What is it?
Outside Counsel Management and Rationalization (OCR) is an approach adopted by many leading corporate legal groups to improve quality and reduce costs. OCR is designed to select and utilize optimal outside counsel for diverse legal needs.
Employing a structured process, outside counsel is objectively evaluated and tested against viable “market alternatives”, and favorable economic terms are obtained. Typically, management processes are established to ensure the program’s elements are implemented and both quality improvements and savings are realized.
Why is it important?
Most law departments spend upwards of 60% or more of their budgets on outside law firms, usually amounting to tens of millions of dollars each year. Most are also under extraordinary pressure to reduce legal costs while maintaining the highest quality of legal service to their organizations. But they don’t know how to break away from the old, often ineffective ways of managing outside counsel.
What to look for in an Outside Counsel & Financial Management Solution?
Security and privacy are always a major concern with financial tools. Additionally, look for how the tools integrate with your existing tool portfolio. Reporting and analytics will be extremely important. Also determine whether data is gathered in real time or whether incremental updates is sufficient (daily, weekly, etc.)
Subcategories of Outside Counsels & Financial Management
Outside Counsel Management Programs
Developing a set of processes and policies for selection, onboarding, workflow, review of services, and termination. This is often done through a combination of outside counsel billing guidelines and the nature of any existing relationship with outside counsel.
Invoices are received electronically and vetted for compliance with Outside Counsel Guidelines and other rules enforced by the Legal function. E-billing is also critical as it provides the flow of Data which allows to really look at what is being spent, where, with which firm, why and from this valuable information determine what could be done better. Legal Departments have started leveraging E-billing data to revisit relationships with law firms (as part of Panel reviews or not), re-assess whether work needs to be brought back in-house or farmed out to Law Firms
For our purposes, an RFP is a process whereby an in-house legal department requests a number of outside law firms to submit proposals to obtain legal work from the company. The proposals are in writing, usually following/completing a template sent by the in-house team. In my experience, legal departments send out RFPs for three different types of situations. Each situation operates somewhat differently from the others mostly due to timing issues. The three are:
- Panel counsel – here, the in-house department is looking to create a panel of preferred law firms that can handle most, if not all, of the company’s outside legal work (including for specific types of matters or in specific geographies). The RFP process here is generally longer and more involved post-selection because there is likely no particularly urgent matter involved and, once selected, panel counsel will be on the panel for several years and deeply integrated with the in-house team.
- Specific project – in-house lawyers sometimes use an RFP for just one matter, e.g., a piece of litigation, a merger, or other project. They may go only to firms on their existing panel or that they’ve used before, or they might open it up to new firms. This process tends to move faster, especially if the matter is urgent and there is a need to get outside counsel identified and moving quickly.
- Specialty area – this one is somewhat of a hybrid of the first two. In-house counsel is looking for a firm to handle certain types of matters, ones that may require the law firm to have a special industry or regulatory knowledge – knowledge that isn’t commonly found at most firms. Examples include tax law, competition law, ERISA, and so forth. The process can move quickly or slowly depending on the circumstances.
Value Based Pricing & Alternative Fee Arrangements
Value-based pricing (“VBP”) is beginning to revolutionize the legal services industry by transitioning legal engagements from the traditional hourly fees model to a new value-based approach. VBP, when structured correctly, significantly reduces total legal spend, increases budget predictability, promotes law firm risk-sharing and improves the productivity of corporate legal departments. VBP is not simply an alternative type of fee arrangement, but is actually a completely different methodology for the pricing of legal services.
Invoice Review Services/Invoice Monitoring
Regardless of how well designed an E-billing system is, it is sometimes difficult to change behaviors and for Lawyers to really “act” on invoices and maybe reject invoices that are not compliant with Outside Counsel Guidelines. Bill auditing has been around for decade but some consulting companies are now offering manual Bill Review in conjunction with an E-billing system: the E-bill is being critically reviewed and assessed, to a higher degree than what a lawyer would typically do.
Data Analysis/ Metrics & Tracking
Embracing data analytics and measuring goals and questions creates opportunity to capture those answers and realize savings and efficiencies even when it comes to outside counsel. For example, many companies look at a summary of outside spending vs. budget (or average hourly rate or legal spend as a percentage of company revenue). This is just one example of tracking and analyzing data from outside counsel.