reducing outside counsel costs - dykema gossett · in-house: you should gather facts about how the...

REDUCING OUTSIDE COUNSEL COSTS

JOE A. GARZA former, Dex Media

MICHAEL D. NAPOLI

Dykema Cox Smith

State Bar of Texas 14TH ANNUAL

ADVANCED IN-HOUSE COUNSEL COURSE August 13-14, 2015

San Antonio

CHAPTER 11

JOE A GARZA, JR. 924 Independence Parkway Southlake, Texas 76092 817.602.5815 [email protected]

Joe A. Garza, Jr., an experienced in-house counsel, most recently with Dex Media, Inc. Joe has advised his clients on a broad array of issues including intellectual property. Joe has supervised patent infringement and copyright infringement cases throughout the U.S., as well as cases dealing with commercial transactions, class actions, employment issues, non-competes and theft of trade secrets, and securities cases. Joe and his team also gave first hand advice to the HR department on all people issues, including employment, labor and benefits. Joe is a graduate of the University of Texas School of Law and the University of Notre Dame.

Michael D. Napoli, MemberDykema Cox Smith 1201 Elm Street, Suite 3300 Dallas, TX 75270 214 698 7837 | [email protected]

The University of Texas School of Law, J.D., with high honors; Member, Texas Law Review; Member, Order of the Coif; Member, Chancellors (Grand Chancellor, 1990-1991), 1991

Baylor University, B.A., with honors; Phi Beta Kappa, 1988

Michael Napoli protects individuals and companies facing lawsuits. He works closely with his clients to create practical, business solutions to litigation problems. Representing both plaintiffs and defendants, Michael works on a wide variety of cases including securities, commercial and products liability matters. He represents parties to private securities cases as well as defendants and court-appointed receivers in enforcement actions by the SEC and State Securities Board. Michael also has a broad commercial practice representing individuals and companies in contract, corporate governance, insurance and intellectual property disputes in a wide variety of industries. In addition, Michael defends manufacturers and engineers against claims for personal injury, including products liability claims related to medical devices.

Reducing Outside Counsel Costs Chapter 11

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TABLE OF CONTENTS

I. IDENTIFYING AREAS OF WASTE .................................................................................................................... 1

II. USE BETTER PROCESSES TO REDUCE WASTE ............................................................................................ 2 A. Updating and improving information retention policies can create significant savings.................................. 2 B. Consider acquiring a document retention and collection system .................................................................... 3 C. Standardize relationships with outside counsel ............................................................................................... 4 D. Invest in electronic billing and management tools .......................................................................................... 5 E. Create brief and form banks ............................................................................................................................ 5

III. IMPROVE AND IMPLEMENT GOOD SUBSTANTIVE POLICIES TO REDUCE EXPOSURE ..................... 5

IV. PAY OUTSIDE COUNSEL CORRECTLY ........................................................................................................... 6 A. Defining Quality: ............................................................................................................................................. 6 B. Defining value: the intersection of cost and quality ....................................................................................... 7 C. Compensating for value ................................................................................................................................... 8

1. The billable hour ...................................................................................................................................... 8 2. True alternative fee agreements have promise ........................................................................................ 9

V. MAXIMIZING VALUE ....................................................................................................................................... 11 A. Communicate, communicate, communicate .................................................................................................. 11 B. Get organized: “If you don't know where you are going, you'll end up someplace else.” Yogi Berra ........ 11 C. Look for early resolutions to disputes and transactions ................................................................................ 12 D. Get involved .................................................................................................................................................. 13 E. Leverage existing vendor relationships ......................................................................................................... 13


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REDUCING OUTSIDE COUNSEL COSTS I. IDENTIFYING AREAS OF WASTE

You are an in-house counsel for a medium to large company. Over time, your practice became more generalized so that you and your team are the go-to people in the organization for all questions legal. Despite your best efforts, your responsibilities include supervising litigation, and some of that litigation is very expensive, like a patent infringement case in Marshall, Texas or a class action in Orange County, California, both uninsured, very frustrating and very expensive.

One day in late summer or early fall, you are sitting in your office working on an EEOC response or a CID response from some aggressive state AG’s office and the CFO appears at your door. Hopefully you have learned to read and understand your company’s financials and follow the EBITA trends quarter over quarter. If not, the directive from your CFO will surprise you: “We are building the budget for next year and you need to reduce legal spend to bring the legal budget in line with other G+A portions of the business.” More often than not, this discussion includes a given target reduction for next year that may or may not include a headcount reduction for you or your esteemed colleagues.

Your first step to solving this problem is to gather facts. As a former CEO of our company used to say, “facts are our friends.” We use facts to understand the problem, and to build solutions to that problem. In this situation you need facts to understand where you may have waste in the legal department and waste in the legal department spending. Unless you have put specific processes and policies in place to gather these facts the only facts the CFO has are the accounts payable total by vendor assigned to your budget code and a feed from HR on your team’s payroll costs. Those are not enough facts to address the waste issue in a meaningful matter.

In-House: You should gather facts about how the in-house lawyers and paralegals spend their time. By gathering facts about your in-house team you can identify areas of waste, make process improvements, and free up more time for your in-house legal team to do the legal work of the corporation. If your in-house lawyer can have more time and actually perform necessary legal functions, there is one less bill you will have to pay for an outside counsel to do that work.

You may have a situation where your in-house lawyers keep their time like the lawyers who bill you. More often than not, in-house legal departments do not invest dollars for an internal time keeping function. If you have such a system, use it to determine where you and your direct reports are concentrating their time. If

you do not have such a system, poll your in-house counsel and paralegals about how they spend their time during a day, a week or a pay period. You should also ask your team if there are functions that they are performing that are wasteful. For example, rather than having the attorney draft an EEOC response, have the paralegal or the HR professional gather the facts and make the first draft of the response so that the attorney only has to review the response. A legal department should strive to have the senior in-house lawyers do senior in-house work, the junior in-house lawyers to do junior in-house work and the paralegals to do paralegal work supporting those lawyers.

Another effective method of gathering usable data is to employ Lean Six Sigma techniques on work performed by the legal department. If you don’t have the expertise to do such a study, see if there is someone in your organization who is Lean Six Sigma certified and can help you conduct the study. This technique will include doing an “as is” study of the legal work that is being completed to identify areas of waste and redundancy. While the Lean Six Sigma concept was originally designed to drive waste out of the manufacturing process, it has been conclusively shown to identify and eliminate waste in an office, or a process utilized by a company. Responding to the EEOC, supervising a lawsuit or reviewing ERISA documents are examples of processes that can be evaluated using proven Lean Six Sigma tools.

Vendor: First and always, partner with your finance team and obtain monthly reports of payments to your vendors, by name and amount. Does the vendor list match your outside counsel list? Has some other department back billed legal for some expense? Have your finance team provide you this data in an excel spreadsheet so that you can assemble, sort and analyze the data. If you use an e-billing system, does the finance report match your spend totals from the e-billing system?

In order to collect more granular data from your vendors, have your outside counsel assemble their bills to you using LEDES codes. There are separate code sets for litigation, transactions, bankruptcy and advice. These ABA approved codes and their descriptions can be found on the website https://ledes.org/

Most law firms and some legal vendors can bill using the LEDES format. Using the different codes, you can assemble, sort and compare the data by code to identify areas of waste. If you have an e-billing/matter management system (discussed later) you can do this analysis electronically and save it to an excel spreadsheet. The major e-billing/matter management systems do not require software and are accessed through a secure web site.

For example, if you have repetitive litigation cases involving your client’s business, you can sort the law

https://ledes.org/


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firm’s billing on discovery. You can then identify the average cost for discovery on those cases and either cap your law firms to that average cost for discovery or eliminate those law firms that consistently go over the average costs. Remember to account for jurisdictional anomalies as you do this research, as we all know a case in the Southern District of New York is billing higher than a case in rural Indiana. Another example is to use your billing system to identify multiple unnecessary billers from the law firm or identify billers who should not be working or billing to your matter.

Document collection and production. Another area of waste is dollars spent collecting, producing and reviewing documents for litigation, government investigations and internal investigations. High costs in this area could be a result of poor or antiquated record keeping policies, having no collection tool employed to collect structured and unstructured data, and delivering all the documents to your outside counsel for an expensive review. Gather data surrounding your document production, how many documents have you produced, how long does it take to collect, how much are you paying vendors to collect, search and assemble the documents, and how much are you spending on document review. Typically, this data is assembled on a per custodian basis. The document collection and production process can also benefit from a Lean Six Sigma analysis, doing at least an “as is” study to determine redundancy and waste in the process. The author conducted a Lean Six Sigma project, justifying the purchase of an e-discovery tool for the enterprise. II. USE BETTER PROCESSES TO REDUCE

WASTE By implementing better internal processes,

companies can reduce costs for internal and outside counsel. Good processes can reduce the amount of work that needs to be done and increase the efficiency of the remaining work. A. Updating and improving information retention

policies can create significant savings The amount of information that most companies

have on hand is staggering. Three years ago the Environmental Protection Agency estimated that it annually creates 25 linear feet of paper records per employee. That works out to 750 pounds or 75,000 pages of records per employee per year. This number does not include documents stored electronically, such as e-mail.

The problem is only getting worse. More and more business is being handled electronically creating additional records. As the cost of electronic storage continues to drop, more of these records are being retained. In short, creating records has never been easier and keeping them has never been cheaper.

And, that just includes the documents that are under the company’s direct control. The proliferation of smart phones and “bring your own device” policies means that business is being conducted by text, by instant messaging and by voicemail. All of this information is likely relevant to due diligence or litigation. Yet, it resides almost entirely off of the company’s systems.

The problem with the unmanaged growth of records is obvious. Most companies do not know what they have or where it is. And, they have a welter of clutter to search when they need to find something.

When documents are needed for litigation, to respond to a regulatory inquiry or for due diligence, costs mount rapidly. Some of these costs are direct. Counsel has to review the records for production and for preparation. The more records counsel has to review, the more it will cost. Some costs are indirect. Time is wasted trying to find answers to basic questions or to lay hands on a key document.

There are also risks as well. Failing to locate helpful documents in litigation can mean a less favorable outcome. Failing to produce a harmful document can mean sanctions and loss of credibility with the court. Delays in producing documents can lead to unnecessary discovery battles.

Using the facts that you gathered in the first step of your problem solving process, decide how best to reduce the average cost of production per custodian. At a minimum, an updated and properly enforced document retention policy can increase efficiency and reduce costs. At base, a good document retention policy will reduce clutter – records will be retained and organized so that they can be readily located and accessed. A retention policy will also eliminate information that no longer serves a business purpose reducing the amount of data that will need to be searched. Finally, a policy will set the expectations of adversaries and courts as to the information that should be available.

While the design of a document retention policy is far beyond the scope of this paper, a document retention policy should include the following elements:

Definition section: should be tailored to the documents produced and maintained by the enterprise and should define “document” and “record” to include the information that would be subject to retention and collection such as paper documents, electronically stored information, records, etc. The word custodian should include employees, consultants, contractors and perhaps vendors.

Easy to use. A good program is a program that is easy to follow. Custodians need to know how to identify a record, how to recognize an original and how to classify the documents that are arranged, regardless of how the record is stored. If custodians do not


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understand the policy or it is too complex, they will not follow it.

The policy also has to be tailored to the records that the company uses and how it uses them. If the policy does not fit the company’s business, then custodians will be forced to fit records into categories that do not reflect their real world function. This will lead to the misclassification (or non-classification) of records within the process causing the records to be improperly retained or destroyed.

Frequently updated. Information technology is changing rapidly. Policies need to change to keep pace. A few years ago information managers were concerned about e-mail. Now, they have to be concerned about e-mail, texts, social media and voicemail – not to mention spreadsheets, databases and documents stored on the company’s computers; and the old-fashioned paper that is still around. To provide its full benefits, the document retention policy must take into account the enterprise’s network architecture and all of the data created, stored and used by employees.

The situation is continuing to become more complicated. The proliferation of personal mobile devices creates further issues as information is now stored on equipment that the company does not control. The rise of cloud computing services such as Salesforce, Box, and IDSTC creates additional issues as well.

Enforced. To be useful, document retention policies need to be enforced. The goal of an information program is to impose a uniform method of retaining material that has business or other value to an organization – and to eliminate items that have outlived their usefulness. If management does not oversee and enforce it, the program will cease to be uniform. The policy should direct the enterprise to schedule periodic destruction days where the company would destroy or delete all documents past their retention date that are not on legal hold.

The loss of uniformity creates several problems. First, some employees will begin to hoard data which means that information that should be destroyed is not and the amount of data that must be reviewed is multiplied. Second, information will end up in places, such as C-drives, memory sticks and portable hard drives, that would not ordinarily be searched. Third, the policy will be employed inconsistently with some employees retaining documents that other employees delete. This inconsistency will lead to discovery battles creating additional costs and risks.

Periodic training. A policy is only as good as its use. Refresher courses on the policy will help employees to internalize the key concepts and to remind them that the policy exists. Requiring a periodic reaffirmation of the policy and its application will increase compliance.

Litigation hold. The policy must include a robust process for holding documents that may be relevant to a pending or threatened claim. The process should include a mechanism for identifying and contacting custodians likely to possess relevant information.

Creating, updating and enforcing a document retention policy will require an investment. A policy cannot simply be pulled off the shelf. To create a good policy, the company may need to retain a consultant (or spend the time to educate someone in house) and poll all of the company’s departments to determine what data is created, how it is used and where it is stored. That investment should pay off in reduced litigation and compliance costs, reduced risk and increased efficiencies.

For more information on information retention policies, see www.edrm.net/projects/igrm. EDRM is a guidelines and standards body for e-discovery. Its members include corporations, governmental bodies, law firms and e-discovery vendors. B. Consider acquiring a document retention and

collection system Almost all new information created by businesses

is digital. Finding and preserving this information so that it is available for litigation, investigations or transactions is crucial. It is also expensive, time-consuming and fraught with risk.

According to EDRM, the process of producing and presenting electronically stored information (ESI) breaks down into categories: • Information governance – the process by which

entities control the creation and retention of electronic information. Information retention policies are a key component of information governance.

• Identification – locating potential sources of ESI. • Preservation – Ensuring that ESI is protected

against inappropriate alteration or destruction. • Collection – gathering ESI for further use in the e-

discovery process. • Processing – Reducing the volume of ESI and

converting it to forms suitable for review and analysis.

• Review – Evaluating ESI for relevance and privilege.

• Analysis – Evaluating ESI for content and context.

• Production – Delivering ESI to others. • Presentation – Using ESI to make a point. EDRM’s website (www.edrm.net) is a good resource for further information on the e-discovery process.

As a general matter, the e-discovery tasks tend to be split between the business and its outside lawyers as

http://www.edrm.net/projects/igrm

http://www.edrm.net/


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follows: the business is in full control of information governance; the business leads and the lawyers (or consultants) assist with identification, preservation and collection; and the lawyers (and consultants) are fully in charge of the latter (processing through presentation) tasks.

There are three basic ways in which businesses identify, preserve and collect electronically stored information. First, they rely on individual custodians (employees) to review and pull relevant information. This is almost always a bad idea. Employees generally do not understand what is relevant, they may be tempted to delete embarrassing information and the mere act of downloading or transferring files can alter them. Second, companies rely on their IT department to handle these tasks. Assuming IT is properly supervised by counsel and has the right tools and training, this often works well. However, it can be time-consuming and distract the IT department from its usual duties. Third, companies retain an outside consultant to do all of the work. The consultants are experts, which creates a high degree of reliability in their work. They are also very expensive.

Using the data that you acquired in the first step of your process, to reduce these costs, the company should consider acquiring a system to identify, collect and preserve ESI. These systems reside on the company’s network and have access to all data stored on the network. They allow the company to search through the company’s ESI and to immediately preserve any potential relevant information on a secure server. Most off the shelf systems have a legal records hold module that gives notice, collects and releases the hold. The legal hold module should be capable of producing a report of those who have been sent the legal hold and who have acknowledged their duties under the legal hold.

These types of systems are not inexpensive – although prices vary by scale and capability – and require effort to set up. An investment of this sort may well be justified in light of the costs of managing e-discovery for a variety of litigation and investigations and because of the risks of failing to locate and preserve ESI in a lawsuit or investigation. C. Standardize relationships with outside counsel

It has long been a tenant of good management to standardize vendor relationships and the purchasing process. Businesses have generally done a good job of this in most areas. The legal department is a notable exception. For whatever reason, in-house counsel have not enforced the same sort of discipline and standardization.

In-house counsel should impose a standardized regime on the company’s outside lawyers. This is typically done in a written outside counsel billing guidelines. The guidelines should be written after the

company has used the facts gathered in the first step of their process to achieve quality representation and cost controls. The guidelines should include the following:

Conflicts. The company should specify how it wants its law firms to determine conflicts. Conflicts of interest in the context of large business enterprises are not always clear. The general rule is that the lawyer represents only the entity that retained it and not any of its constituents, including shareholders. Does this mean that a lawyer representing a subsidiary is free to take a representation adverse to the parent company? Maybe. The answer depends on a number of factors including whether the affiliated companies share a common legal department and managers. Another factor, unique to Texas, is whether the representation of one subsidiary is substantially related to the matter adverse to another corporate affiliate.

The engagement letters for many law firms include provisions that resolve these conflicts questions in favor of the firm. For example, a typical practice is for the law firm to obtain the client’s agreement that its subsidiaries and affiliates will not be considered clients of the firm unless they expressly engage the firm. Another typical practice is to include a future waiver provision that waives any conflict created by a representation adverse to the company that is not substantially related to the existing matter. The exact breadth and scope of these sorts of provisions varies among law firms.

From the company’s perspective, it, rather than its outside lawyers, should determine how conflicts of interest involving the company should be determined. The company can enforce its view in one of two ways. It can review and revise the engagement letters that its lawyers send to it. Or, it can create its own conflict policy and require that its lawyers agree to it as a condition of engagement.

Rates. The guidelines should require the law firm to obtain permission from the company before raising the rates of any lawyers assigned to the engagement. Rates should not increase simply because the calendar changes from one year to the next.

Timekeepers. The guidelines should require that the law firm identify the timekeepers assigned to the matter up front and seek permission before substituting or adding additional timekeepers. The guidelines should also specify whether it will allow first year associates or summer associates to bill on its matters.

Expenses. The guidelines should also specify what expenses are reimbursable. Most issues related to expenses are standard practice (e.g., coach travel, no non-travel meals, no secretarial overtime). Issues to consider are (i) reimbursement of Westlaw or Lexis charges; (ii) reimbursement of long distance charges; (iii) the dollar limit of counsel’s authority to incur reimbursable expenses without prior approval and (iv)


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directing counsel to use vendors where the company has achieved a volume discount.

Billing. The guidelines should set how and when bills should be presented. We recommend requiring the use of LEDES (a/k/a ABA) Task codes and single entry billing. As discussed previously, these codes allow the person reviewing the bill to see exactly where time is being spent and to track compliance with budgets.

The guidelines should also require that bills be submitted by a certain time (e.g., 15 days after the end of a month). Businesses need to account for their expenses on a timely basis for financial reporting and planning purposes. Outside lawyers, unfortunately, are not always disciplined about issuing bills on a timely basis.

Other billing issues to consider are (i) whether to allow billing for travel time and at what rate; (ii) whether to allow more than one or two attorneys to bill for attendance at hearings, meetings and depositions; and (iii) how much can be billed for any required budgets or progress reports. D. Invest in electronic billing and management

tools Like an information retention and collection tool,

a legal matter management tool is an investment. Used correctly a legal matter management tool can help organize the legal department. A good case management tool will serve several functions; each of which will provide better information on and control over the legal matters the company faces. Using the facts collected in the first phase of your project, decide whether to invest in a tool.

First, the tool provides a single location for all relevant information regarding each matter handled by the in-house team. The tool will catalog correspondence, pleading and discovery related to each matter so that everyone working on a matter has full information. It also provides a convenient way for in-house and outside counsel to collaborate.

Second, the tool allows the in-house counsel to review a portfolio of litigation or other matters. This allows the in-house team to see trends and spot outliers for further investigation. E-billing tools can also generate periodic reports that will help in-house lawyers to review data derived from attorney bills. Reports allow counsel to compare work by various lawyers on similar types of matters to identify areas of waste. For example, counsel can fairly easily determine the average fee to take a deposition. Fees that substantially exceed the average should be readily identifiable so that in-house counsel can seek an explanation or make an adjustment.

The tool also allows for easier reporting to the business team. In-house counsel can provide better reports on the status of legal matters with less work.

This allows counsel to spend less time reporting and more time on substantive tasks.

Third, by programming the salient provisions of your outside counsel billing guidelines, the tool can flag non-compliance with guidelines by confirming the billing rates being charged and by identifying any unapproved billers and improper charges. The tool can also assist in keeping track of alternative fee arrangements including flat fees and caps.

To be fully effective, the tool should provide a method of access for outside counsel. This will allow outside counsel to collaborate and to share documents. It will also provide outside counsel with many of the organizational benefits of the tool making them more efficient as well.

In addition, the case management tool should be linked to the company’s accounts payable system. This will allow enforce the controls, such as approvals and approval levels, that are required by Sarbanes-Oxley. It will also allow in-house counsel to charge back to the appropriate internal budgets. E. Create brief and form banks

Brief and form banks can improve efficiency and reduce costs. There are a number of matters that come up routinely in most legal departments. There is simply no reason to redo work that has already been done or, worse, to pay outside counsel to do it.

At a bare minimum, the brief bank should include copies of good examples of relevant pleadings – answers, complaints, discovery responses, dispositive motions – and contracts. Care should be taken to include only those documents that are truly good. There is no advantage to replicating work product that is only adequate.

The in-house team should also standardize certain basic documents. Candidates for standardization include (i) often used contracts, (ii) litigation disclosures; (iii) common affidavits, (iv) organization charts and (v) corporate existence documents.

To be successful, a brief bank must be easily accessible and searchable. The ability to do at least minimal full text searching is required. Also, time spent up front profiling documents by type, jurisdiction and subject-matter will pay dividends later. When considering case management tools, this sort of functionality is helpful. III. IMPROVE AND IMPLEMENT GOOD

SUBSTANTIVE POLICIES TO REDUCE EXPOSURE The way your company does business both

internally and externally defines the risk facing your company. If you minimize that risk you minimize the necessity for the legal department to step in and further lower the costs associated with the risk. A good in-house team will endeavor to lower the risks of the


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enterprise to lower legal cost and because it is good for the business. There are policies that can be implemented that will lower the risk to the enterprise.

All companies receive service of process, so the in-house team should endeavor to set up a process in which the actual service is received expeditiously, accurately and transmitted to the individual(s) responsible for responding to the service. If the enterprise has multiple legal entities, the in-house team should select one registered agent for service of process for the entire enterprise. Select an agent that has the capability of emailing the notice of service to the designated in-house person and allows the downloading of an electronic copy of the service and attachment. The agent should also keep a log of all service of process they receive on behalf of the enterprise. Some e-billing and matter management systems will allow the agent’s electronic service to transmit directly to the matter management system and populate (at least on a starting basis) the new matter associated with the service. The in-house team should also create a process to calendar the date of response to the process. Some e-billing and matter management systems have this capability and allow for the calendaring to remind both in-house and assigned outside counsel of the response. The in-house team should create a written process internally to deal with hand delivered service of process by process servers in the different offices of the enterprise. This process needs to be written because receptionists or office managers who do not normally have legal training usually use it. Encourage communication between those individuals and the legal department.

The company’s code of conduct reflects the ethics of the enterprise. Typically, the board of directors directs the creation of the code with input from the executive team. The legal department’s role is to make sure that the code not only reflects the ethics of the enterprise but covers all the risks associated with the enterprise and guides the reader, the employee, on how to report, resolve or address those risks or issues. The code should specifically address all the important laws that the enterprise must follow in conducting its business. It should further address how violations of the code will be reported, investigated, resolved and any appeal of the resolution if it affects an employee. If the enterprise has intellectual property, the code can address procedures for the creation, ownership and protection of intellectual property. There are now many whistleblower statutes affecting a company’s business, and the code should set up a mechanism where an employee can anonymously report a code or law violation. Typically this is done with a hot line or generic email box or both. A process for retrieving, reviewing and transmitting the hotline issues to the right department for handling will also be required. If

confidentiality and trade secrets are covered in the code of conduct, the legal department should make sure it does not violate the National Labor Relations Act.

Some companies put their social media policy in the code of conduct. Best practices dictate creating a separate social media policy. The legal department should review the policy to make sure it complies with all applicable laws, including the National Labor Relations Act.

Typically the HR department will write and produce all the HR policies including benefits. The legal department should review those policies prior to implementation. For the benefit policies, make sure the policies reflect the appropriate plan documents, claims procedures and appeal procedures. For the remainder of the policies, make sure that people issues have legal input before any action is taken, again risk avoidance at this stage can save outside counsel dollars later.

Finally, policies are documents that should be reviewed on a periodic basis, making sure they comply with laws. The policies should be communicated to the enterprise employees (and contractors where applicable), and should be easily accessible on the company web site or shared drive. An effective compliance program will require that important policies be the subject of mandatory training by their employees. While there are federal statutes about training, beware that there are some state statutes that require periodic training on some people issues. Training can be in person or with the use of web based training modules. IV. PAY OUTSIDE COUNSEL CORRECTLY

There seems to be widespread consensus that the billable hour is a poor method of pricing legal services and that it is on its way out. This consensus has been with us a while. Year after year, legal pundits have announced the death of the billable hour. Yet, like the Joker in Batman, it never seems to die.

As a profession, we seem to be wholly unable to figure out a better way to pay for legal services. So we are stuck in a tug of war between law firms and clients. Clients want to pay lawyers fairly, which means less. Law firms want to be paid fairly, which means … well they aren’t sure.

The issue we face is that, as a profession, we have yet to agree on the value of legal services. Once we agree on their value, or at least how to measure it, we can agree on how to price legal services. A. Defining Quality:

How do you define quality for the delivery of legal services to a company, the ultimate client. An in-house counsel does not have to reinvent the wheel. You need only look to your company to do this. Before


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you can identify quality for outside counsel, you have to identify quality for the in-house legal department. As soon as practical meet with your in-house team and discuss and define your core values. From your core values, develop an in-house mission statement and brand. Your written core values and mission statement should align with those of your business but could include qualities that are unique to the legal profession such as a reassertion of ethics, diversity and commitment to give back to the community.

Using your written values, mission statement and brand, develop core quality values that you want your outside counsel to possess. Do this by subject area. The quality values for your tax counsel should have tax specific qualities and the quality for your ERISA counsel should have ERISA specific qualities. All the quality values for each level of outside legal work should align with your pre-written core values and mission statement. Look and reward work to law firms that meet these quality standards you wrote. B. Defining value: the intersection of cost and

quality We begin by attempting to define value. Value is

a balance between cost and quality. As a general matter, increases in quality require an increase in cost. At some point, they reach equilibrium, called value. For legal services, the balance point depends largely on the amount of risk (financial, reputational or otherwise) involved in the representation.

When considering cost in the context of a legal representation, it is helpful to think of it as having two components. The first component is transactional costs. These are the costs that most people think about when discussing the costs of litigation or a transaction. They include outside counsel fees and expenses (including experts), the value of inside counsel time and the value of the business team’s time and distraction.

There are also resolution costs (also known as results) which measure the result of the representation. In litigation, these costs are measured by settlements and judgments. If a claimant, the cost is the difference between damages and the amount recovered. In a transactional representation, costs are harder to measure but include less favorable deal terms and potential exposure.

There is an overlap between costs and notions of quality in considering resolution costs. But, quality and results are actually quite different. The highest quality representation possible can still end up in a bad result. A premium quality representation can reduce the likelihood of a bad result but cannot eliminate that likelihood.

Quality is harder to quantify as there is no generally accepted measure of quality of legal services. The ethical rules set out an attorney’s basic obligation

of quality – “a lawyer shall not neglect a legal matter entrusted to the lawyer or frequently fail to carry out completely the obligations that the lawyer owes to a client.” Tex. R. Prof. Conduct 1.01(b). The Rule defines “neglect” as “inattentiveness involving a conscious disregard for the responsibilities owed to a client.” Id. at Rule 1.01(c). Although the drafters of the Rules of Profession Conduct exhort lawyers to “act with competence, commitment and dedication,” the standards set by the ethical rules are so low as to be largely useless in discussing the expected quality of a legal representation.

The difficulty in measuring the quality of legal services is two-fold: it is not tangible or capable of objective measurement; and it means different things to different people. Most particularly, it means different things to lawyers and to business people. The dictionary (Dictionary.com) provides two applicable definitions of “quality.” • Character with respect to fineness or grade of

excellence, e.g., 16K gold or 24K gold. This is a descriptive definition; and

• High grade, superiority; excellence. This is a normative definition.

Business people generally view quality in descriptive terms (What quality steel are we using for the casing?). Lawyers, on the other hand, view quality in normative terms.

Business people (per McKinsey, the consulting firm) divide quality into three segments: • Good enough – OK for most purposes; most of

the time. • Excellent – Occasionally required when important

to reputation, market position • Superb – Very rarely needed – bet the company

type issues Bruce MacEwen, The Coming Debate Over Defining “Quality” (May 4, 2010) at www.adamsmithesq.com.

Lawyers (particularly outside counsel) see the world almost 180 degrees differently. For lawyers, superb is the default view for all representations. Clients can occasionally talk lawyers down to excellent if money is really an object. And, good enough is never good enough. Id. We should point out that, like beauty, quality is in the eye of the beholder: here, the lawyer.

We want to be clear about one thing. We are not suggesting that a lawyer ever do less than her best work on the tasks assigned. Quality in this context goes to the depth of the legal work.

Here is an example. In a lawsuit, there may be a great many people with some knowledge of the facts.

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These witnesses can usually be ranked: vital, important, material and relevant. Who should be deposed? That is a quality determination. For superb quality, you would depose all but the merely relevant. For excellent quality, you would depose the vital and the important witnesses. It is likely good enough to depose only the vital witnesses.

The lawyer’s default is to provide the superb representation and depose all of the witnesses. The client, depending upon the risks at play, may have a decidedly different view as to what is needed. If the matter is a small one, the client will find it hard to justify deposing a witness who is not vital to the case.

There is no simple explanation for this difference in world view. At base, business people are comfortable making quality distinctions because they tend to have a better handle on cost vs. benefit than do lawyers. Also, for business people, legal risk or input is only one of many risk and cost factors that they have to account for and balance.

Lawyers are less comfortable with quality distinctions. In part, lawyers are concerned with fiduciary duties and ethical rules which impose duties of loyalty and diligence. Notably, lawyers generally impose a higher standard of diligence on themselves than the conscious indifference standard of the ethical rules. Also, lawyers are agents and not principals. It is the client’s money at risk; not the lawyers. It is morally more difficult to take chances with someone else’s money than your own.

Reputational concerns also come into play. When an outside lawyer files a pleading with a court, the lawyer signs it; not the client and not really the law firm. If the work product is not the lawyer’s best work, his reputation will suffer. Less noble concerns arise as well. As with doctors, lawyers are sometimes prone to defensive lawyering. And, lawyers are still generally paid by the hour which creates some (hopefully subconscious) incentives to provide the most complete possible representation.

Resolving these vastly different worldviews as to quality will enable clients and lawyers to move beyond the billable hour. C. Compensating for value

There are any of a number of ways that clients can pay lawyers. As recently as forty or so years ago, lawyers generally billed by the task or sent a bill when the matter was concluded. The client either accepted the bill or negotiated some sort of discount based on his satisfaction with the service rendered and outcome.

The billable hour came into focus as a way to regularize lawyer billing and to create an objective proxy for value. The number of hours reflected the effort required and the hourly rate reflected the level of skill required. The final bill should, thus, approximate

the value of the services rendered. Itemization allowed the client to “see” the lawyer’s work.

As innumerable commentators have lamented over the past 15-plus years, the billable hour failed to live up to its promise. Bruce MacEwen, who writes as Adam Smith, Esquire, has identified some of the defects of the billable hour: • It begins life based on “cost of production,” not

“value to client.” Microeconomists would tell you this makes no sense.

• It permits, nay welcomes, inefficiencies.

* * * * • It disemboweled the use of knowledge

management and information technology to accelerate and streamline basic, garden-variety tasks such as document drafting.

• It led to exceedingly unwelcome “Surprise!” moments when clients received their monthly bills and the time invested over the past 30 days turned out to be far more than they had bargained for.

Bruce MacEwen, A Modest Proposal for Alternative Fees (February 25, 2011) at 1, found at www.adamsmithesq.com.

Despite its flaws, however, the billable hour remains the predominant way to pay lawyers. Properly managed, it can work well. Some of its flaws, however, can be avoided with judicious use of alternative fee agreements. 1. The billable hour

Clients have tried a number of methods to make hourly-based legal fees more closely approximate the perceived value received. These generally include auditing (nit-picking) invoices, demanding discounts and entering into various agreements to cap and blend rates. a. Auditing bills has not been an effective method

of controlling cost Auditing invoices as a method for managing costs,

in contrast to reviewing for errors or blatant overcharges, has generally not worked. “Past efforts at cost control-for example, managing costs by micromanaging specific tasks and time entries billed by outside counsel-have achieved at best relatively modest savings at the expense of undermining any true partnering relationship.” James Shomper, Gardner Courson, Alternative Fees for Litigation: Improved Control and Higher Value, ACCA Docket 18, no. 5 (2000). In-house lawyers spent innumerable hours reading bills and attempting to second-guess time spent on specific tasks. Outside lawyers, who generally



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review bills before they are sent out, have to spend time justifying bills. Everyone gets frustrated. All of this time and effort could have been spent doing something that actually moved the engagement forward. b. Discounts have little long term effect on cost

Discounting rates is another idea that sounds great in theory but really has not worked out well in practice. The fundamental problem with discounts is that the market adjusts to them. Law firms anticipating discounts simply set rates higher in order to realize the rates that they want.

Discounting is just not strategy that will work in the long term. The actual prices paid for jewelry and used cars have not dropped even though everyone gets a “discount” off of the listed price. No one should expect legal services to be any different. c. “Alternative” fee agreements that are merely

recycled hourly billing have limited utility In an attempt to make hourly billing more

palatable, lawyers and clients have entered into arrangements that blend hourly rates of senior and junior lawyers or that cap the rate charged. Neither type of arrangement has worked particularly well as each is largely one-sided.

Blended rate deals provide little of value to clients. They simply encourage lawyers to push work down to less qualified, more junior lawyers who (due to the blend) are charging at a higher than normal rate. If the client wants more junior lawyers to work on its matters, it could simply specify that and pay their normal (lower) rates.

Cap deals are one-sided in favor of the client. They encourage the client to demand a higher level of service than the cap would suggest. Caps also tend to eliminate efficiencies as the lawyer has no incentive to charge less than the cap. d. What works?

The billable hour can still be made to work, however. But, it requires a real commitment from both clients and outside counsel to engage in frank and uncomfortable discussions of billing and rates. It also requires trust and communication.

As we discussed earlier, active engagement between lawyer and client as well as advanced planning and budgeting can focus the parties on the quality of representation necessary and the expected costs of that representation. This means that the lawyer’s fees will more closely approximate the value that she is delivering. And, the client faces fewer surprises. Reviewing invoices becomes easier because the in-house lawyer knows what to expect in terms of activities and expected effort.

Another potential avenue is to tailor the outside lawyer’s rates to the specific engagement. The rates for individual lawyers are midpoints – too high for her simple matters but too low for her really complex matters. It makes sense to pay the same lawyer a different rate for simpler matters than for complicated matters. The starting point is not the lawyer’s listed rate but a discussion of the type and complexity of the services needed. 2. True alternative fee agreements have promise

Fee agreements that match the amount paid to a lawyer with the value she provides are the best solutions for both lawyers and clients. There is an almost infinite variety of alternative fee agreements and no one type is suitable for all cases. Each must be carefully structured to fit the needs of lawyer and client.

Alternative fee agreements generally fall into two categories: fixed fees and incentive compensation. Lawyers and clients can mix and match among various compensation forms to reach an agreement that works for the parties and a given engagement. a. Fixed fee arrangements

Fixed fee agreements are common in the retail practice of law. Advertisements offering wills for $150 or a no-child divorce for $1,500 are frequently seen. Fixed fees are less frequently seen in commercial practice.

Fixed fees share the cost risk of the engagement between the lawyer and client. If the law firm is efficient or the case simpler than expected, it makes more money. If it is inefficient or the case is more complicated than expected, the client does not have to pay more.

Fixed fees work best for routine or predictable types of engagements. If a matter is not predictable, then there is a significant risk that the fee will be unreasonably high or low. This can also happen with cases that appear to be routine but turnout to have unexpected risks or complexities. This risk can be mitigated contractually or by further discussions. Applying a fixed fee to a portfolio of similar cases reduces the risk to both sides of outlier cases. The few cases that are simpler than usual balance out the few cases that are more complex.

For example, a group disability insurer faces numerous cases challenging its claims determinations each year. Under ERISA, the court’s review is usually not de novo but rather limited to a review of the insurer’s decision based on the record before the insurer. The work required to defend one of these cases is predictable.

To reduce its defense costs, the insurer may set up a bidding process among qualified firms in a given


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region. The firms, after reviewing the insurer’s historical information, would bid a fixed fee per case for the insurer’s portfolio of cases in their region. The bidding process will result in a fixed fee that is less than the insurer’s average cost per case. Both sides should benefit from this arrangement. The insurer will lower its legal spend. The law firm will obtain additional work. Likewise if a company has historic data surrounding its portfolio of defense cases, a bidding process can also work in the non-insured situation. The similarity is striking, both instances involve a reasonable estimate based upon historical data.

Another example depends on the proper collection of data discussed at the beginning of this paper. If you have data that shows you spend an average amount of fees for all the legal work administering a 401k plan, you can easily develop a fixed fee based on that average and eliminate the fluctuation of costs that your CFO loathes.

Fixed fees also work for portions of cases. The parties can agree that the lawyer will handle various phases of a case for a fixed fee per phase. This eliminates the difficulties in establishing a fixed fee for an entire non-routine case where the parties are unsure whether it will be tried or settled.

Transactional or regulatory work is also a good candidate for a fixed fee. For example, many companies have routine customer engagements that need to be documented. Similarly, a company can retain counsel to handle the regulatory issues related to its retirement programs on a fixed fee. b. Incentive compensation

The lawyer’s fee can also be based in whole or in part on the results of the engagement. The obvious example of this sort of arrangement is the contingency fee contract used in plaintiffs’ cases. But, incentive compensation can be used in a variety of other engagements as well.

In a plaintiff’s case, the contingency fee is simple. The lawyer receives a percentage of what he collects. The actual percentage is a matter of negotiation between lawyer and client and should vary depending upon the amount in controversy and likelihood of success. This sort of fee can be combined with steeply discounted hourly rates (e.g., 50% of hourly rates plus 10% of recovery).

Outside of the plaintiff’s cases, incentive compensation requires more creativity. Client and lawyer will need to define conditions of success for the payment of the fee. Success can be defined in terms of (i) time of disposition (the case is settled or otherwise resolved by a certain date); (ii) type of disposition (dismissal on pleadings or summary judgment); or (iii) winning a particular issue (e.g., denial of class

certification). See Shomper, Gardner, supra. Another form of incentive compensation is to award lawyers for billing below budget. In such an arrangement, the lawyer gets a percentage of the amount saved.

It is common to combine incentive compensation with a reduced hourly fee. For example, the attorney could bill at 80% of normal rates. If the success conditions are met, she would receive an additional 25% of her normal fees.

It need not be an all or nothing structure. The client and lawyer could agree on a series of success conditions, each of which has a set bonus. Using the example above, the parties could agree to four success conditions, each worth 5%. If the attorney satisfies all four conditions, she receives an additional 5%. c. Creating alternative fee agreements

The type of alternative fee agreements is limited largely by the creativity of lawyers and their clients. But, in structuring fee agreements both sides must recognize two things: • If the solution doesn’t involve true risk sharing

then it has no mutuality [and will not work long term]; and

• Value lies largely in the eyes of the client, and is not determined by the tonnage of inputs expended in achieving the result. What matters is output, not input.

Bruce MacEwen, What’s It Worth to You (December 15, 2012) at www.adamsmithesq.com. To Mr. MacEwen’s list, we would also add that for any alternative fee agreement to work, it must be based on trust between lawyer and client. Each party has to trust the other to be reasonable and not to take advantage of the other.

The parties must also be comfortable that the agreement can be renegotiated if the reality of the engagement turns out to be different from what the parties anticipated. Both parties should bear the risks that they willingly incurred in the fee agreement. For the lawyer, this means that he may end up doing more work for less pay than anticipated. For the client, this means that an engagement may end up costing more than a pure hourly fee would have cost. However, neither client nor lawyer should wish to bind the other to an agreement that truly puts the other party in a bad position. The point of alternative fee agreements is to create a better and closer partnership between lawyer and client by aligning their risks in the engagement. That can only work if both sides are willing to abide by that fundamental precept.

As with any fee agreement, there are ethical considerations that have to be taken into account. Under the ethical rules, a lawyer should not charge



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more than a reasonable fee. TEX. R. PROF. CONDUCT 1.04. In the context that we are discussing here – fees negotiated between outside counsel and businesses with in-house lawyers, this should rarely be an issue. Id. at Rule 1.04, Comment 8 (“For example, a fee agreement negotiated at arm’s length with an experienced business client would rarely be subject to question.”). The ethical rules also require that the lawyer fully disclose how the fee for his services will be determined. Id. at Rule 1.04(c).

Fee agreements should be in writing. Id. If the fee agreement involves incentive compensation, the agreement must be in writing. Id. at Rule 1.04(d).

Once the parties have entered into a fee agreement, the attorney’s usual ethical duties limit his conduct. An attorney cannot “handle the matter so as to further the lawyer’s financial interests to the detriment of the client.” Id. at Rule 1.04, Comment 6. For example, counsel cannot delay a settlement to receive a higher fee based on a graduated contingency fee schedule. Ethical duties also require that the lawyer continue to provide zealous and competent representation even if the engagement has become unprofitable. Id. at Rule 1.01. V. MAXIMIZING VALUE

While we still do not completely understand the value proposition for legal services, there are steps we can take that will increase value or at least the perception of value. A. Communicate, communicate, communicate

As with every other human relationship, the key to the lawyer/client relationship is communication. Outside counsel and in-house counsel need to be in regular contact about the status of the representation. It is the only way for the outside lawyer to be fully in tune with the client’s goals and expectations.

Communication needs to start at the beginning of each matter. At the start of the engagement, outside counsel needs to ask the in-house lawyer two questions:

(1) What are your goals for this matter, i.e., what does a win look like?

(2) Realistically, what are those goals worth to the company?

The in-house lawyer should do sufficient advance work on the matter to be able to give complete answers to those questions.

Based on the answers to those questions, the lawyer and the in-house counsel can jointly develop a rough estimate of the fees and costs and sketch out a preliminary plan of action. At this stage of the representation, both the plan of action and fee estimate are necessarily drafts. But the plan of action and fee

estimate need to be turned into a budget as quickly as reasonably possible.

Communication should continue throughout the course of the representation. In addition to regular status reports and updates, in-house counsel should schedule periodic strategy sessions with outside counsel. At these sessions, the parties can refine the plan of action.

As the matter moves to different stages, in-house and outside counsel need to continually evaluate next steps. For example, when scheduling depositions, the in-house lawyer should be engaging the outside lawyer as to the justification for each deposition and its cost. Who are we deposing? Why are we deposing Ms. Green? How can her testimony help or hurt us? Will it come into evidence without her deposition? Do we really need her testimony? Who should take the deposition? How long will it take? Is travel involved?

The lawyers (in-house and outside) should jointly determine what work is really necessary. In this manner, the client and lawyer move towards a shared view of the quality of representation expected and needed for a given matter.

B. Get organized: “If you don't know where you

are going, you'll end up someplace else.” Yogi Berra Too often, lawyers jump right into an engagement

and start working away with little thought to their ultimate goal beyond vague notions of winning the case and how they plan to achieve that goal. As few projects are without opponents, the engagement quickly turns tactical with lawyers making and fending off legal sallies.

Lost in the back and forth between counsel is any notion of an overall strategy. As a result, low priority or unnecessary work is done and high priority work is either not completed or rushed. This loss of focus leads to increased fees and bad results.

In-house counsel should require that outside lawyers prepare a plan of attack for each engagement. The plan should be prepared at the start of the investigation. For litigation, the plan should include the following elements: • Dilatory motions. The plan should evaluate

removal, jurisdictional objections, venue objections, motions to dismiss and special exceptions. Are there colorable grounds for a motion? Is it likely to succeed? What will it cost?

• Strategy for investigating the facts. The plan should describe the process that counsel intends to use to investigate the facts of the case outside of formal discovery, including the categories of


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documents to be reviewed and identifying witnesses to interview.

• Discovery strategy. The plan should also identify potential targets for written discovery as well as potential deponents. These targets should be prioritized. For each target, the plan should state the evidence that is likely to be provided.

• Defensive discovery strategy. The plan should also discuss the discovery that the other side will seek from the client and the proper response to potentially problematic requests. E-discovery issues should be explicitly addressed.

• Dispositive motion strategy. The plan should discuss the types of dispositive motions that the client should file as well as those the other side will likely file.

• Settlement strategy. The plan should also consider ranges of potential settlements, any non-monetary settlement consideration and when and how to approach the other side.

Non-litigation plans would include similar types of considerations tailored to the particular transaction at issue.

The plan should include quantifiable milestones and estimate of the time required to achieve each milestone. While the exact timeline will likely vary depending upon the size of the engagement, we recommend that the factual investigation be substantially complete within 60 to 90 days. By substantially complete, we mean that key documents (good and bad) have been identified and reviewed and all of the important witnesses who are either affiliated with or at least neutral to the client have been interviewed. During this time period, counsel should have also identified the legal standards that will be applicable.

The plan of attack is not something that the outside lawyer should retreat back to his office and prepare alone. In-house counsel should be heavily involved. Often, only the in-house lawyer has the necessary information or knows where to find it. Moreover, the plan of attack is an important part of synchronizing the expectations of both client and lawyer as to the quality of representation required to succeed.

The plan is also not a static document to be filed and ignored once completed. Nor should it be followed slavishly. Instead, it should be seen as a work in progress to be added to, subtracted from or fundamentally altered as the engagement progresses.

A good plan of attack has many benefits. At base, it defines the engagement and its likely cost leading to more exact and potentially lower costs. It also helps maintain focus on the key issues so that unnecessary, distracting and expensive disputes or discovery are

avoided. It also helps to ensure that important work is completed in a timely and thorough fashion.

The other major organizational tool that must also be incorporated is the budget. Outside lawyers dislike creating budgets. Unlike business people for whom budgeting for projects is a routine part of day to day life, lawyers have never been taught how to create a project budget. There is also the pernicious fiction that legal projects are somehow more complex and more prone to unknown circumstances than business projects.

That being said, the joint development of a plan of attack by in-house and outside counsel makes the budgeting process much easier. What needs to be done and, to some extent, how much time it will take has already been determined. At that point, it is largely a matter of incorporating timekeepers and rates to reach a budget.

As with the plan of attack, the budget should be a living document. Circumstances change, strategies refine and opponents act out. As these things, occur the budget should be revisited. C. Look for early resolutions to disputes and

transactions Getting matters resolved as quickly as possible

leads to reduced legal fees and, often, to better results. In 2002, DuPont announced that its use of early case assessment to achieve quicker resolutions reduced its legal costs by 28%. Whether this statistic still holds true or could be replicated elsewhere, resolving matters sooner rather than later makes logical sense.

The longer a matter takes the more legal costs will be incurred. There is simply more time for work to be done. There is also more time for things to go wrong requiring additional fees to resolve.

It may also be cheaper to settle early than later. First, the more parties spend on litigation, the more they are going to want in settlement, if only to justify the costs already incurred. Second, bad cases never age well. The best opportunity to settle may be early before the other side realizes just how bad your case is. Third, the most prepared party in any negotiation usually prevails. By the end of discovery when mediations usually occur, both sides are usually equally prepared. There is therefore an information advantage that can be gained in the early stages of a case by the party willing to work up cases early.

To this end, an early case assessment (ECA) process can help. A detailed discussion of ECA is beyond the scope of our presentation. A very good discussion of the topic was presented at this conference in 2012 by John DeGroote, Robert Manley and Frank Vecella (Chapter 14 -- “Effective Litigation Management: Doing a Good Job at Herding Cats”).

At base, an ECA is an unflinching look at a case or series of related cases. It requires a detailed analysis


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of the facts and the evidence that proves those facts. It involves an appreciation of the court, potential jurors, opposing counsel and witnesses. It is not a list of reasons why your side should win.

To that end, there are several aspects of case assessment that tend to be overlooked. First, and most important, is the opponent’s case. It is not enough to simply recite what the other side has written in its discovery responses or pleadings. Why? Lawyers, especially plaintiffs’ lawyers, often sandbag. Also, the other side may not truly understand its case early on. Thus, it is imperative to determine the best version of the other side’s case.

Second, is the theme of your case (and theirs’ as well). A theme is a short statement that explains why one side should win. It should take into account the law as well as all of the known facts – the good and the bad. Trial advocacy instructors say that at theme must be short, memorable, simple and catchy. And, they are right for trial. But at this point, the theme needs only be short and simple.

Third, you must understand your opponent – not the other side’s lawyer but the decision maker for the other side. Litigation and negotiation are as much about people as they are about law and facts. The other side’s risk tolerance, resources and even bullheadedness are significant factors. D. Get involved

There are a number of things that in-house counsel can do to assist outside counsel in representing the company. The more that the in-house team can do the less the outside lawyer will need to do. This leads to more work but lower fees.

An easy thing to do is to make research, pleadings and discovery from similar cases available. Assuming that the work was done well the first time, there is no good reason not to reuse that work. It will likely need to be updated and modified for the current case. But modifying existing work is usually cheaper than starting from scratch. In addition, working off of existing forms creates continuity across the company’s portfolio of similar cases.

The in-house lawyer should be the interface with the business team. Outside counsel should not be billing to identify key team members and to arrange to speak with them. In-house counsel should handle these tasks.

This is not to say that outside counsel should not have contact with the business team. To the contrary, it is vital that the outside lawyer have contact with witnesses, the IT personnel collecting documents and the decision makers. It avoids miscommunications. It also allows the lawyer to begin to build credibility with the business team. In addition, dealing directly with the lawyer gives the business team buy-in and a voice in the engagement.

The in-house lawyer can also take on some of the legwork in house. Inside counsel is often in the best position to understand who would have the most relevant information and where the key documents are located. The in-house lawyer also has helpful insights into the company’s decision-making process, procedures and culture – all of which bear on the lawyer’s investigation and the ultimate trial or transaction. E. Leverage existing vendor relationships

Another way to reduce legal costs is to leverage the company’s purchasing processes to control expenses. Businesses are large consumers of services, such as travel and printing. To control these costs, businesses have negotiated favorable rates with service providers.

Law firms utilize many of the services that business use. Like businesses, law firms have also sought to control costs by negotiating favorable rates with their service providers. However, businesses generally get better rates then lawyers.

This is a largely a function of sheer size. Businesses are significantly larger entities than law firms. The average revenue for the Fortune 500 is $25 billion. In contrast, the average revenue for the AmLaw 100 is only $810 million. While the Fortune 500 and AmLaw 100 are not representative of businesses and law firms as a whole, this comparison gives some idea of the relative scale of the enterprises.

There is no good reason not to use the company’s greater purchasing power to control the costs that its lawyers bill back to it. There are a number of areas of overlap between services the business utilize in its ordinary course and services that are billed back by lawyers.

The prime example is travel. Instead of allowing lawyers to make their own travel arrangements, businesses should require outside counsel to use the company’s internal travel purchasing process. Requiring outside counsel to use the internal process has several salutary effects. First, it allows the lawyers to use the company’s negotiated rates for hotels and rental cars. Second, the company can easily enforce its travel policies on outside counsel. Third, the company can be billed directly for travel allowing for better fiscal control.

There are also legal specific services that businesses may be able to negotiate better rates on. For example, companies that are frequent litigants can retain a court reporting firm and require their lawyers to use that firm. The company would get the benefit of lower rates and direct billing.

Similarly, companies can retain an e-discovery vendor for all of its litigation and require its lawyers to use that firm. In addition to a lower rate, the company would have the benefit of working with a vendor who


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is already familiar with the company and its record keeping processes.

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