By Stephen Mullins, Principal, General Manager
Excellent face value hourly rates and fixed fees are useless without structured Rules of Engagement which apply to the legal team, internal clients and panel lawyers.
We’re often asked by clients to help them get a panel with the best terms. Our first question is, “Why? What’s wrong with the lawyers you use now?” We also hear, “We already have a panel and we’ve got good rates.”
A panel is a good idea, in theory. It’s semantics whether there’s a “formal” panel in place. Even without a formal panel, current suppliers are on the “panel”. In our experience, formal panel tendering and procurement is unnecessary – the existing external lawyers are fine in terms of quality and the headline rates are on par. The problem is, the engagement method and controls are poor. We commonly see misalignment between external lawyers and the end-client about what’s important and what’s “value for money”. The outcome is higher total legal spend and a dissatisfied CEO, CFO, in-house team and internal clients (your colleagues). The external lawyers are doing their best but they don’t know precisely where the goal posts and side lines are, and they’re not held to account.
To reduce total legal spend, the easiest and best three ways are:
- Do less legal work.
- From what’s left, do more in-house. Improve the ratio of internal vs external legal spend.
- From what’s still left and it needs to be outsourced, have Rules of Engagement for externals.
Here, we focus on the latter. We guarantee that 20-30% of external spend will be saved if you have Rules of Engagement. They need to be granular and exhaustive but here are the headline requirements:
- Strict rules and approval mechanism about when, who and how externals can be used.
- If you’re using externals, never have an in-house lawyer as the mailbox or to see if the internal clients “don’t brief correctly and we’ll pay more”. Having the in-house lawyer performing this role is not fixing the problem. The externals you select should be just like you or you’ve got the wrong externals. They should be educating your internal clients about proper instructions and not “re-buying” advice so the organisation doesn’t pay more.
- Always insist on an hourly rate (fee estimate) and fixed fee alternative for every matter.
- For every fixed fee ensure the carve outs/caveats are limited and concise. Far too many fixed fees are not.
- Stipulate a % of partner time.
- Limit the number of lawyers per meeting.
- Have scorecards like a 360 review.
- Have a maximum of 3 meaningful SLAs that align to the business unit strategy relevant to the work.
- Check that you got what you paid for. Surprisingly, this rarely happens because people are too busy and the culture doesn’t align to saving the organisation money. Any legal team should be able to create a spreadsheet to track quotes and estimates against actuals.
If you want to discuss any of the above or get help with your external legal spend and panel arrangements, please contact Stephen Mullins.