How to Drive Efficiencies and Savings in Critical Legal Vendor Relationships

Since the rise of corporate law departments in the early 1990s, the management of outside counsel and related law department vendors has occupied a central focus. There has probably been more ink spilled on this topic than on any other aspect of how law departments manage their affairs. Truth be told, even with the advent of new technologies that have greatly increased the options for how legal services are delivered to corporate clients, a number of familiar themes continue to dominate the dynamic over how law departments relate to outside counsel.

There have been several discernible shifts in recent years over how outside counsel and other legal vendors are chosen. It wasn’t all that long ago that the selection and retention of outside counsel rested entirely with the general counsel and the lawyers within the organization’s legal department.

With the emergence of legal operations as a key discipline within most corporate law departments, however, it is not surprising that those professionals play a central, if not dominant, role in the selection process. Legal operations personnel often serve as a critical bridge to the organization’s procurement area, which is also more directly engaged in the affairs of law departments than they ever have been. These developments have meant more and better processes — more carefully crafted Requests for Proposals (RFPs), greater reliance on metrics, use of more formalized retention methods like Master Service Agreement (MSAs) and a greater willingness to “shuffle the deck” in terms of the vendor/outside counsel mix.

While the days of legacy counsel closely allied with corporate lawyers are not over, now more than ever corporations appear to be willing to alter the landscape in the elusive quest for finding the best possible value.

VALUE IN VENDOR SELECTION

Stated simply, value is focused on how the company gets the highest quality legal services for the lowest possible cost. While these two factors were in the past perhaps skewed toward the desire to obtain the best possible legal advice or service regardless of cost, the terrain has shifted, in part through the influence of legal operations and procurement professionals. It is now more equally balanced between the perceived excellence of the advice or service and its cost.

Considerations around having a truly diverse pool of outside counsel and vendors often shape the selection process. Corporations in the United States have correctly challenged themselves to be more diverse and more inclusive. It is logical that those goals will also shape their external relationships.

Here again, metrics are key, but more than that, companies are increasingly showing a willingness to insist on real and substantial diversity, even to the extent of requiring upfront agreements on diversity clawbacks on invoices if the promised diverse team does not materialize on a given project.

Another novel development in the billing process has been the willingness of certain companies to offer early payment discounts. Law firms and legal vendors often experience inordinate delays in payment. A commitment on the part of the company to pay these invoices within, say, 10 days, but at an agreed upon percentage discount to the bill, might be a bargain firms and vendors are willing to accept.

There are things to consider before companies offer this as an option. Their own ability to adequately review the invoice for compliance with their policy guidelines within the stated time frame is one. The possibility that the law firms will inject some fat, or at least not carefully remove the excess fat before rendering the bill, is another.

Finally, in overseeing these relationships, several best practices have emerged, including having regular meetings to discuss the performance of the law firm or vendor. These meetings should happen at least once a year and should include the use of scorecards with easily understood metrics to assist in the evaluation process.