Putting in place and reviewing external law firm guidelines on a yearly basis can seem like a tedious process for in-house legal departments. However, these guidelines can clarify the company-law firm relationship and save a great deal of time down the road by eliminating law firm billing and matter management mistakes. Having all the billing guidelines clearly stated also gives in-house lawyers a basis on which to judge whether outside counsel is providing the type of service they require.
Corporate legal departments typically aim for standard law firm guidelines, so that they neither get taken advantage of by their external law firms, nor harm their relationships by being outside the norm. While these can vary from industry to industry, the following are some common guidelines used across sectors that a legal department can use in drafting the basis of their own law firm guidelines.
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Billing terms
This can be a broad category that includes several important items. The billing terms often include items such as:
- fees not being increased within the calendar year without written approval;
- lawyer rates for the following year being submitted by a certain date before the end of the company‘s financial year;
- a statement on which types of cases may be eligible for pre-approved alternative fee arrangements versus hourly rates;
- that all outside counsel must be pre-approved on matters, with no “drop-in” fee-earners billing on matters without prior approval.
Another provision seen more and more is that no newly qualified lawyers bill on matters. Legal departments are increasingly unwilling to pay for the training of these new associates.
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Invoice billing procedure
This addresses how invoices are submitted and how they should be presented. Provisions in this section may include items such as:
- no invoices being accepted after 30 days from the end of the month when the work was performed;
- all invoices must be submitted through the e-billing and matter management system in place for the legal department;
- time must be billed by task, with a description of the service performed, the hourly rate, and time taken for the task;
- bulk billing descriptions are not allowed;
- invoices for fees for a current year must be submitted a month before the year end to be paid.
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Required budgets
Like any other department within the business, running a legal department properly means knowing what its budget is and how the current spend compares to that budget. There are many ways to do this depending on the legal department in question. Many require a budget on all matters so they can run a complete report across every matter underway and evaluate if spend aligns to budget. This allows in-house lawyers to flag matters quickly if they‘re either over budget or way under (meaning the law firm is not spending sufficient time on the matter). This prevents surprising invoices and allows in-house teams to have an early conversation with their law firms before problems arise. Another option would be to require a budget for only certain matters, for example, material matters over £100,000. Putting these budgets through an e-billing and matter management system automates this process and makes it far easier to track spend to budget in pre-saved reports, although it can be done outside of a dedicated system as well.
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Required accruals
A legal department generally gets accrual numbers because somebody, probably finance, has asked for this report. Accruals usually include invoices currently being approved, plus time that the law firm has billed that has yet to be invoiced to the company. The former (unapproved invoices) is controlled by the legal department, the latter (billed time not yet invoiced) is not, which means this information must be extracted from the law firms in a timely fashion. Calling and emailing firms to get an accrual number to enter into a Microsoft® Excel® spreadsheet is a laborious and time-consuming task. Accrual features in legal matter management solutions can ensure the law firms enter their accruals in the system by not allowing them to submit invoices until they have. Furthermore, all of the invoices being approved are also in the system, so getting the current accrual number is as simple as pushing a button to run a report.
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Settlement philosophy
If your legal department has a general philosophy on alternative dispute resolution procedures, such as preferring to use mediation and arbitration, it should be spelled out in the guidelines. Some companies actively want to look for a way to quickly settle regular claims and litigation. Many litigators in law firms want to litigate. But litigating cases out to the bitter end often comes at a high price, and sometimes yields unsatisfactory results. Your department will want to define what kinds of matters are business-critical or strategically-important, where higher costs and longer dispute periods are acceptable. For run-of-the-mill litigation matters, however, make sure you are on the same page as your external law firms on your litigation and settlement stance.
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Expense guidelines
This will set out which expenses your legal department is willing to pay for and includes items such as travel expenses, copies, filing fees, and court reporter fees. These types of expenses can be broken out in LEDES invoices, so if a legal department is using e-billing and matter management software, expense guidelines can be automatically audited and flagged if they violate these guidelines. Explain to your law firm what you consider as overheads (e.g. seminars, time spent preparing budgets or invoices, telephone call charges, etc.). Also set the limits on what charges you‘ll allow for on things like travel and copying. Let your firms know the expense guidelines will be enforced; then enforce them.
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Matter management requirements
In this section, lay out the requirements for your law firms when working on a matter. Items in this section include required matter status reports, matter information updates, budget information, yearly accruals, and where documents should be submitted. If your legal department uses an e-billing and matter management system, let them know that all of the above matter requirements need to be entered into that system and that if they don‘t comply with these requirements, they will not be able to submit invoices in that system.
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Diversity
If your company has made a commitment to diversity, a section can be added that asks your external law firms to make the same commitment. Some legal departments will track the diversity of the outside counsel working on their matters and give their external law firms diversity scores.
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Guidelines must be signed
This is an important last step. Don‘t just put these guidelines out there and assume all your law firms have read them. Get this document in front of the relationship partner and get it signed. That way there will be no confusion or questions when these guidelines are enforced later on. A clear set of law firm guidelines will enhance your relationships with your law firms — because the law firms will know what they need to do to give you the best service possible, and your legal department will get what it needs to serve its clients in the best possible way.
If you follow these guidelines with your spend and matter management system, then working with external firms should be a breeze.
