Most legal software companies and specialty consulting firms populating the legal services universe will release white papers from time to time to raise their profiles and announce new products and services. Quovant (formerly Legal Bill) is a Nashville-based company offering software solutions, data analytics and advisory services to both law firms and corporate law departments.
Its most recent white paper, entitled “Managing Your Legal Spend,” is worth downloading from its website. Authors Christopher Seezen, Alicia Hunter and Emily Rhode sum up the paper as “four practical tips to avoid confusion and expensive surprises when managing outside counsel legal spend.” Like the authors, I consider the four “ideas” to be basics. Some help reduce spend, while others provide greater visibility and data. There are a number of measures that move beyond the basics that a company and every law department should master.
The first idea consists of timekeeper authorizations to build greater accountability in the relationships with law firms. Some surveys reveal that clients have no intent or time to develop relationships with their law firm timekeepers. It is time-consuming and impractical in a fast-paced business world. That is not to say that the law firm relationship partner should not be professional and business-like. But imagine 1,000 legal matters in six legal specializations supported by 15 law firms in nine countries.
Quovant’s approach to timekeeper authorizations seems tilted toward hiring individual lawyers and, with some exceptions, trying to control their individual hourly rates and hours — “rates should be set individually or by position.” I find the authors’ third question to be the most thought provoking: “How much control will you have over staffing?” Advice to keep the process of timekeeper approvals simple does not help to manage or reduce external legal spend. The more progressive and effective law firms have professional staff on board that are certified in legal project planning and budgeting. Clients should require legal project budgets with planning assumptions by phase and task for all matters likely to consume more than 50 hours. Some set the threshold for budget plans as low as 25 hours. Such plans should be specific about the staffing distributions for the matter. It is a choice between proper planning with clear up-front communications or conducting autopsies on invoices.
Quovant’s second idea concerns the use of billing guidelines. Most companies have had guidelines in place for 40 years. Basic reference is made to communication standards, billing formats and the non-admissibility of administrative tasks for billing. Moving beyond the basics of billing guidelines to more comprehensive terms of engagement requires that companies and firms agree on a system of Records of Instructions whereby uniform technology-enabled requests for legal services become normal regardless of the scope of the matter. Terms of engagement should also require detailed matter plans and budgets together with provisions for change orders. ROIs and matter plans introduce predictability and shared accountability for legal spend.
I found Quovant’s third “idea” — the one dealing with alternative fee arrangements — to be the one with the greatest potential for controlling external legal spend. The advantages of AFAs over hourly rates are well laid out in the white paper. Yet Quovant’s response to the question “when should you use AFAs?” was tentative in that the conditions for use were quite limited. My response would be that non-hourly fees should always be used provided ROIs and a legal project plan and budget are in place. Popular hybrid AFAs combine capped or fixed fees by phase with a component for performance, success or innovation. Law firms are far less risk-averse to AFAs than are their clients. Companies need to up their game.
Quovant’s last idea is for objective and subjective reviews of invoices. Few clients want to spend time on forensic work. Moreover, they find asking for adjustments to billings to be distasteful and an erosion of trust. Better to use the ROIs and legal project management and budgets as preventive measures. Let the law firms ask for change orders and exceptions before work is done, shifting the administrative burden to the firm.
Working with firms that have the tools, the professionals and the experience to use them is essential for companies to move beyond the basics of managing external legal spend.
Richard G. Stock, M.A., FCIS, CMC is a partner with Catalyst Consulting. He can be reached contacted at (416) 367-4447 or at firstname.lastname@example.org.