“Our lawyers don’t seem to understand that I have to report to the Board, and I do not look good when every month the legal costs are beyond budget. They don’t seem to have any plan for the matter and just react to whatever is happening.”

In today’s world of complex transactions and litigation, a major challenge for in-house counsel is to control large legal matters to achieve an optimal outcome whilst ensuring legal costs are proportionate to ROI. An often overlooked impact of such matters is the involvement of key business personnel and management.

One of the most powerful cost control measures is the use of project management techniques, early case assessment and strategic case planning. This results in not only demonstrable cost savings, but reductions in the impact on your people and the business. Better commercial outcomes are achieved at an earlier time as the techniques are focused on aligning outcome with expectation and identifying early opportunities to finalise matters.

The use of decision trees starkly highlights the options and what are optimal outcomes, taking into account likelihood of outcome, possible consequences and costs and are particularly useful in formulating a clear report to the business for the purpose of decision making.

Our extensive experience in matter management enables us to work with your lawyers to prepare a realistic project plan, with clear deliverables, time frames and detailed budget, acceptable to both client and lawyer. This plan enables you to make decisions about your legal spend, analyse options, evaluate risk, develop a strategy, and assign internal resources. Continuous monitoring of progress against the plan ensures early identification of issues and provides the opportunity to change strategy.

In other words, you look at the Big Picture, and are proactive rather than reactive – you gain back control.

Optimal Legal Department = Right number of lawyers, with the right skills, doing the right things, in the right areas = maximum effectiveness of the legal department.

Resource matching the in-house legal department is the first step in managing the legal spend as it informs the make/buy decision.

An effective legal department delivers coverage in crucial areas, thereby maximising compliance and minimising risk, with consequent reductions in legal spend through minimised payouts and external legal cost.

Resource matching the in-house department involves analysing and defining the in-house lawyers’ roles, determining how that role can best deliver coverage to the business, and thereby identifying what work should be outsourced.

Undertaking the exercise enables the legal department to measure and demonstrate its value to the business in terms of hard economic data.

The data collected in the review is used to formulate a business case to justify the resource matching decision which itself may involve:

• Change in role of in-house lawyers (e.g. recommendation that legal function concentrate on particular areas, and outsource other all other areas of work)

• Change in skill sets (e.g. employment of lawyers with specialised knowledge, or development of such expertise in existing lawyers)

• Change in numbers of in-house lawyers

Clients want predictable costs, not surprises. They want to pay for results not time. They want to share the risk not bear it all.

We helps clients work with their lawyers to achieve greater value for the corporate legal spend and achieve demonstrable performance improvements. We do this by using our unrivalled local experience of fee management, and our knowledge of the market, international trends and best practice. For you as the client, predictability of legal costs is important, with flow on benefits to your internal budget.

Active management of the matter ensures the lawyer focuses on the big picture, objectives, strategy and results. If the ground rules are clear from the outset, the outcomes are far more likely to meet expectations and the relationship between lawyer and client is strengthened.

We can help by:

• reviewing outsourcing practices
• establishing internal and external performance metrics
• establishing or reviewing legal panels
• developing engagement protocols, billing guidelines or benchmarks
• implementing value pricing arrangements
• implementing project managing techniques for large legal projects

The focus is on delivering a mutually beneficial, richer and stronger lawyer/client relationship.

How you you practice legal spend management depends on where you want to go and what your specific needs are. The size of your organisation and your legal spend, your existing practices, and the nature of your legal requirements will all be relevant to the approach you take.

At one end of the spectrum are engagement protocols, billing guidelines and negotiated billing arrangements. At the other end of the spectrum, are more sophisticated processes such as convergence of your firms, establishment or review of a legal panel, benchmarking, legal process outsourcing, legal project management, alternative fee arrangements, value pricing.

No matter what technique you use, benchmarking external law firm performance is critical to ensure delivery of quality legal services. Performance to benchmarks can also form part of a value pricing arrangement.

Knowledge is power

If you track metrics of what you do, you will better understand how your money is being spent, identify areas of potential savings, and be able to measure and compare the performance of your legal department and your law firms.

Benchmarking can be undertaken of:

• your department against accepted best practice,
• your department performance against past performance
• your law firms against each other,

Internal Performance

Often, legal departments have no idea how they compare in terms of legal spend, arrangements with external lawyers, or internal headcount and other staffing metrics.

Evaluating the performance of the legal department against benchmarks enables you to meet the challenge of demonstrating the value of the department to the business and that you are demonstrating best practice. This is often of concern to other areas of the business, such as finance.

External Performance

Benchmarking external law firm performance has multiple advantages, including the ability to demonstrate best practice to other areas of the business, such as procurement, and the engendering of a spirit of competition amongst your law firms.

With the specifics of measurables, you can have profitable discussions with law firms about areas where improvements are required, and ideally tie payment to performance.

But benchmarking only works well if you carefully identify KPIs which tie to your objectives, communicate these to your law firms, and provide feedback of the results of monitoring performance to benchmarks.

We can assist in defining meaningful benchmarks, establishing monitoring systems and feedback protocols and helping you design a true value pricing model which ties payment to results and performance.

First, the bad news..."

Value Pricing takes work - both on the part of the client and on the part of the lawyer. Because the starting point is understanding what  “value” is, and this means understanding what the client really wants. Not what the lawyer thinks the client needs, but what the client’s commercial, personal and business objectives actually are.

Once the “need” is identified, it’s a matter of determining how that need can be met, and then it becomes possible to establish value.

But value pricing is worth the work. It avoids the problems of hourly billing where:

• The client bears all the risk
• There is no incentive for the lawyer to be efficient
• The price is no reflection of the result - if a lawyer saved a client $10 million with 1 hour’s advice due to the lawyer’s expertise, it’s worth more than the hourly billing rate.

Examples of value pricing arrangements are:

• Fixed fee with value component (holdback/write up)
• Outcome based fee
• Fixed fee by stage
• Work product based fee
• Benchmarked value fee

Some of these arrangement may involve an hourly billing component, but all ensure the lawyer bears some of the risk – has some “skin in the game”.

We can facilitate discussions to identify value, and help lawyers and clients agree a pricing arrangement which will ensure value is delivered to both client and lawyer.