiastic about it and in fact the law firm did a lot of the work — they got heavily involved and swear by it now.”