Kevin Cohn is chief customer officer at Brightflag, the AI-powered legal operations platform. Views are the author’s own.
With rising inflation and outside counsel rates, an uncertain economy, and the increasing pressure to “do more with less,” legal teams face challenges from all angles. Thankfully, legal operations professionals thrive under challenging conditions such as these.
One of the most impactful initiatives legal operations professionals can undertake is to revamp their organization’s outside counsel guidelines.
A good set of outside counsel guidelines creates transparency and saves legal teams money by ensuring they only pay for legal services that add value to the business.
Paired with a better enforcement process, this streamlines the tedious invoice review process while ensuring the guidelines are consistently followed.
Brightflag’s AI engine has analyzed billions of dollars of legal spend to identify the three outside counsel guidelines that drive the greatest amount of breaches, and therefore potential cost efficiencies, across our customer base.
Along with these examples, I share strategies for ensuring outside counsel guidelines are enforced. Spoiler alert: a painful, line-by-line invoice review isn’t necessary.
1. Provide a budget estimate for every matter
Requiring outside counsel to submit a budget estimate may seem obvious, but it’s often overlooked.
And that’s a shame, because Brightflag’s data shows that matters with an agreed budget cost less than similar matters without an agreed budget.
A budget guideline specifies that outside counsel must submit a budget estimate for all matters they are engaged on and that they should not exceed the budget without prior written approval.
It also specifies how outside counsel can request an increased budget and the conditions under which such a request would be approved.
2. Internal communications should be limited
Internal law firm communication is important for outside counsel to work successfully on matters. That said, excessive internal communications can quickly rack up outside counsel costs on a matter without contributing to its resolution.
It’s best practice to require outside counsel to limit internal communications to the level strictly necessary to work the matter effectively — and in any event to no more than 10% of the total fees of an invoice.
When dealing with particularly complex or urgent matters, in-house instructing attorneys can use their discretion to approve invoices with higher levels of internal communication, but this should be unusual.
3. Research charges must be approved in advance
In-house teams engage outside counsel for their specialist knowledge and expertise. They don’t expect to be charged high hourly rates for research into basic points of law.
Like internal communications, the research guideline requires some discretion: matters that deal with niche or new areas of law may require original research by the firm.
When research is required for a complex matter, it should be performed by junior lawyers to drive cost efficiency.
In-house teams should require that outside counsel receive explicit approval before starting any research work to ensure they have oversight and control over research costs.
Effective outside counsel guideline enforcement
Outside counsel guidelines are only as good as the processes in-house teams have to enforce them.
There are two critical aspects to ensuring that outside counsel guidelines help with cost control: creating an effective invoice review process and using guideline breach data in regular outside counsel relationship reviews.
No one likes reviewing invoices. In-house teams are overstretched. Asking them to do a line-by-line review of invoices while referring back to your outside counsel guidelines just isn’t practical.
The good news is that in-house teams can use technology to ensure outside counsel guidelines are applied to every line of every invoice.
AI can be used to read and understand every line item, and to check them against your outside counsel guidelines.
Certain hard-and-fast rules, like ones that identify budget overruns, can be used to adjust invoices automatically.
On the other hand, invoice reviewers can exercise discretion on guidelines like research and internal communications.
Modern e-billing systems can flag these issues to reviewers and help them to adjust invoices at the click of a button.
Additionally, e-billing software that apply outside counsel guidelines are data-generation machines, providing you with objective data on outside counsel billing behavior.
This data can be used to raise issues during law firm business reviews, resolving undesirable billing behavior at the level of the firm rather than fighting the battle on each individual invoice.
Clients who have honest discussions about billing behavior with outside counsel see a significant reduction in guideline breaches over time.
Outside counsel guidelines drive better legal cost control
Controlling legal costs is challenging, especially under uncertain economic conditions. Outside counsel guidelines, such as these sample guidelines we developed, are an essential tool in any legal team’s toolkit.
Creating guidelines related to budgets, internal communications and research can help you save significantly on legal costs.
However, outside counsel guidelines are only as effective as how they’re put to use.
By using technology to apply billing guidelines and using the guideline breach data to have frank conversations with your top outside counsel, you can rest assured that your costs will be kept in check.