As a legal technology provider that works closely with both in-house legal teams and law firms, we speak with hundreds of General Counsel, in-house lawyers, Partners and private practice lawyers, and along the way we gather many insights into how clients buy and manage their legal services.
This is tremendously valuable for us as innovators and technologists as we use these insights as the basis for identifying pain points and challenges that technology can help to ease.
Our co-founder Sacha Kirk was recently approached by the Australia College of Law’s Master of Legal Business program to share our insights and experience, and this article sets out much of what was discussed during a video interview conducted for the program. We hope that it will be of interest and benefit to the broader legal community.
How do in-house legal teams decide whether to send work out or retain in-house?
An internal legal function will typically have an informal decision-making process or heuristic that they apply to work and whether to do it internally or brief it out. Sometimes it is as simple as “what we have always done”, or it can be more strategic.
General Counsel have shared with us that the calculation is based on 3 key points:
- Capacity. Overflow work will be sent out when there are resource constraints.
- Expertise. Highly complex strategic work will almost always be briefed out, as well work that based around a certain expertise that is not typically in-house such as litigation or tax.
- Insurance. Clients will occasionally require a law firm to validate opinions and stand behind their advice. This acknowledges the importance of the law firm’s insurance policies and the law firm’s brand. Royal Commission work would fit this category.
There is also a growing focus of legal teams to be more conscious and strategic about the legal function and use data to inform decision-making.
For example, applying strategies and processes to high volume, routine work. This may include an arrangement with a particular law firm to receive and complete all high volume work on a fixed fee basis. Alternatively, there may be an internal team that specialises in this work, such as a property team or contracts teams who are non-lawyer professionals.
When sending work out, what is the consideration set and how do they choose?
Most large corporate and government organisations will have a formal panel of preferred law firms and alternative legal service providers. This panel arrangement is most commonly reviewed and refreshed every 3 to 7 years through a RFP process where law firms are asked to submit their credentials, prepare a proposal and negotiate rates and terms.
Having a formal panel doesn’t always restrict their consideration set, however, and there will be times where they may choose to brief an off-panel firm.
For other organisations, although they may not have a formal panel arrangement, they will have an informal panel of law firms that they are comfortable working with. Typically, this may span the range of a few top-tier law firms and some mid-tier, along with a selection of specialist boutique firms that may operate in individual practice areas such as IP or HR. This informal repertoire of law firms may have been compiled in a relatively unstructured manner such as historic (who we have always used), relational (I used to work for that firm), and referral (they were recommended to me by a colleague).
There are also instances where smaller legal teams or solo General Counsel may take a ‘less is more’ approach and put the majority of their legal work through only a few law firms.
This not only simplifies the number of firms they need to work with, but these firms can also build deeper knowledge and understanding of the business which can be invaluable for small teams when large scale issues arise.
Specifically for local government, legal teams may have to comply with local buy policies and other procurement policies, so we typically see these legal teams have up to 50 different law firms. These firms may be allocated to different panels according to practice type or specialisation and in some situations policies may require equitable briefing to the firms.
It is also worth commenting on the rise of NewLaw firms and contract lawyers as they are increasingly part of the consideration set. NewLaw firms may leverage technology processes and alternative pricing models such as retainers, subscription, or fixed fee arrangements.
Many legal teams are also looking to hire contract lawyers with either a specialist skill set or a general skill set and use this approach to effectively in-source legal work rather then send it externally. There are a number of contract lawyer providers in the market along with many of the top-tier law firms who provide their clients with solutions to meet this demand.
Do all legal matters go through the legal department?
It can be relatively common for parts of an organisation to directly brief law firms, outside of the legal function. Sometimes this is known to the legal team who have process and technology in place to support this, and in some cases the legal team may be completely unaware of these practices.
What we are seeing is that more and more often heads of legal, general counsel or the legal operations function will try to get their arms around the entire legal function. Whilst not everything has to go through the legal department, it is still important that the legal function understand how their organisation is buying and managing legal services so that they can build strategies and processes around this, ideally with technology as an enabler.
How are outside counsel selected for individual matters?
When the in-house legal team are ready to send a matter to outside counsel, who receives the work will firstly be refined by practice type or area of perceived expertise. This may already be structured as part of the formal panel arrangement, or it can be informal. The work will then either be briefed directly to a chosen law firm or they may choose to conduct a condensed matter RFP with a selection of law firms.
A matter RFP process involves each of the selected firms receiving an invitation to participate, and once conflicts are cleared, they prepare a structured response including how they would manage the matter, outline a scope of work and the appropriate fee structure and estimate.
Matter-based RFPs are a good mechanism to ensure engagements are not solely based on relationships and uses competitive tension to ascertain market price for legal work.
What we are seeing in the legal market is that heads of legal and legal operations are wanting to control the process of selecting and engaging firms in a more structured way and to capture data and metrics to guide future strategic decisions. A structured process may mandate when a matter RFP is required, and which firms are to be invited. It can also dictate the fee arrangements for certain types of work and streamline the way high volume work is briefed and priced.
There is also a growing emphasis on capturing data and metrics throughout the process of briefing, selecting, engaging, right through to completion of the matter. Data points that can be captured include instructions, agreed scope of work, agreed fee arrangement, reasons for engagements, number of scope changes, final costs, variance to original budget, and more.
What capabilities do law firms need to demonstrate?
When deciding who to engage for a particular matter, clients typically look for the law firm to demonstrate their abilities in a number of areas including:
- Expertise and experience in the area of need
- Understanding the business and industry
- Commerciality of advice
- Project management
- Responsiveness
- Pricing
Some organisations will have other drivers that are important to them. These may be explicit, such as a preference for local firms, diversity and inclusion, willingness to use alternative fee arrangements, evidence of innovation and value-add offerings. It is important to note that there may also be drivers that are implicit and would not be known unless the firm has a prior relationship.
An example is a preference to having a female as the lead lawyer on a matter. While this may not be stated on the work brief, it may be a critical decision-making criterion for the client.
How is the performance of outside counsel evaluated?
At the outset it must be emphasised that clients will always be evaluating the law firms performance regardless of whether or not there is a formal process for doing so. As much as lawyers cringe at the thought of it, there is no way to avoid client evaluation!
So, this puts the onus on the law firm to get as much feedback and information as possible so that they can understand what the expectations are, whether they are meeting expectations and what else they could be doing to improve.
Knowledge is power. If this information is not gathered and action taken, lawyers risk losing future work.
There are many ways law firms (and clients) can go about giving and receiving feedback:
- Informal conversations
- Post-matter completion surveys
- Quarterly meetings to discuss ways of working
- Annual client research surveys
- Third party consultants
- Using data from technology tools like Lawcadia to inform why they’ve won or lost work, how the law firm have managed the matter ,along with any red flags that should be addressed.
We believe that best practice involves all of the above. It is also important to point out that General Counsels have valued their strategic legal advisors more than ever during the pandemic.
This suggests that building deep and long terms relationships requires a willingness to really understand the client’s business and work alongside them through challenging times. This undoubtably influences the way that a law firm is evaluated.
What do clients wish that all law firms would do better?
Clients wish that law firms would scope work better as this leads to more accurate and predicable billing. Interestingly, law firms wish clients would provide better instructions to help them scope better!
This illustrates the importance of both sides taking steps to improve the structure and depth of their communication when the matter is briefed. Technology tools can be used to bring the required structure, consistency and discipline to the process.
The future of buying legal services?
We have always had a vision for a legal services market that is transparent, structured, process oriented and one that rewards good behaviour and accountability, especially in the way that legal services are procured and managed. Technology does have an important role in this as an enabler, but importantly it also needs to be human-centric and support the human element that is so important for lawyers.
